Grown Rogue International Inc 6-K, filed Mar 16, 2023
Grown Rogue International Inc. (GRUSF)
About this 6-K
Grown Rogue International Inc filed this 6-K on March 16, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
THE SECURITIES EXCHANGE ACT OF 1934
Date: March 15, 2023
Commission File No. 0-53646
Grown
Rogue 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 ☒
TABLE OF CONTENTS
1
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 March 15, 2023 | GROWN ROGUE INTERNATIONAL INC. | |
| (FORMERLY: NOVICIUS CORP.) | ||
| By: | /s/ Obie Strickler | |
| Name: | Obie Strickler | |
| Title: | President & Chief Executive Officer | |
2
Exhibit 1
Grown Rogue Closes USD$2.0M Convertible Debenture Financing
Medford, Oregon, December 5, 2022 – 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 announce it has closed a non-brokered private placement of convertible debentures (the “Convertible Debentures”) with an aggregate principal amount of USD$2.0M. The Convertible Debentures bear an interest of 9% per year, paid quarterly, and mature 36 months from the date of issue. The principal use of funds will be to accelerate expansion efforts and for general corporate purposes.
The Convertible Debentures are convertible into common shares of the Company (the “Common Shares”) at a conversion price of $0.20 CAD. 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 (3) 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 $0.40 CAD or higher for a period of 10 consecutive trading days.
“This financing was led by Mindset Capital, a private investment firm that has been focusing on the cannabis industry and is aligned with our strategy to become a leading craft cannabis producer,” said Obie Strickler, Grown Rogue’s Chief Executive Officer. “The debt converts at an approximate 43% premium to current share price and bears 9% interest, which we believe are fantastic terms in current market conditions. This financing allows us to continue expansion efforts while fulfilling all our current obligations,” continued Mr. Strickler.
“Grown Rogue has demonstrated operational excellence and the ability to grow and sell high quality cannabis in the toughest, most competitive markets while expanding market share and generating free cash flow,” said Aaron Edelheit, CEO of Mindset Capital. “I’m excited to provide capital that will enable the company to not only grow into its existing footprint, but also to bring additional markets online as well.”
The Convertible Debentures and Warrants issued pursuant to the private placement are subject to a statutory hold period of four months and one day from the closing date.
Insiders of the Company invested $0.05M in the Convertible Debentures. The Company has relied on the exemptions from the valuation and minority shareholder approval requirements under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) contained in section 5.5(b) and 5.7(a) of MI 61-101 in respect of such insider participation.
The Convertible Debentures and Common Shares have not been registered under the United States Securities Act of 1933, as amended, and may not be reoffered or resold in the United States absent registration or an applicable exemption from the registration requirements.
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.
About Mindset Capital
Mindset Capital is a private investment firm that focuses on small to medium sized companies that are often underfollowed, misunderstood and/or undergoing change that isn’t being appreciated by other investors.
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 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 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.
2
SAFE HARBOR STATEMENT
This press 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 or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company’s financing plans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words “may,” “would,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend” and similar expressions and variations thereof are intended to identify forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Company’s ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors including the risk disclosed in the Company’s Form 20-F and 6-K filings with the Securities and Exchange Commission.
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.
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
obie@grownrogue.com
Investor Relations Desk
Inquiries
invest@grownrogue.com
(458) 226-2100
3
Exhibit 2
Form 51-102F3
Material Change 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 |
December 5, 2022.
| 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 December 2, 2022, it closed a non-brokered private placement of convertible debentures with an aggregate principal amount of USD$2.0M (the “Convertible Debentures”). The Convertible Debentures bear an interest of 9% per year, paid quarterly, and mature 36 months from the date of issue. The principal use of funds will be to accelerate expansion efforts and for general corporate purposes.
| Item 5.1 | Full Description of Material Change |
The Convertible Debentures are convertible into common shares of the Company (the “Common Shares”) at a conversion price of $0.20 CAD 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 (3) 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 $0.40 CAD 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) are subject to a statutory hold period of four months and one day from the closing date.
Insiders of the Company invested $0.05M in the Convertible Debentures. The Company has relied on the exemptions from the valuation and minority shareholder approval requirements under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”) contained in section 5.5(b) and 5.7(a) of MI 61-101 in respect of such insider participation.
The Convertible Debentures and Common Shares have not been registered under the United States Securities Act of 1933, as amended, and may not be reoffered or resold in the United States absent registration or an applicable exemption from the registration requirements.
| 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: obie@grownrogue.com
| Item 9 | Date of Report |
December 6, 2022.
FORWARD-LOOKING STATEMENTS
This material change report contains statements which constitute “forward-looking information” within the meaning of applicable securities laws and under the United States Private Securities Litigation Reform Act of 1995, 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 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 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. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Company’s ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors including the risk disclosed in the Company’s public filings on SEDAR at www.sedar.com and the Securities and Exchange Commission.
Exhibit 3
Grown Rogue Reports Fourth Quarter 2022 Results, Record Revenue and aEBITDA
| ● | Revenue of $5.07M compared to $3.76M in Q4 2021, an increase of 35% |
| ● | Adjusted EBITDA1 (aEBITDA) of $1.66M compared to $1.2M in Q4 2021, an increase of 39% |
| ● | Positive free cash flow for Q4 2022 and fiscal 2022 |
| ● | Subsequent to quarter-end, closed a $2.0M convertible debenture financing |
Medford, Oregon, December 13, 2022 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, is pleased to report its unaudited fiscal fourth quarter 2022 results for the three months ended October 31, 2022. All financial information is provided in U.S. dollars unless otherwise indicated.
Fourth Quarter 2022 Financial Summary ($USD Millions)
| Q4 2022 Summary | Q4 2022 | Q4 2021 | +/- % | |||||||||
| Revenue | 5.07 | 3.76 | +35 | % | ||||||||
| aEBITDA | 1.66 | 1.20 | +39 | % | ||||||||
| aEBITDA % | 32.8 | % | 31.9 | % | +90 | bps | ||||||
| Operating Cash Flow before CNCWC | 0.72 | 0.95 | (24.5 | %) | ||||||||
| OCF % | 14.1 | % | 25.2 | % | (11.1 | %) | ||||||
Management Commentary
“I couldn’t be more thrilled about our record revenue and adjusted EBITDA, closing out a record year including achieving positive free cash flow for the year,” said Obie Strickler, CEO of Grown Rogue. “It’s even more exciting to watch our team continue to increase market share in Oregon and Michigan by staying true to our focus towards ensuring customers experience leading craft quality and genetics at an attractive value. Our business continues to show scale, with revenue up 35% year over year and aEBITDA up 39%, despite pricing headwinds in our markets, particularly in Michigan”, continued Mr. Strickler. “In Oregon, we saw continued reduction in total supply as many cultivators exit or scale back their business, which should result in a pricing rebound in 2023. It’s also great to see a shifting of investor sentiment towards strong operators and management teams reflected in our recently closed a $2.0M convertible debt financing with Mindset Capital at very attractive terms to the company. We are planning to continue our disciplined approach to capital allocation as we look to accelerate expansion plans into new markets. I look forward to updating Grown Rogue shareholders on these efforts in the future.,”
Oregon Market Highlights ($USD Millions)
| Oregon | Q4 2022 | Q4 2021 | +/- % | |||||||||
| Revenue | 2.70 | 1.62 | +66 | % | ||||||||
| aEBITDA | 0.96 | 0.72 | +32 | % | ||||||||
| aEBITDA Margin % | 35.6 | % | 44.7 | % | (9.2 | %) | ||||||
| ● | #1 Flower brand in Oregon for the sixth consecutive quarter, according to LeafLink’s MarketScape data |
| ● | Total harvested wet weights for the state of Oregon decreased 13% YoY for indoor and 21% YoY for outdoor |
Michigan Market Highlights ($USD Millions)
| Michigan | Q4 2022 | Q4 2021 | +/- % | |||||||||
| Revenue | 2.37 | 2.14 | +11 | % | ||||||||
| aEBITDA | 0.86 | 1.11 | (20 | %) | ||||||||
| aEBITDA Margin % | 37.4 | % | 52.1 | % | (14.7 | %) | ||||||
| ● | Gross margin of 63.4% in the quarter before fair value adjustments |
| ● | Completed the first harvests from the 13th and 14th growing rooms in Q4 2022 |
Michigan operations are through Golden Harvests, LLC
2
Segmented profit & loss and aEBTIDA reconciliation
| Oregon | Michigan | Corporate | Consolidated | |||||||||||||
| Sales revenues | 2,702,947 | 2,369,688 | - | 5,072,635 | ||||||||||||
| Costs of goods sold, excluding fair value adjustments | (2,267,904 | ) | (868,469 | ) | - | (3,136,373 | ) | |||||||||
| Gross profit before fair value adjustments | 435,043 | 1,501,219 | - | 1,936,262 | ||||||||||||
| Net fair value adjustments | (138,558 | ) | (155,636 | ) | - | (294,194 | ) | |||||||||
| Gross profit | 296,485 | 1,345,583 | - | 1,642,068 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administration | 591,840 | 710,621 | 268,424 | 1,570,885 | ||||||||||||
| Depreciation and amortization | 27,735 | 169,138 | 23,853 | 220,726 | ||||||||||||
| Share based compensation | - | - | 9,316 | 9,316 | ||||||||||||
| Other income and expense: | ||||||||||||||||
| Interest and accretion | 79,665 | 32,975 | 99,520 | 212,160 | ||||||||||||
| Gain on debt settlement | (31 | ) | 1,847 | - | 1,816 | |||||||||||
| Other income and expense | (5,400 | ) | - | 606 | (4,794 | ) | ||||||||||
| Net income (loss) before tax | (397,324 | ) | 431,002 | (401,719 | ) | (368,041 | ) | |||||||||
| Tax | 11,302 | 72,287 | - | 83,589 | ||||||||||||
| Net income after tax | (408,626 | ) | 358,715 | (401,719 | ) | (451,630 | ) | |||||||||
| Add back (deduct) from net income after tax: | ||||||||||||||||
| Realized fair value amounts included in inventory sold | 427,470 | 478,195 | - | 905,665 | ||||||||||||
| Unrealized fair value gain on growth of biological assets | (288,912 | ) | (322,559 | ) | - | (611,471 | ) | |||||||||
| Amortization of property & equipment included in cost of sales | 415,659 | 97,145 | - | 512,804 | ||||||||||||
| 145,591 | 611,496 | (401,719 | ) | 355,368 | ||||||||||||
| Interest and interest accretion expense, as reported | 79,665 | 32,975 | 99,520 | 212,160 | ||||||||||||
| Amortization of property and equipment, as reported | 27,735 | 169,138 | 23,853 | 220,726 | ||||||||||||
| Share-based compensation | - | - | 9,316 | 9,316 | ||||||||||||
| Income tax expense | 11,302 | 72,287 | - | 83,589 | ||||||||||||
| EBITDA | 264,293 | 885,896 | (269,030 | ) | 881,159 | |||||||||||
| Compliance costs | - | - | 34,552 | 34,552 | ||||||||||||
| Costs associated with acquisition of Golden Harvests | - | - | 50,000 | 50,000 | ||||||||||||
| New production location startup costs | 400,798 | - | - | 400,798 | ||||||||||||
| Impact of market price reduction | 296,322 | - | - | 296,322 | ||||||||||||
| aEBITDA | 961,413 | 885,896 | (184,478 | ) | 1,662,831 | |||||||||||
| aEBITDA margin % | 35.6 | % | 37.4 | % | - | 32.8 | % | |||||||||
3
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
NOTES:
1.
The Company’s “aEBITDA,” or “Adjusted EBITDA,” 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. 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.
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.
4
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 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 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.
5
SAFE HARBOR STATEMENT
This press 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 or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company’s financing plans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words “may,” “would,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend” and similar expressions and variations thereof are intended to identify forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Company’s ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors including the risk disclosed in the Company’s Form 20-F and 6-K filings with the Securities and Exchange Commission.
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.
6
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
obie@grownrogue.com
Investor Relations Desk
Inquiries
invest@grownrogue.com
(458) 226-2100
7
Exhibit 4
Grown Rogue Grants Options and Issues Shares
Medford, Oregon, January 10, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, has announced that it has issued a total of 200,000 common shares. 200,000 common shares were issued related to amounts owed for services rendered at an issue price of $0.15 CAD per share.
The Company has also granted options to purchase an aggregate of 6,400,000 common shares of the Company (the “Stock Options”) to certain employees. The Stock Options are exercisable at a price of $0.15 per share for a period of four years from the date of grant.
The aforementioned issuance of options resulted in certain directors and officers of the Company receiving an aggregate of 3,500,000 Stock Options of the Company. The Company has relied on the exemptions from the valuation and minority shareholder approval requirements of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”), contained in section 5.5(b) and 5.7(a) of MI 61-101 in respect of such insider participation.
The common shares described above and the common shares underlying the Stock Options are subject to a four-month and one day hold period.
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 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 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.
2
SAFE HARBOR STATEMENT
This press 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 or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company’s financing plans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words “may,” “would,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend” and similar expressions and variations thereof are intended to identify forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Company’s ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors including the risk disclosed in the Company’s Form 20-F and 6-K filings with the Securities and Exchange Commission.
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.
3
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
obie@grownrogue.com
Investor Relations Desk
Inquiries
invest@grownrogue.com
(458) 226-2100
4
Exhibit 5
Grown Rogue Exercises Option and Acquires Controlling Interest in Golden Harvests
Medford, Oregon, January 31, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, has announced that, further to its press release on May 3, 2021, Grown Rogue Unlimited, LLC (“GRU”), a wholly owned subsidiary of Grown Rogue, has received all required regulatory approvals from the Michigan Cannabis Regulatory Agency to exercise its option to acquire 87% of the membership units of Canopy Management, LLC (“Canopy”). GRU has exercised the option and now owns an 87% interest in Canopy, which owns a 60% controlling interest in Golden Harvests, LLC (“Golden Harvests”). Canopy acquired the option for Golden Harvests on materially similar terms as held by the initial optionholder GR Michigan, LLC, a subsidiary of the Company (“GR Michigan”). Canopy was established on the same basis as GR Michigan in order to expedite regulatory approvals in Michigan.
“Exercising this option is an important milestone as we continue to drive success in Michigan, despite the volatility as this market matures,” said Obie Strickler, CEO of Grown Rogue. “Michigan is an important strategic asset for us and has validated our ability to transfer our systems and process to new states. We continue to delight customers in Michigan by providing the same level of quality products that established Grown Rogue as the #1 flower producer in Oregon. Having recently completed our planned expansion in Michigan, we can focus even more heavily on quality genetics with new proprietary strains coming to market in 2023 that will highlight our focus on providing the best products at the best price to our rapidly expanding consumer base”, continued Mr. Strickler.
Golden Harvests operates a total of approximately 55,000 square feet of an 80,000 square foot facility in Bay City, Michigan. The facility is currently producing greater than 10,000 pounds of whole flower per year which is sold through Grown Rogue branded flower and pre-roll product categories, including patented nitrogen sealing technology. Grown Rogue currently has no immediate plans to finish the remaining 25,000 sq ft as the Company believes higher returns on invested capital exist elsewhere.
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 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 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.
2
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Jakob Iotte,
Director
of Business
Development and IR
Jakeiotte@grownrogue.com
IR Inquiries
invest@grownrogue.com
(458) 226-2100
3
Exhibit 6
Form 51-102F3
Material Change Report
| Item 1 | Name and 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 |
January 31, 2023
| Item 3 | News Release |
A news release was issued by the Company on January 31, 2023, through the facilities of CISION and was subsequently filed on SEDAR.
| Item 4 | Summary of Material Change |
The Company, through its wholly-owned subsidiary, Grown Rogue Unlimited, LLC (“GRU”) exercised an option to acquire a controlling interest in Golden Harvests, LLC (“Golden Harvests”).
| Item 5.1 | Full Description of Material Change |
On January 31, 2023, the Company announced that, further to its news release on May 3, 2021, GRU received all required regulatory approvals from the Michigan Cannabis Regulatory Agency to exercise its option to acquire 87% of the membership units of Canopy Management, LLC (“Canopy”). GRU has exercised the option and now owns an 87% interest in Canopy, which owns a 60% controlling interest in Golden Harvests. Canopy acquired the option for Golden Harvests on materially similar terms as held by the initial optionholder GR Michigan, LLC, a subsidiary of the Company (“GR Michigan”). Canopy was established on the same basis as GR Michigan in order to expedite regulatory approvals in Michigan.
Golden Harvests operates a total of approximately 55,000 square feet of an 80,000 square foot facility in Bay City, Michigan. The facility is currently producing greater than 10,000 pounds of whole flower per year, which is sold through Grown Rogue branded flower and pre-roll product categories, including patented nitrogen sealing technology. Grown Rogue currently has no immediate plans to finish the remaining 25,000 sq. ft., as the Company believes higher returns on invested capital exist elsewhere.
| 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
President and Chief Executive Officer
Tel: (503) 765-8108
| Item 9 | Date of Report |
February 2, 2023.
Forward Looking Information
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 for expansion 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 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.
Exhibit 7
Grown Rogue Increases Oregon Sungrown Capacity
Medford, Oregon, February 21, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, has announced the expansion of their Oregon craft sungrown capacity with a lease option (“Lease Option”) on a 35 acre-property (“Property”) in Medford, Oregon.
The Property has three tax lots that would allow, under current regulations, 120,000 square feet of additional sungrown canopy space. Under Grown Rogue’s cultivation methods this Property, at full capacity, can produce in excess of 18,000 pounds of craft sungrown whole flower per year. The Property comes with an existing Oregon Liquor Control Commission Tier II licensed farm allowing for 40,000 sq ft of production and the Company intends to transfer the Tier II license from their legacy medical farm in 2023 or 2024 to centralize production, further lowering costs and driving efficiencies.
The Company now controls approximately 100 acres and 6 parcels, that at full capacity can produce, under current regulations, approximately 40,000 pounds of sungrown whole flower annually. The Property is centrally located in the Rogue Valley, near Grown Rogue’s existing indoor and outdoor operations. The Property boasts majestic views of surrounding geographic landmarks, comes with superb senior water rights, and a historic farmhouse that the Company plans to turn into an event space in the future.
“Expanding on our sungrown craft production is consistent with our company’s strategy of win now, and win later,” said Obie Strickler, CEO of Grown Rogue. “This Property will allow us to continue lowering our cost per pound of production and increase profitability metrics in the short term, while positioning ourselves for future interstate commerce. The recent moves in California, the Oregon lawsuit from Jefferson Packing House, and signs from the federal government, all suggest that interstate commerce is likely closer than we previously anticipated,” continued Mr. Strickler. “We are encouraged by the 17% decrease in outdoor weight harvested in Oregon in 2022 compared to 2021 and are experiencing a strong recovery in pricing and demand for flower products. We continue to focus on producing high-quality, low-cost products that delight our customers, allowing us to continue increasing our market share in our states. 2023 is going to be a transformational year for us as we look to expand into several new states where we will bring all the same attributes that have made us the leading producer in Oregon.”
The Lease Option is for one year with the ability to extend for an additional year. Lease payments are $7,500/month with 75% of all lease payments applied to the total purchase price of $1,600,000. 15% is due at closing with an owner carry of three years that is greater of 5% or LIBOR plus 150bps in year 1, greater of 6% or LIBOR plus 150bps in year 2, and greater of 7% or LIBOR plus 150bps in year 3.
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 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 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.
2
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Jakob Iotte
Director of Business
Development and IR
jakeiotte@grownrogue.com
Investor Relations Desk
Inquiries
invest@grownrogue.com
(458) 226-2100
3
Exhibit 8
Grown Rogue Increases Oregon Sungrown Capacity
MEDFORD, Ore., Feb. 21, 2023 /CNW/ - Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, has announced the expansion of their Oregon craft sungrown capacity with a lease option (“Lease Option”) on a 35 acre-property (“Property”) in Medford, Oregon.
The Property has three tax lots that would allow, under current regulations, 120,000 square feet of additional sungrown canopy space. Under Grown Rogue’s cultivation methods this Property, at full capacity, can produce in excess of 18,000 pounds of craft sungrown whole flower per year. The Property comes with an existing Oregon Liquor Control Commission Tier II licensed farm allowing for 40,000 sq ft of production and the Company intends to transfer the Tier II license from their legacy medical farm in 2023 or 2024 to centralize production, further lowering costs and driving efficiencies.
The Company now controls approximately 100 acres and 6 parcels, that at full capacity can produce, under current regulations, approximately 40,000 pounds of sungrown whole flower annually. The Property is centrally located in the Rogue Valley, near Grown Rogue’s existing indoor and outdoor operations. The Property boasts majestic views of surrounding geographic landmarks, comes with superb senior water rights, and a historic farmhouse that the Company plans to turn into an event space in the future.
“Expanding on our sungrown craft production is consistent with our company’s strategy of win now, and win later,” said Obie Strickler, CEO of Grown Rogue. “This Property will allow us to continue lowering our cost per pound of production and increase profitability metrics in the short term, while positioning ourselves for future interstate commerce. The recent moves in California, the Oregon lawsuit from Jefferson Packing House, and signs from the federal government, all suggest that interstate commerce is likely closer than we previously anticipated,” continued Mr. Strickler. “We are encouraged by the 17% decrease in outdoor weight harvested in Oregon in 2022 compared to 2021 and are experiencing a strong recovery in pricing and demand for flower products. We continue to focus on producing high-quality, low-cost products that delight our customers, allowing us to continue increasing our market share in our states. 2023 is going to be a transformational year for us as we look to expand into several new states where we will bring all the same attributes that have made us the leading producer in Oregon.”
The Lease Option is for one year with the ability to extend for an additional year. Lease payments are $7,500/month with 75% of all lease payments applied to the total purchase price of $1,600,000. 15% is due at closing with an owner carry of three years that is greater of 5% or LIBOR plus 150bps in year 1, greater of 6% or LIBOR plus 150bps in year 2, and greater of 7% or LIBOR plus 150bps in year 3.
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 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 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.
SOURCE Grown Rogue International Inc.
2
 | View original content: http://www.newswire.ca/en/releases/archive/February2023/21/c4426.html |
%SEDAR: 00008380E
For further information: Grown Rogue International please visit www.grownrogue.com or contact: Jakob Iotte, Director of Business Development and IR, jakeiotte@grownrogue.com, Investor Relations Desk Inquiries, invest@grownrogue.com, (458) 226-2100
CO: Grown Rogue International Inc.
CNW 07:15e 21-FEB-23
3
Exhibit 9
GROWN ROGUE INTERNATIONAL INC.
Consolidated Financial Statements
For the Years ended October 31, 2022, and 2021
Expressed in United States Dollars
Table of Contents
Notes to the Consolidated Financial Statements
i
Grown Rogue International Inc.
Consolidated Statements of Financial Position
Expressed in United States Dollars
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 1,582,384 | 1,114,033 | ||||||
| Accounts receivable (Note 20) | 1,643,959 | 739,248 | ||||||
| Biological assets (Note 4) | 1,199,519 | 1,188,552 | ||||||
| Inventory (Note 5) | 3,131,877 | 3,306,312 | ||||||
| Prepaid expenses and other assets | 352,274 | 357,541 | ||||||
| Total current assets | 7,910,013 | 6,705,686 | ||||||
| Marketable securities (Note 6) | - | 610,092 | ||||||
| Other investments and purchase deposits (Note 8) | - | 750,000 | ||||||
| Property and equipment (Note 11) | 7,734,901 | 5,742,584 | ||||||
| Intangible assets and goodwill (Note 12) | 725,668 | 399,338 | ||||||
| TOTAL ASSETS | 16,370,582 | 14,207,700 | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 1,821,875 | 1,766,707 | ||||||
| Current portion of lease liabilities (Note 10) | 1,025,373 | 624,935 | ||||||
| Current portion of long-term debt (Note 13) | 1,769,600 | 843,900 | ||||||
| Business acquisition consideration payable (Note 7) | 360,000 | 358,537 | ||||||
| Interest payable (Note 13) | - | 13,750 | ||||||
| Unearned revenue | 28,024 | - | ||||||
| Income tax | 311,032 | 254,631 | ||||||
| Total current liabilities | 5,315,904 | 3,862,460 | ||||||
| Accrued liabilities (Note 9) | - | 123,413 | ||||||
| Lease liabilities (Note 10) | 1,275,756 | 1,735,503 | ||||||
| Long-term debt (Note 13) | 839,222 | 1,365,761 | ||||||
| TOTAL LIABILITIES | 7,430,882 | 7,087,137 | ||||||
| EQUITY | ||||||||
| Share capital (Note 14) | 21,858,827 | 20,499,031 | ||||||
| Shares issuable (Note 7) | 35,806 | 74,338 | ||||||
| Contributed surplus (Notes 15, 16) | 6,505,092 | 6,407,935 | ||||||
| Accumulated other comprehensive loss | (109,613 | ) | (90,378 | ) | ||||
| Accumulated deficit | (21,356,891 | ) | (21,804,349 | ) | ||||
| Equity attributable to shareholders | 6,933,221 | 5,086,577 | ||||||
| Non-controlling interests (Note 25) | 2,006,479 | 2,033,986 | ||||||
| TOTAL EQUITY | 8,939,700 | 7,120,563 | ||||||
| TOTAL LIABILITIES AND EQUITY | 16,370,582 | 14,207,700 | ||||||
Going Concern (Note 2)
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 1 of 42
Grown Rogue International Inc.
Consolidated Statements of Comprehensive Income & Loss
Expressed in United States Dollars
| Years ended October 31, |
||||||||
| 2022 | 2021 | |||||||
| $ | $ | |||||||
| Revenue | ||||||||
| Product sales | 17,757,283 | 9,034,618 | ||||||
| Service revenue | - | 344,055 | ||||||
| Total revenue | 17,757,283 | 9,378,673 | ||||||
| Cost of goods sold | ||||||||
| Cost of finished cannabis inventory sold | (9,227,439 | ) | (3,997,617 | ) | ||||
| Costs of service revenue | - | (154,353 | ) | |||||
| Gross profit, excluding fair value items | 8,529,844 | 5,226,703 | ||||||
| Realized fair value amounts in inventory sold | (3,685,338 | ) | (950,461 | ) | ||||
| Unrealized fair value gain on growth of biological assets | 3,278,572 | 1,824,226 | ||||||
| Gross profit | 8,123,078 | 6,100,468 | ||||||
| Expenses | ||||||||
| Accretion expense | 491,781 | 949,811 | ||||||
| Amortization of intangible assets | - | 4,997 | ||||||
| Amortization of property and equipment | 750,916 | 180,015 | ||||||
| General and administrative | 5,852,236 | 3,983,250 | ||||||
| Share-based compensation | 70,996 | 280,819 | ||||||
| Total expenses | 7,165,929 | 5,398,892 | ||||||
| Income from operations | 957,149 | 701,576 | ||||||
| Other income and (expense) | ||||||||
| Interest expense | (402,239 | ) | (197,632 | ) | ||||
| Other expense | (3,432 | ) | (17,072 | ) | ||||
| Gain on debt settlement | 453,858 | 141,180 | ||||||
| Loss on settlement of non-controlling interest | - | (189,816 | ) | |||||
| Unrealized loss on marketable securities | (333,777 | ) | (35,902 | ) | ||||
| Unrealized loss on derivative liability | - | (1,258,996 | ) | |||||
| Loss on disposal of property and equipment | (6,250 | ) | (7,542 | ) | ||||
| Gain (loss) from operations before income tax | 665,309 | (864,204 | ) | |||||
| Income tax | (245,358 | ) | (150,543 | ) | ||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Other comprehensive income (items that may be subsequently reclassified to profit & loss) | ||||||||
| Currency translation loss | (19,235 | ) | (78,181 | ) | ||||
| Total comprehensive income (loss) | 400,716 | (1,092,928 | ) | |||||
| Gain (loss) per share attributable to owners of the parent – basic & diluted | 0.00 | (0.02 | ) | |||||
| Weighted average shares outstanding - basic | 169,193,812 | 135,231,802 | ||||||
| Net income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | (27,507 | ) | 1,395,558 | |||||
| Shareholders | 447,458 | (2,410,305 | ) | |||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Comprehensive income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | (27,507 | ) | 1,395,558 | |||||
| Shareholders | 428,223 | (2,488,486 | ) | |||||
| Total comprehensive income (loss) | 400,716 | (1,092,928 | ) | |||||
The accompanying notes form an integral part of these consolidated financial statements.
Pg 2 of 42
Grown Rogue International Inc.
Consolidated Statements of Changes in Equity (Deficit)
Expressed in United States Dollars
| Number of common shares | Share capital | Shares issuable | Contributed surplus | Currency translation reserve | Accumulated deficit | Non-controlling interests | Total equity | |||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2021 | 156,936,876 | 20,499,031 | 74,338 | 6,407,935 | (90,378 | ) | (21,804,349 | ) | 2,033,986 | 7,120,563 | ||||||||||||||||||||||
| Shares issued for employment, director, & consulting services (Note 14.1) | 529,335 | 59,796 | (38,532 | ) | - | - | - | - | 21,264 | |||||||||||||||||||||||
| Private placement of shares (Note 14.2) | 13,166,400 | 1,300,000 | - | - | - | - | - | 1,300,000 | ||||||||||||||||||||||||
| Stock option vesting | - | - | - | 97,157 | - | - | - | 97,157 | ||||||||||||||||||||||||
| Currency translation adjustment | - | - | - | - | (19,235 | ) | - | - | (19,235 | ) | ||||||||||||||||||||||
| Net income (loss) | - | - | - | - | 447,458 | (27,507 | ) | 419,951 | ||||||||||||||||||||||||
| Balance – October 31, 2022 | 170,632,611 | 21,858,827 | 35,806 | 6,505,092 | (109,613 | ) | (21,356,891 | ) | 2,006,479 | 8,939,700 | ||||||||||||||||||||||
Pg 3 of 42
Grown Rogue International Inc.
Consolidated Statements of Changes in Equity (Deficit)
Expressed in United States Dollars
| Number of common shares | Share capital | Shares issuable | Contributed surplus | Currency translation reserve | Accumulated deficit | Non-controlling interests | Total equity | |||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2020 | 107,782,397 | $ | 14,424,341 | $ | - | $ | 4,070,264 | $ | (12,197 | ) | $ | (19,394,044 | ) | $ | (33,383 | ) | $ | (945,019 | ) | |||||||||||||
| Shares issued for employment, director, & consulting services (Note 14.3) | 534,294 | 95,294 | - | - | - | - | - | 95,294 | ||||||||||||||||||||||||
| Shares issuable for employment, director & consulting services | - | - | 38,532 | - | - | - | - | 38,532 | ||||||||||||||||||||||||
| Shares issued pursuant to private placement (Notes 14.4) | 10,231,784 | 1,225,000 | - | - | - | - | - | 1,225,000 | ||||||||||||||||||||||||
| Expenses of non-brokered private placement (Note 14.4) | - | (15,148 | ) | - | - | - | - | - | (15,148 | ) | ||||||||||||||||||||||
| Shares issued to extend payment due date (Note 14.5) | 25,000 | 2,103 | - | - | - | - | - | 2,103 | ||||||||||||||||||||||||
| Shares payments towards acquisition of Golden Harvests and extend due date (Note 7, Note 14.7) | 600,000 | 107,461 | - | - | - | - | - | 107,461 | ||||||||||||||||||||||||
| Shares issuable for consideration for acquisition of Golden Harvests (Note 7) | - | - | 35,806 | - | - | - | - | 35,806 | ||||||||||||||||||||||||
| Shares issued to partner creditor (Note 14.6) | 400,000 | 36,310 | - | - | - | - | - | 36,310 | ||||||||||||||||||||||||
| Shares and warrants issued pursuant to brokered private placement of Special Warrants (Notes 14.8) | 23,162,579 | 3,738,564 | - | - | - | - | - | 3,738,564 | ||||||||||||||||||||||||
| Expenses of brokered private placement of Special Warrants (Note 14.8) | - | (485,722 | ) | - | - | - | - | - | (485,722 | ) | ||||||||||||||||||||||
| Broker and advisory warrants issued pursuant to Special Warrant financing (Notes 14.8, 15.1) | - | (210,278 | ) | - | 210,278 | - | - | - | - | |||||||||||||||||||||||
| Settlement of convertible debentures for cash and common shares (Note 14.9) | 10,488,884 | 916,290 | 1,883,731 | - | - | - | 2,800,021 | |||||||||||||||||||||||||
| Issuance of non-controlling interest in subsidiary for cash (Note 25.3) | - | - | - | (475,000 | ) | - | - | 475,000 | - | |||||||||||||||||||||||
| Purchase of non-controlling interest in subsidiary (Note 25.3) | 3,711,938 | 664,816 | 475,000 | - | - | (475,000 | ) | 664,816 | ||||||||||||||||||||||||
| Change in ownership interests in subsidiaries | - | - | - | - | - | - | 671,811 | 671,811 | ||||||||||||||||||||||||
| Stock option vesting | - | - | - | 243,662 | - | - | - | 243,662 | ||||||||||||||||||||||||
| Currency translation adjustment | - | - | - | - | (78,181 | ) | - | - | (78,181 | ) | ||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (2,410,305 | ) | 1,395,558 | (1,014,747 | ) | ||||||||||||||||||||||
| Balance - October 31, 2021 | 156,936,876 | $ | 20,499,031 | $ | 74,338 | $ | 6,407,935 | $ | (90,378 | ) | $ | (21,804,349 | ) | $ | 2,033,986 | $ | 7,120,563 | |||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Pg 4 of 42
Grown Rogue International Inc.
Consolidated Cash Flow Statements
Expressed in United States Dollars
| Year ended October 31, |
||||||||
| 2022 | 2021 | |||||||
| $ | $ | |||||||
| Operating activities | ||||||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Adjustments for non-cash items in net income (loss) | ||||||||
| Amortization of property and equipment | 750,916 | 180,015 | ||||||
| Amortization of property and equipment include in costs of inventory sold | 1,102,688 | 733,655 | ||||||
| Amortization of intangible assets | - | 4,997 | ||||||
| Unrealized gain on changes in fair value of biological assets | (3,278,572 | ) | (1,824,226 | ) | ||||
| Changes in fair value of inventory sold | 3,685,338 | 950,461 | ||||||
| Share-based compensation | 21,264 | 170,136 | ||||||
| Stock option expense | 96,649 | 243,662 | ||||||
| Accretion expense | 491,781 | 949,811 | ||||||
| Loss on disposal of property & equipment | 6,250 | 7,542 | ||||||
| Unrealized loss on marketable securities | 333,777 | 35,902 | ||||||
| Gain on debt settlement | (455,674 | ) | - | |||||
| Loss on fair value of derivative liability | - | 1,258,996 | ||||||
| Loss on acquisition of non-controlling interest paid in shares | - | 189,816 | ||||||
| Effects of foreign exchange | 918 | 7,233 | ||||||
| 3,175,286 | 1,893,253 | |||||||
| Changes in non-cash working capital (Note 17) | (1,171,111 | ) | (2,131,714 | ) | ||||
| Net cash provided by (used in) operating activities | 2,004,175 | (238,461 | ) | |||||
| Investing activities | ||||||||
| Purchase of property and equipment and intangibles | (1,111,283 | ) | (2,047,136 | ) | ||||
| Net cash acquired | - | 76,128 | ||||||
| Payments of acquisition payable | (2,000 | ) | (6,000 | ) | ||||
| Other investments | - | (750,000 | ) | |||||
| Net cash used in investing activities | (1,113,283 | ) | (2,727,008 | ) | ||||
| Financing activities | ||||||||
| Third party investment in subsidiary | - | 475,000 | ||||||
| Proceeds from long-term debt | 100,000 | 1,125,000 | ||||||
| Proceeds from private placement | 1,300,000 | 1,225,000 | ||||||
| Proceeds from brokered private placement | - | 3,738,564 | ||||||
| Payment of equity and debenture issuance costs | - | (500,870 | ) | |||||
| Repayment of long-term debt | (732,803 | ) | (507,715 | ) | ||||
| Repayment of convertible debentures | - | (1,312,722 | ) | |||||
| Payments of lease principal | (1,089,738 | ) | (380,543 | ) | ||||
| Net cash provided by (used in) financing activities | (422,541 | ) | 3,861,714 | |||||
| Change in cash and cash equivalents | 468,351 | 896,245 | ||||||
| Cash and cash equivalents balance, beginning | 1,114,033 | 217,788 | ||||||
| Cash and cash equivalents balance, ending | 1,582,384 | 1,114,033 | ||||||
Supplemental cash flow disclosures (Note 18)
The accompanying notes form an integral part of these consolidated financial statements.
Pg 5 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 1. | Corporate Information |
These consolidated financial statements for the years ended October 31, 2022, and 2021 (the “Financial Statements”), include the accounts of Grown Rogue International Inc. (together with its subsidiaries, “GRIN” or the “Company”) and its subsidiaries. The registered office of GRIN is located at 40 King St W Suite 5800, Toronto, ON M5H 3S1.
GRIN’s subsidiaries and ownership thereof are summarized in the table below.
| Company | Ownership | |
| Grown Rogue Unlimited, LLC | 100% by GRIN | |
| Grown Rogue Gardens, LLC | 100% by Grown Rogue Unlimited, LLC | |
| GRU Properties, LLC | 100% by Grown Rogue Unlimited, LLC | |
| GRIP, LLC | 100% by Grown Rogue Unlimited, LLC | |
| Grown Rogue Distribution, LLC | 100% by Grown Rogue Unlimited, LLC | |
| GR Michigan, LLC | 87% by Grown Rogue Unlimited, LLC | |
| Idalia, LLC | 60% by Grown Rogue Unlimited, LLC | |
| Canopy Management, LLC | 0% (Note 1.1) | |
| Golden Harvests, LLC | 60% by Canopy Management, LLC |
| 1.1 | The Company, through its subsidiary, entered into an option to acquire an 87% controlling interest in Canopy Management LLC (“Canopy”), which held an option to acquire a 60% controlling interest in Golden Harvests, LLC (Note 7) which was exercised on May 1, 2021. Canopy is majority owned by the Company’s CEO, who is prohibited from omitting or taking certain actions where to do so would be contrary to the economic benefits which the Company expects to derive from the aforementioned options and the investments in the underlying businesses. The Company includes Canopy in the consolidated financial results and has allocated its net loss to net loss attributable to non-controlling interest. Subsequent to October 31, 2021, the Company, through Grown Rogue Unlimited, LLC, exercised its option to acquire a 87% of the membership units of Canopy. |
GRIN is primarily engaged in the business of growing and selling cannabis products. The primary cannabis product produced and sold is cannabis flower.
| 2. | Basis of Presentation |
Statement of Compliance and Going Concern
The Company’s consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
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 year ended October 31, 2022, the Company generated net income of approximately $0.4 million, it has historically incurred net losses, and as of that date, the Company’s accumulated deficit was approximately $21.4 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 consolidated 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 consolidated Financial Statements.
Pg 6 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
These consolidated financial statements were authorized for issuance by the Board of Directors on February 28, 2023.
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.
Functional and Presentation Currency
The Company’s functional currency is the Canadian dollar and the functional currency of its subsidiaries is the United States (“U.S.”) 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.
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.
Estimation Uncertainty due to COVID-19
On March 11, 2020, the World Health Organization declared a global outbreak of COVID-19 to be a pandemic, which has had a significant impact on businesses through the restrictions put in place by the federal, state, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders in Canada and the United States. Government measures imposed to limit the spread of COVID-19 did not have a material impact on the Company’s operations during the year ended October 31, 2022, and the Company has not observed any material impairments, or significant changes in the fair value of its assets as a result of COVID-19.
Pg 7 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put in place by Canada, the United States and other countries to fight the virus. While the extent of the impact is unknown, it remains possible that this outbreak may cause reduced customer demand, supply chain disruptions, staff shortages, and increased government regulations, all of which may negatively impact the Company’s business, results of operations and financial condition. The Company will continue to evaluate the situation with respect to the COVID-19 pandemic as it develops and will implement any such changes to its business as may deemed appropriate to mitigate any potential impacts to its business.
| 3. | Significant Accounting Policies and Significant Judgements |
| 3.1 | 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.
| 3.2 | 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 statements of loss and comprehensive loss at the time cannabis is sold. The realized fair value amounts included in inventory sold are recorded as a separate line on the statements of loss and comprehensive loss.
| 3.3 | 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.
Pg 8 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 3.4 | 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 loss and comprehensive 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’.
| 3.5 | 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 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.
| 3.6 | 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.
| 3.7 | 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.
Pg 9 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 3.8 | 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 | 15-40 | years on a straight-line basis |
Pg 10 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
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.
| 3.9 | 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.
| 3.10 | Share based compensation |
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.
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.
Pg 11 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
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.
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.
| 3.11 | 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 or equity, in which case the tax expense is recognized in other comprehensive income 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.
| 3.12 | Financial Instruments |
| 3.12.1 | 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.
Pg 12 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Classification and measurement
Under IFRS 9, financial assets are initially measured at fair value. In the case of a financial asset not categorized as fair value through profit or loss (“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 meet the SPPI test are measured at amortized cost. Interest income is recognized as Other income (expense) in the consolidated financial statements, and gains/losses are recognized in net income (loss) when the asset is derecognized or impaired. |
| - | Fair value through other comprehensive income (“FVOCI”) – Financial assets held to achieve a particular business objective other than short term trading are designated at FVOCI. IFRS 9 also provides the ability to make an irrevocable election at initial recognition of a financial asset, on an instrument by instrument basis, to designate an equity investment that would otherwise be classified as FVTPL and that is neither held for trading nor contingent consideration arising 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 gains or losses are transferred from Other comprehensive income (“OCI”) directly to Deficit. |
| - | FVTPL – Financial assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. |
| 3.12.2 | 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 hedge accounting criteria are classified as FVTPL. Gains or losses on these types of financial liabilities are recognized in net income (loss). |
| - | Amortized cost – All other financial liabilities are classified as amortized cost using the effective interest method. Gains and losses are recognized in net income (loss) when the liabilities are derecognized as well as through the amortization process. |
Pg 13 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
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 | |
| 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 expected credit loss (“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.
Pg 14 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 3.13 | 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 statement of comprehensive income (loss).
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 Financial Instruments 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.
Pg 15 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 3.14 | 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 cash generating unit (“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.
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.
| 3.15 | New accounting pronouncements |
The following IFRS standards have been recently issued. Pronouncements that are irrelevant or not expected to have a significant impact have been excluded.
Pg 16 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
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, 2023. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated 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 is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
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 is currently evaluating the potential impact of these amendments on the Company’s consolidated 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. 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 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 17 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 4. | Biological Assets |
Biological assets consist of cannabis plants, which reflect measurement at fair value less costs to sell (“FVLCTS”). Changes in the carrying amounts of biological assets for the year ended October 31, 2022, are as follows:
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Beginning balance | 1,188,522 | 250,690 | ||||||
| Purchased cannabis plants | 4,567,108 | 2,969,773 | ||||||
| Allocation of operational overhead | 1,063,755 | 1,430,876 | ||||||
| Change in FVLCTS due to biological transformation | 3,278,572 | 1,824,225 | ||||||
| Transferred to inventory upon harvest | (8,898,468 | ) | (5,287,012 | ) | ||||
| Ending balance | 1,199,519 | 1,188,552 | ||||||
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 of harvest |
| - | Estimated selling price per pound |
| - | Expected yield from the cannabis plants |
| - | Estimated stage of growth – the Company applied a weighted average number of days out of the approximately 62-day growing cycle that biological assets have reached as of the measurement date based 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, 2022 |
October 31, 2021 |
October 31, 2022 |
October 31, 2021 |
|||||||||||||
| Estimated selling price per (pound) | $ | 817 | $ | 1,130 | $ | 246,397 | $ | 219,428 | ||||||||
| Estimated stage of growth | 49 | % | 51 | % | $ | 204,814 | $ | 189,943 | ||||||||
| Estimated flower yield per harvest (pound) | 2,638 | 1,915 | $ | 204,814 | $ | 189,943 | ||||||||||
Pg 18 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 5. | Inventory |
The Company’s inventory composition is as follows:
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Raw materials | 134,926 | 22,788 | ||||||
| Work in process | 2,735,000 | 2,363,487 | ||||||
| Finished goods | 261,951 | 920,037 | ||||||
| Ending balance | 3,131,877 | 3,306,312 | ||||||
The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the year ended October 31, 2022, was $9,227,439 (2021 - $3,997,617).
| 6. | Marketable Securities |
During the year ended October 31, 2020, the Company received 2,362,204 common shares of Plant-Based Investment Corp (“PBIC”) by issuing to PBIC 15,000,000 common shares of the Company pursuant to a subscription agreement. The Company did not have control or significant influence over PBIC and accounted for the investment at fair value through profit or loss until its disposition pursuant to the debt settlement transaction of June 20, 2022 (Note 13.1).
Pg 19 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 7. | Business Combinations |
| 7.1 | Golden Harvests, LLC (“Golden Harvests”) |
In February 2020, the Company, through its subsidiary GR Michigan, LLC, signed an Option to Purchase Agreement (the “Option Agreement”) to acquire a 60% controlling interest in Golden Harvests, LLC (“Golden Harvests”). Golden Harvests is a Michigan-based, fully licensed, and operating cultivation company located in Bay City, Michigan. During the year ended October 31, 2021, the Company’s majority controlled subsidiary GR Michigan, LLC, terminated the Option Agreement. Simultaneously with the termination of the Option Agreement, a new entity, Canopy Management, LLC (“Canopy”), majority-owned by the CEO, signed an option agreement to purchase Golden Harvests under similar terms (the “New Option”). Canopy has already been approved by the State of Michigan for licensing and this facilitated the Company’s ability to accelerate its option exercise to obtain a 60% interest in Golden Harvests. The Company has an option to acquire 87% of the CEO’s membership interest in Canopy, which, when exercised, pending approval by the State of Michigan of the Company’s application, will provide identical economic rights as the Company originally had in the Option Agreement. Canopy is majority owned by GRIN’s CEO, who has a fiduciary responsibility to the Company and is prohibited from omitting or taking certain actions relating to Canopy where to do so would be contrary to the economic benefits which the Company expects to derive from the acquisition of Golden Harvests. Canopy acquired a 60% controlling interest in Golden Harvests on May 1, 2021, by exercising its option to acquire a controlling 60% interest, and we expect to exercise our option to acquire 87% of Canopy early in 2022, and until we exercise the option to acquire 87% of Canopy, it will be consolidated with a 100% non-controlling interest.
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 $360,00 and 200,000 common shares with an aggregate fair value of $35,806.
| Total consideration | Common shares | $ | ||||||
| Cash paid | - | 479,000 | ||||||
| Cash payable | - | 370,537 | ||||||
| Common shares issued | 825,000 | 122,376 | ||||||
| Common shares issuable | 200,000 | 35,806 | ||||||
| Total | 1,025,000 | 1,007,719 | ||||||
Pg 20 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| Net identifiable assets acquired (liabilities assumed) | $ | |||
| Cash and cash equivalents | 386,128 | |||
| Accounts receivable | 155,067 | |||
| Prepaids and other current assets | 91,464 | |||
| Intangible asset: grow licenses | 154,000 | |||
| Biological assets | 477,672 | |||
| Inventory | 309,439 | |||
| Property, plant, and equipment | 1,311,917 | |||
| 2,885,687 | ||||
| Accounts payable and accrued liabilities | (542,630 | ) | ||
| Notes payable | (227,056 | ) | ||
| Lease liabilities | (564,309 | ) | ||
| Income taxes | (117,500 | ) | ||
| Net identifiable assets acquired | 1,434,192 | |||
Net cash acquired during the year ended October 31, 2021, was $76,128, which is acquired cash of $386,128 net of payments of $310,000.
| Purchase price allocation | $ | |||
| Net identifiable assets acquired | 1,434,192 | |||
| Goodwill | 245,339 | |||
| 1,679,531 | ||||
| Purchase consideration (60% controlling interest) | 1,007,719 | |||
| Net cash flows | Prior to November 1, 2020 |
Year ended
October 31, 2021 |
Year ended
October 31, 2022 |
Future payments | Total | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Cash consideration paid prior to October 31, 2020 | (175,000 | ) | - | - | - | (175,000 | ) | |||||||||||||
| Cash consideration paid after November 1, 2020 | - | (310,000 | ) | - | - | (310,000 | ) | |||||||||||||
| Cash acquired | - | 386,128 | - | - | 386,128 | |||||||||||||||
| (175,000 | ) | 76,128 | - | - | (98,872 | ) | ||||||||||||||
| Future cash payments | - | - | - | (360,000 | ) | (360,000 | ) | |||||||||||||
| Payments against acquisition consideration payable | - | (6,000 | ) | (2,000 | ) | - | (8,000 | ) | ||||||||||||
| Net cash flows upon completion of all payments | (175,000 | ) | 70,128 | (2,000 | ) | (360,000 | ) | (466,872 | ) | |||||||||||
Goodwill arising from the acquisition represents expected synergies, future income growth, and other intangibles that do not qualify for separate recognition. The goodwill arising on this acquisition is expected to be fully deductible for tax purposes.
Pg 21 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
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 Company also agreed to issue the remaining 200,000 shares issuable as business acquisition consideration by May 15, 2022. The following table summarizes the movement in business acquisition consideration payable.
| Business acquisition consideration payable | $ | |||
| Acquisition date fair value | 370,537 | |||
| Payments from acquisition date to October 31, 2022 | (8,000 | ) | ||
| Application of prepayments | (4,000 | ) | ||
| Accretion | 1,463 | |||
| Balance – October 31, 2022 | 360,000 | |||
Prior to the Company’s acquisition of Golden Harvests on May 1, 2021, the Company was contracted to provide management services to Golden Harvests. Under this agreement and prior to the consolidation of Golden Harvests, the Company reported service revenues of $344,055 and incurred costs of service revenues of $154,353 during the six months ended April 30, 2021.
| 8. | Other Investments and Purchase Deposits |
| 8.1 | Investment in assets sold by High Street Capital Partners, LLC (“HSCP”) |
On February 5, 2021, the Company agreed to acquire substantially all of the assets of the growing and retail operations (the “HSCP Transaction”) of HSCP, 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 a management services agreement with HSCP (“HSCP MSA”), 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 on August 1, 2022, as described at Note 13.2.
Pg 22 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 9. | Accrued Liabilities |
The following table summarizes the liability payable to creditors who agreed to defer settlement for longer than one year from October 31, 2022, and October 31, 2021:
| CEO | Trade Vendors | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Balance - October 31, 2020 | 225,799 | 164,017 | 389,816 | |||||||||
| Amounts deferred | - | - | - | |||||||||
| Amounts settled | (162,899 | ) | (103,504 | ) | (266,403 | ) | ||||||
| Balance - October 31, 2021 | 62,900 | 60,513 | 123,413 | |||||||||
| Amounts settled and reclassified | (62,900 | ) | (60,513 | ) | (123,413 | ) | ||||||
| Balance – October 31, 2022 | - | - | - | |||||||||
| 10. | Leases |
The following is a continuity schedule of lease liabilities.
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Balance - beginning | 2,360,438 | 116,907 | ||||||
| Additions | 1,030,429 | 2,642,588 | ||||||
| Disposals | - | (18,513 | ) | |||||
| Interest expense on lease liabilities | 243,360 | 132,371 | ||||||
| Payments | (1,333,098 | ) | (512,914 | ) | ||||
| Balance - ending | 2,301,129 | 2,360,438 | ||||||
| Current portion | 1,025,373 | 624,935 | ||||||
| Non-current portion | 1,275,756 | 1,735,503 | ||||||
Pg 23 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 11. | Property and Equipment |
| Computer and Office Equipment | Production Equipment and Other | Construction in Progress | Leasehold Improvements | Right-of-use Assets | Total | |||||||||||||||||||
| COST | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Balance - October 31, 2020 | 15,166 | 356,522 | 45,075 | 2,001,807 | 651,011 | 3,069,581 | ||||||||||||||||||
| Additions | - | 22,939 | - | 2,255,594 | 2,040,029 | 4,318,562 | ||||||||||||||||||
| Cost basis of assets acquired | 1,117 | 146,756 | - | 677,339 | 680,482 | 1,505,694 | ||||||||||||||||||
| Transfers | - | - | (45,075 | ) | 45,075 | - | - | |||||||||||||||||
| Disposals | - | (15,050 | ) | - | (1,727 | ) | (43,490 | ) | (60,267 | ) | ||||||||||||||
| Balance - October 31, 2021 | 16,283 | 511,167 | - | 4,978,088 | 3,328,032 | 8,833,570 | ||||||||||||||||||
| Additions | - | 34,690 | - | 3,014,807 | 951,377 | 4,000,874 | ||||||||||||||||||
| Disposals | - | (2,825 | ) | - | (10,375 | ) | - | (13,200 | ) | |||||||||||||||
| Balance – October 31, 2022 | 16,283 | 543,032 | - | 7,982,520 | 4,279,409 | 12,821,244 | ||||||||||||||||||
| ACCUMULATED AMORTIZATION | ||||||||||||||||||||||||
| Balance - October 31, 2020 | 15,166 | 73,517 | - | 1,449,248 | 379,851 | 1,917,782 | ||||||||||||||||||
| Accumulated amortization of assets acquired | 138 | 52,368 | - | 40,955 | 100,316 | 193,777 | ||||||||||||||||||
| Amortization for the period | 979 | 77,766 | - | 527,524 | 406,773 | 1,013,042 | ||||||||||||||||||
| Disposals | - | (7,548 | ) | - | (698 | ) | (25,369 | ) | (33,615 | ) | ||||||||||||||
| Balance - October 31, 2021 | 16,283 | 196,103 | - | 2,017,029 | 861,571 | 3,090,986 | ||||||||||||||||||
| Amortization for the period | - | 114,197 | - | 706,567 | 1,181,543 | 2,002,307 | ||||||||||||||||||
| Disposals | - | (895 | ) | - | (6,055 | ) | - | (6,950 | ) | |||||||||||||||
| Balance – October 31, 2022 | 16,283 | 309,405 | - | 2,717,541 | 2,043,114 | 5,086,343 | ||||||||||||||||||
| NET BOOK VALUE | ||||||||||||||||||||||||
| Balance - October 31, 2021 | - | 315,064 | - | 2,961,059 | 2,466,461 | 5,742,584 | ||||||||||||||||||
| Balance – October 31, 2022 | - | 233,627 | - | 5,264,979 | 2,236,295 | 7,734,901 | ||||||||||||||||||
Additions during the year ended October 31, 2022, includes the acquisition of $1,650,566 of assets from HSCP (Note 8). For the year ended October 31, 2022, amortization capitalized was $1,251,391 (2021 - $833,027) and expensed amortization was $750,916 (2021 - $180,015).
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 12. | Intangible Assets and Goodwill |
| Indefinite lived intangible assets and goodwill | October 31, 2022 |
October 31, 2021 |
||||||
| $ | $ | |||||||
| Balance – beginning | 399,338 | - | ||||||
| Additions – grower licenses | 326,330 | 154,000 | ||||||
| Additions – goodwill | - | 245,338 | ||||||
| Balance – ending | 725,668 | 399,338 | ||||||
Additions during the year ended October 31, 2021, resulted from the acquisition of Golden Harvests (Note 7.1). Additions during the year ended October 31, 2022, resulted from the HSCP Transaction (Note 8.1).
| 13. | Long-Term Debt |
Transactions related to the Company’s long-term debt for the year ended October 31, 2022, include the following:
| Movement in long-term debt | $ | |||
| Balance - October 31, 2020 | 799,814 | |||
| Additions to debt (Notes 13.1, 13.3, 13.4, 13.5, 13.6, 13.7) | 1,452,056 | |||
| Reclassification to acquisition consideration payable | (100,000 | ) | ||
| Interest accretion | 565,506 | |||
| Debt payments | (507,715 | ) | ||
| Balance - October 31, 2021 | 2,209,661 | |||
| Additions to debt (Note 13.1, 13.2) | 1,350,000 | |||
| Settlement of debt (Note 13.1) | (706,352 | ) | ||
| Interest accretion | 488,316 | |||
| Debt payments | (732,803 | ) | ||
| Balance – October 31, 2022 | 2,608,822 | |||
| Current portion | 1,769,600 | |||
| Non-current portion | 839,222 | |||
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Transactions related to the Company’s long-term debt during the year ended October 31, 2022, include the following:
| 13.1 | On September 9, 2021, the Company entered into an unsecured promissory note agreement with PBIC, a related party, in the amount of $800,000 which was to be fully advanced by September 30, 2021 (the “PBIC Note”). 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 sun-grown A-flower 2021 harvest (the “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 ownership in PBIC, comprised of 2,362,204 common shares in PBIC (Note 6, the “PBIC Shares), to 2766923 Ontario Inc. (the “Creditor”), 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.
| 13.2 | On April 14, 2022, the Company purchased indoor growing assets from High Street Capital Partners, LLC (Note 8.1). 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 Grown Rogue Distribution, LLC and HSCP Oregon, LLC, 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.
Accrued interest payable on long-term debt at October 31, 2022 was $Nil (October 31, 2021 - $13,750).
Pg 26 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Transactions related to the Company’s long-term debt for the year ended October 31, 2021, include the following:
| 13.3 | On November 23, 2020, debt was issued by Grown Rogue Distribution, LLC 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%. |
| 13.4 | On December 2, 2020, debt was issued by Grown Rogue Gardens, LLC 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 can be extended by up to six-months for a $1,000 fee per $10,000 of principal extended. |
| 13.5 | On January 27, 2021, debt was issued by Grown Rogue Distribution, LLC 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%. |
| 13.6 | On February 4, 2021, a note payable for $100,000 was issued to satisfy a milestone payment due to the seller of Golden Harvests. The note is payable 12 months from the issue date and accrues interest at $2,000 per month. This note payable was reclassified to acquisition consideration payable during the year ended October 31, 2021. |
| 13.7 | On May 1, 2021, the Company assumed a note payable owed by Golden Harvests (Note 7) 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%. |
| 14. | 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, 2022, the following share transactions occurred:
| 14.1 | The Company issued 529,335 common shares with a fair value of $59,796 for employment compensation, director services and consulting services. |
| 14.2 | On December 9, 2021, the Company closed a non-brokered private placement of common shares (“Private Placement”) for total gross proceeds of $1,300,000 (CAD$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. |
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2021, the following share transactions occurred:
| 14.3 | The Company issued 534,294 common shares with a fair value of $95,294 for employment compensation, director services and consulting services. |
| 14.4 | On February 5, 2021, the Company closed a non-brokered private placement of an aggregate total of 10,231,784 common shares with a fair value of $1,225,000. The private placement was raised in two tranches. In the first tranche, 2,031,784 common shares were issued for proceeds of $200,000. In the second tranche, 8,200,000 common shares and 8,200,000 warrants to purchase one common share were issued for proceeds of $1,025,000. All proceeds of the private placement were allocated to share capital, and costs of $15,148 incurred for this private placement were allocated to share capital. |
| 14.5 | The Company issued 25,000 shares with a fair value of $2,103 in order to extend a milestone payment to the seller of a controlling 60% interest in Golden Harvests (Note 7). |
| 14.6 | On January 14, 2021, the Company agreed to issue 400,000 shares with a fair value of $36,310 to a lender of Golden Harvests to support Golden Harvests’ (Note 7) business development. |
| 14.7 | The Company issued 600,000 common shares with an aggregate fair value of $107,461 to make payments towards the Canopy option and extend a milestone payment deadline. Of the 600,000 common shares issued, 200,000 common shares were issued to satisfy a milestone payment of shares; 200,000 common shares were issued to satisfy a milestone payment of shares; and 200,000 common shares were issued to extend the due date of the milestone payments. |
| 14.8 | On March 5, 2021, The Company announced the completion of a brokered private placement offering through the issuance of an aggregate of 21,056,890 special warrants (each a “Special Warrant”) at a price of CAD$0.225 (the “Issue Price”) per Special Warrant for aggregate gross proceeds of approximately $3.7 million (CAD$4,737,800) (the “Offering”). Each Special Warrant entitled the holder thereof to receive, for no additional consideration, one unit of the Company (each, a “Unit”) on the exercise or deemed exercise of the Special Warrant. Each Unit was comprised of one common share of the Company and one warrant to purchase one common share of the Company. Each Special Warrant entitled the holder to receive upon the exercise or deemed exercise thereof, at no additional consideration, 1.10 Units (instead of one (1) Unit), if the Company had not received a receipt for a final short form prospectus qualifying distribution of the common shares and warrants (the “Qualifying Prospectus”) from the applicable securities regulatory authorities (the “Securities Commissions”) on or before April 5, 2021. |
Each Special Warrant was to be deemed exercised on the date that was the earlier of: (i) the date that was three (3) days following the date on which the Company obtained receipt from the Securities Commissions for the Qualifying Prospectus underlying the Special Warrants and (ii) July 6, 2021. The Company obtained receipt for the Qualifying Prospectus on April 26, 2021. Accordingly, on April 30, 2021, the Company issued 23,162,579 Units, comprised of 23,162,579 common shares and 23,162,579 warrants to purchase one common share. The warrants entitle the holder to purchase one common share at an exercise price of CAD$0.30 for a period of two years.
Proceeds of $3,738,564 and expenses of $444,396 were allocated to share capital; also allocated to share capital were the expenses for fair value of Agent Warrants of $210,278.
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 14.9 | The holders of convertible debentures converted an aggregate total of convertible debenture principal of $1,042,951 (CAD$1,311,111) at CAD$0.125 per share into 10,488,884 common shares with their aggregate fair value of $916,290. The value of derivative liabilities settled with the conversions allocated to equity was $1,833,731. |
| 15. | Warrants |
The following table summarizes the warrant activities for the year ended October 31, 2022:
| Number | Weighted
Average Exercise Price (CAD$) |
|||||||
| Balance - October 31, 2020 | 44,158,331 | 0.33 | ||||||
| Issuance pursuant to non-brokered private placement | 8,200,000 | 0.20 | ||||||
| Issuance pursuant to the Offering | 23,162,579 | 0.30 | ||||||
| Expiration of broker warrants | (757,125 | ) | 0.44 | |||||
| Expiration of warrants issued during the year ended October 31, 2019 | (17,843,998 | ) | 0.55 | |||||
| Balance - October 31, 2021 | 56,919,787 | 0.22 | ||||||
| Expiration of warrants issued pursuant to convertible debt deemed re-issuance | (8,409,091 | ) | 0.16 | |||||
| Expiration of warrants issued pursuant to private placement to PBIC | (15,000,000 | ) | 0.13 | |||||
| Balance – October 31, 2022 | 33,510,696 | 0.28 | ||||||
As at October 31, 2022, the following warrants were issued and outstanding:
| Exercise price (CAD$) | Warrants outstanding | Life (years) | Expiry date | ||||||||
| 0.20 | 8,200,000 | 0.27 | February 5, 2023 | ||||||||
| 0.30 | 23,162,579 | 0.34 | March 05, 2023 | ||||||||
| 0.44 | 2,148,117 | 0.66 | June 28, 2023 | ||||||||
| 0.28 | 33,510,696 | 0.34 | |||||||||
| 15.1 | Agent Warrants |
On March 5, 2021, as consideration for the services rendered by the agent (the “Agent”) to a brokered private placement of special warrants (the “Offering”), the Company issued to the Agent an aggregate of 1,127,758 broker warrants of the Company (the “Broker Warrants”) exercisable to acquire 1,127,758 compensation options (the “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 (the “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 entitles the holder thereof to purchase one unit of the Company (a “Compensation Unit”) at the Issue Price of CAD$0.225 for a period of twenty-four (24) months. Each Compensation Unit is comprised of one common share and one common share purchase warrant of the Company (a “Compensation Warrant”). Each Compensation Warrant shall entitle the holder thereof to purchase one common share in the capital of the Company at a price of CAD$0.30 for twenty-four (24) months. The following table sets out the Agent Warrants issued and outstanding at October 31, 2022:
Pg 29 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| Exercise price (CAD$) | Agent Warrants outstanding |
Remaining
contractual life (years) |
Expiry date | |||||||||
| $ | 0.225 | 1,241,258 | 0.33 | March 5, 2023 | ||||||||
The fair value of the Agent Warrants of $210,278 was allocated to share capital. The Black-Scholes pricing assumptions used in the valuation of the Agent Warrants were as follows:
| Expected dividend yield | Nil% | ||
| Risk-free interest rate | 0.92% | ||
| Expected life of Agent Warrant | 2 years | ||
| Expected life of underlying warrant | 1.99 years | ||
| Expected volatility | 100% |
| 16. | Stock Options |
The following table summarizes the stock option movements for the year ended October 31, 2022:
| Number | Exercise
price (CAD$) |
|||||||
| Balance - October 31, 2020 | 3,720,000 | 0.19 | ||||||
| Granted to employees | 3,085,000 | 0.20 | ||||||
| Forfeitures by service provider | (65,000 | ) | 0.15 | |||||
| Forfeitures by employees | (965,000 | ) | 0.15 | |||||
| Forfeitures by employees | (10,000 | ) | 0.22 | |||||
| Balance - October 31, 2021 | 5,765,000 | 0.20 | ||||||
| Granted to employees | 605,000 | 0.15 | ||||||
| Forfeitures by service provider | (500,000 | ) | 0.44 | |||||
| Forfeitures by employees | (960,000 | ) | 0.15 | |||||
| Balance – October 31, 2022 | 4,910,000 | 0.18 | ||||||
| 16.1 | During the year ended October 31, 2022, 605,000 options were granted to employees. |
The fair value of the options granted during the year ended October 31, 2022, was approximately $23,260 (CAD$29,924) 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 | 2.2% | ||
| Expected life | 4 years | ||
| Expected volatility | 86% |
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2021, 3,085,000 options were granted to employees.
The fair value of the options granted during the year ended October 31, 2021, was approximately $272,917 (CAD$343,034) which was estimated at the grant dates based on the Black-Scholes pricing model, using the following assumptions:
| Expected dividend yield | Nil% | ||
| Risk-free interest rate | 0.55% | ||
| Expected life | 4 years | ||
| Expected volatility | 98% |
The vesting terms of options granted during the year ended October 31, 2022, are set out in the table below:
| Number granted | Vesting terms | |||
| 300,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | |||
| 100,000 | Fully vested on grant date | |||
| 205,000 | Vest on one year anniversary of grant date | |||
| 605,000 | ||||
As at October 31, 2022, the following stock options were issued and outstanding:
| Exercise price (CAD$) | Options outstanding | Number exercisable | Remaining Contractual Life (years) | Expiry period | |||||||||||||
| 0.15 | 1,990,000 | 1,847,500 | 1.7 | July 2024 | |||||||||||||
| 0.15 | 200,000 | 200,000 | 2.1 | November 2024 | |||||||||||||
| 0.28 | 1,075,000 | 750,000 | 2.5 | April 2025 | |||||||||||||
| 0.16 | 1,150,000 | 1,075,000 | 2.6 | May 2025 | |||||||||||||
| 0.15 | 85,000 | 75,000 | 3.0 | November 2025 | |||||||||||||
| 0.15 | 410,000 | 10,000 | 3.5 | April 2026 | |||||||||||||
| 0.18 | 4,910,000 | 3,957,500 | 2.5 | ||||||||||||||
| 17. | Changes in Non-Cash Working Capital |
The changes to the Company’s non-cash working capital for the year ended October 31, 2022, and 2021 are as follows:
| Year ended October 31, | 2022 | 2021 | ||||||
| $ | $ | |||||||
| Accounts receivable | (904,711 | ) | (412,060 | ) | ||||
| Inventory and biological assets | (94,595 | ) | (1,359,567 | ) | ||||
| Prepaid expenses and other assets | 5,267 | (196,261 | ) | |||||
| Accounts payable and accrued liabilities | (124,334 | ) | (294,846 | ) | ||||
| Interest payable | (13,750 | ) | 4,383 | |||||
| Income tax payable | 56,401 | 137,131 | ||||||
| Deferred rent | - | (10,494 | ) | |||||
| Unearned revenue | (95,389 | ) | - | |||||
| Total | (1,171,111 | ) | (2,131,714 | ) | ||||
Pg 31 of 42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 18. | Supplemental Cash Flow Disclosure |
| Year ended October 31, | 2022 | 2021 | ||||||
| $ | $ | |||||||
| Interest paid | 400,630 | 168,924 | ||||||
| Fair value of common shares issued and issuable for services | 59,796 | 133,826 | ||||||
| Fair value of common shares issued to Golden Harvests (Note 7) | - | 109,564 | ||||||
| Fair value of common shares issued to Golden Harvests’ creditor | - | 36,310 | ||||||
| Right-of-use assets acquired through leases (Note 10) | 1,030,429 | 2,642,588 | ||||||
| Conversion of debenture into common shares | - | 916,290 | ||||||
| Derivative liability recognized as contributed surplus upon debenture conversion | - | 1,883,731 | ||||||
| Note payable to HSCP used to acquire assets (Note 8.1) | 1,250,000 | - | ||||||
| 19. | Related Party Transactions |
During the year ended October 31, 2022, the Company incurred the following related party transactions:
| 19.1 | Through its wholly owned subsidiary, GRU Properties, LLC, the Company leased a property located in Trail, Oregon (“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 were incurred for year ended October 31, 2022 (2021 – 73,000). The lease liability balance for Trail at October 31, 2022, was $193,312 (October 31, 2021 - $242,228). |
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 $184,500 (2021 - $60,000) were incurred for the year ended October 31, 2022. The lease liability for Lars at October 31, 2022, was $607,900 (October 31, 2021 - $727,885).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $9,433 at October 31, 2022 (October 31, 2021 - $33,260). Lease payments of $28,871 were made against the equipment leases during the year ended October 31, 2022 (2021 - $17,802).
Leases liabilities payable to the CEO were $810,645 in aggregate at October 31, 2022 (October 31, 2021 - $1,003,373).
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 $305 during the year ended October 31, 2022 (2021 - $19,035).
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 14.2). 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 (Note 14.4).
| 19.2 | The Company incurred expenses of $60,000 (2021 - $58,020) for services provided by the spouse of the CEO. At October 31, 2022, accounts and accrued liabilities payable to this individual were $1,154 (October 31, 2021 - $1,154). |
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 19.3 | Key management personnel consists of the President and CEO; the Senior Vice President of Grown Rogue Unlimited, LLC; the former Chief Operating Officer (“COO”)*; and the CFO of the Company. The compensation to key management is presented in the following table: |
| Year ended October 31, | 2022 | 2021 | ||||||
| $ | $ | |||||||
| Salaries and consulting fees | 638,067 | 875,058 | ||||||
| Share-based compensation | 13,043 | 70,040 | ||||||
| Stock option expense | 6,536 | 64,436 | ||||||
| Total | 657,646 | 1,009,534 | ||||||
*COO was appointed subsequent to April 30, 2021 and was paid and compensated prior to appointment; compensation for the year ended October 31, 2021, is included in the table above for comparability to past & ongoing expenses. COO’s final date of employment was December 27, 2021.
Stock options granted to key management personnel and close family members of key management personnel include the following options, granted during the year ended October 31, 2021: 500,000 options were granted to the COO, which expired following the COO’s resignation. During the year ended October 31, 2020: 750,000 options to the CFO of GR Unlimited; 750,000 options to the CMO; and 250,000 options to the CFO (CFO was Chief Accounting Officer at date of grant).
Compensation to directors during the year ended October 31, 2022, was $18,000, as well as compensation in shares comprised of 273,750 shares with a fair value of $20,562 (2021 – fees of $18,000 and common share issuances of 100,908 common shares with a fair value of $14,187.
Accounts payable, accrued liabilities (including the liability due to the CEO described at Note 9), and lease liabilities due to key management at October 31, 2022, totaled $947,233 (October 31, 2021 - $1,199,826).
| 19.4 | Debt balances and movements with related parties |
The following table sets out portions of debt pertaining to related parties:
| CEO | Senior VP - GR Unlimited LLC | Director | COO | Total | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Balance - October 31, 2020 | 61,493 | 122,987 | 184,480 | - | 368,960 | |||||||||||||||
| Borrowed | - | - | - | 150,000 | 150,000 | |||||||||||||||
| Interest | 37,589 | 75,178 | 112,767 | 13,750 | 239,284 | |||||||||||||||
| Payments | (33,543 | ) | (67,087 | ) | (100,630 | ) | - | (201,260 | ) | |||||||||||
| Balance - October 31, 2021 | 65,539 | 131,078 | 196,617 | 163,750 | 556,984 | |||||||||||||||
| Borrowed | - | - | - | - | - | |||||||||||||||
| Interest | 24,621 | 49,242 | 73,863 | 1,250 | 148,976 | |||||||||||||||
| Payments | (43,361 | ) | (86,717 | ) | (130,076 | ) | (165,000 | ) | (425,154 | ) | ||||||||||
| Balance – October 31, 2022 | 46,799 | 93,603 | 140,404 | - | 280,806 | |||||||||||||||
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, CFO of GR Unlimited LLC, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan LLC, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest (Note 24.2). These parties, except the CEO, obtained the same interests in Canopy Management, LLC; the CEO obtained 92.5% of Canopy Management (Note 25.4). A note payable to PBIC is described at Note 13.1
| 20. | Financial Instruments |
| 20.1 | 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.
| 20.1.1 | Interest Rate Risk |
At October 31, 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.
| 20.1.2 | Currency Risk |
As at October 31, 2022, the Company had accounts payable and accrued liabilities of CAD$616,345. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
| 20.2 | 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 cash equivalents 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 and cash equivalents, 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:
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Cash and cash equivalents | 1,582,384 | 1,114,033 | ||||||
| Accounts Receivable | 1,643,959 | 739,248 | ||||||
| Total | 3,226,343 | 1,853,281 | ||||||
The allowance for doubtful accounts at October 31, 2022, was $264,719 (October 31, 2021 - $48,744).
As at October 31, 2022 and October 31, 2021, the Company’s trade accounts receivable and other receivable were aged as follows:
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Current | 872,100 | 140,746 | ||||||
| 1-30 days | 335,357 | 423,153 | ||||||
| 31 days-older | 350,094 | 95,110 | ||||||
| Total trade accounts receivable | 1,557,552 | 659,009 | ||||||
| Other receivables | 86,407 | 80,239 | ||||||
| Total accounts receivable | 1,643,959 | 739,248 | ||||||
| 20.3 | 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, 2022, the Company’s working capital accounts were as follows:
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Cash and cash equivalents | 1,582,384 | 1,114,033 | ||||||
| Current assets excluding cash and cash equivalents | 6,327,629 | 5,591,653 | ||||||
| Total current assets | 7,910,013 | 6,705,686 | ||||||
| Current liabilities | (5,315,904 | ) | (3,862,460 | ) | ||||
| Working capital | 2,594,109 | 2,843,226 | ||||||
The contractual maturities of the Company’s liabilities 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 | 1,821,875 | - | - | |||||||||
| Lease liabilities | 1,025,373 | 969,344 | 306,412 | |||||||||
| Debt | 1,769,600 | 839,222 | - | |||||||||
| Business acquisition consideration payable | 360,000 | - | - | |||||||||
| Interest payable | - | - | - | |||||||||
| Unearned revenue | 28,024 | |||||||||||
| Income tax | 311,032 | - | - | |||||||||
| Total | 5,315,904 | 1,808,566 | 306,412 | |||||||||
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 20.4 | Fair Values |
The carrying amounts for the Company’s cash and cash equivalents, 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.
| 20.5 | 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 October 31, 2022 are summarized in the following table:
| Level in fair value hierarchy | Amortized Cost | FVTPL | ||||||||
| $ | $ | |||||||||
| Financial Assets | ||||||||||
| Cash and cash equivalents | Level 1 | 1,582,384 | - | |||||||
| Accounts receivable | Level 2 | 1,643,959 | - | |||||||
| Financial Liabilities | ||||||||||
| Accounts payable and accrued liabilities | Level 2 | 1,821,875 | - | |||||||
| Debt | Level 2 | 2,608,822 | - | |||||||
| Interest payable | Level 2 | - | - | |||||||
| Business acquisition consideration payable | Level 2 | 360,000 | - | |||||||
During the year ended October 31, 2022, there were no transfers of amounts between levels.
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 21. | General and Administrative Expenses |
General and administrative expenses for years ended October 31, 2022, and 2021 are as follows:
| Years ended October 31, |
||||||||
| 2022 | 2021 | |||||||
| $ | $ | |||||||
| Office, banking, travel, and overheads | 1,929,385 | 1,158,975 | ||||||
| Professional services | 456,532 | 767,050 | ||||||
| Salaries and benefits | 3,466,319 | 2,057,225 | ||||||
| Total | 5,852,236 | 3,983,250 | ||||||
| 22. | Income taxes |
| 22.1 | Income tax expense |
| 2022 | 2021 | |||||||
| ($) | ($) | |||||||
| Income (loss) before income taxes | 665,309 | (864,202 | ) | |||||
| Effective income tax rate (%) | 27.25 | % | 27.25 | % | ||||
| Expected income tax (recovery) | 181,297 | (235,495 | ) | |||||
| Loss (income) related to entities taxed as partnerships | - | 1,056 | ||||||
| Temporary differences related to inventory valuation | 448,108 | 124,590 | ||||||
| Temporary differences related to start-up costs | (196,978 | ) | (196,978 | ) | ||||
| Temporary differences related to reverse takeover transaction costs | (3,025,523 | ) | (2,217,730 | ) | ||||
| Non-deductible expenses | (134,292 | ) | (42,264 | ) | ||||
| Permanent difference for loss (income) related to entities taxed as corporations | (42,043 | ) | (369,512 | ) | ||||
| Permanent difference for loss (income) related to entities taxed as partnerships | - | (6,749 | ) | |||||
| Losses and other deductions for which no benefit has been recognized | 3,014,788 | 3,093,625 | ||||||
| Income tax expense | 245,358 | $ | 150,543 | |||||
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 22.2 | Deferred taxes |
The temporary differences that give rise to deferred income tax assets and deferred income tax liabilities are presented below:
| Deferred Tax Assets | 2022 | 2021 | ||||||
| $ | $ | |||||||
| Start-up costs | 196,978 | 196,978 | ||||||
| Inventory | 524,195 | (124,590 | ) | |||||
| Net operating loss carry-forwards | 1,804,109 | 2,503,436 | ||||||
| IFRS Adjustments | 351,215 | (209,847 | ) | |||||
| Amortization/Depreciation expenses | 409,797 | 474,689 | ||||||
| Reverse takeover transaction costs | 843,738 | 965,356 | ||||||
| Technology impairment | 429,122 | 429,122 | ||||||
| Debt restructure | 125,953 | 125,953 | ||||||
| Various derivative and unrealized gain/loss | 341,503 | 432,457 | ||||||
| 5,026,610 | 4,793,553 | |||||||
| Deferred taxes not recognized | (5,026,610 | ) | (4,793,553 | ) | ||||
| Net deferred tax assets | - | - | ||||||
The Company incurs losses in its taxable Canadian corporation, which has no expectation of revenues, and reports no associated Canadian deferred tax assets.
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 deductible for tax purposes until future periods. Deferred income tax assets result primarily from operating tax loss carry forwards and transaction costs related to general and administrative expenses and share compensation, and have been offset against deferred income tax liabilities.
As the Company operates in the cannabis industry, it is subject to the limits of United States Internal Revenue Code Section 280E under which the Company is only allowed to deduct expenses directly related to production of product. This results in permanent differences between ordinary and necessary business expenses deemed non-deductible under United States Internal Revenue Code Section 280E.
During the year ended October 31, 2022, the Internal Revenue Service levied the assets of Golden Harvests for a past due tax liability. Management expects to settle the liability in due course.
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 23. | 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 ability to continue as a going concern. |
| - | to raise sufficient capital to finance the construction of its production facility and obtain license to produce recreational marijuana; and |
| - | to 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.
| 24. | Segment Reporting |
Geographical information relating to the Company’s activities is as follows:
| Geographical segments | Oregon | Michigan | Corporate | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Non-current assets other than financial instruments: | ||||||||||||||||
| As at October 31, 2022 | 4,719,260 | 3,741,309 | - | 8,460,569 | ||||||||||||
| As at October 31, 2021 | 3,912,430 | 2,979,492 | - | 6,891,922 | ||||||||||||
| Year ended October 31, 2022: | ||||||||||||||||
| Net revenue | 8,852,104 | 8,905,179 | - | 17,757,283 | ||||||||||||
| Gross profit | 3,039,159 | 5,083,919 | - | 8,123,078 | ||||||||||||
| Gross profit before fair value adjustments | 3,089,302 | 5,440,542 | - | 8,529,844 | ||||||||||||
| Year ended October 31, 2021: | ||||||||||||||||
| Net revenue | 5,152,286 | 3,882,332 | 344,055 | 9,378,673 | ||||||||||||
| Gross profit | 2,325,304 | 3,585,462 | 189,702 | 6,100,468 | ||||||||||||
| Gross profit before fair value adjustments | - | - | - | - | ||||||||||||
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, 2022, one major customer accounted for 14% of revenues (2021 – one major customer accounted for 11% of annual revenues).
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 25. | Non-Controlling Interests |
The changes to the non-controlling interest for the year ended October 31, 2022, and the year ended October 31, 2021 are as follows:
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Balance, beginning of period | 2,033,986 | (33,383 | ) | |||||
| Non-controlling interest’s 40% share of Idalia, LLC | - | (4,092 | ) | |||||
| Non-controlling interest’s 13% share of GR Michigan, LLC | - | 5,743 | ||||||
| Non-controlling interest’s 100% share of Canopy Management, LLC | (27,507 | ) | 2,065,718 | |||||
| Balance, end of period | 2,006,479 | 2,033,986 | ||||||
| 25.1 | Non-controlling interest in Idalia, LLC |
The following is summarized financial information for Idalia, LLC:
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Net loss for the period | - | 10,230 | ||||||
| 25.2 | Non-controlling interest in GR Michigan, LLC (“GR Michigan”): |
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Current assets | - | 1,453 | ||||||
| Net loss for the period | - | 48,867 | ||||||
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 19.4), and 4% of GR Michigan owned by a third party. The total non-controlling ownership, including ownership by officers and directors, is 13%.
| 25.3 | Non-controlling interest in Grown Rogue Distribution, LLC |
During the year ended October 31, 2021, the Company sold an aggregate total of an approximately 10.6% interest in Grown Rogue Distribution, LLC (“GR Distribution”) for $475,000. The interest was comprised of 11.875 newly issued equity units (“GR Distribution Units”) and each GR Distribution Unit was sold for $40,000. Prior to the issuances, 100 GR Distribution Units were outstanding, and after the issuances, 111.875 GR Distribution Units were issued and outstanding. Of the newly issued 11.875 GR Distribution units issued, 6.25 were issued to a former director of the Company, for proceeds of $250,000. On April 30, 2021, the Company purchased 11.875 GR Distribution Units in exchange for 3,711,938 common shares with an aggregate fair value of $664,816. After the Company’s purchase of 11.875 GR Distribution Units, Grown Rogue Distribution, LLC was a 100% owned subsidiary.
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 25.4 | Non-controlling interest in Canopy Management, LLC |
| October 31, 2022 |
October 31, 2021 |
|||||||
| $ | $ | |||||||
| Current assets | 3,200,701 | 3,093,330 | ||||||
| Non-current assets | 3,741,309 | 4,023,521 | ||||||
| Current liabilities | 2,337,695 | 1,708,330 | ||||||
| Non-current liabilities | 715,461 | 1,225,804 | ||||||
| Advances due to parent | - | 530,020 | ||||||
| Net income (loss) for the period | (27,507 | ) | 2,196,479 | |||||
Ninety-six percent (96%) of Canopy is owned by officers and directors of the Company, and four percent (4%) is owned by a third party. Ownership by officers and directors, excluding the CEO, is pursuant to agreements which caused their ownership of Canopy to be equal to their ownership in GR Michigan (Note 25.2), which total 3.5%. The CEO owns 92.5% of Canopy, noting that this analogous to the CEO’s 5.5% ownership of GR Michigan, and an additional 87% of Canopy, which is equal to the Company’s ownership of GR Michigan of 87%. After the Company executes its option to acquire Canopy, the Company’s ownership of Canopy will be the same as its ownership of GR Michigan.
| 26. | Subsequent events |
| 26.1 | 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) are subject to a statutory hold period of four months and one day from the closing date. |
| 26.2 | On December 20, 2022, the Company entered into a new lease agreement for approximately 35 acres of outdoor property. The initial lease term is January 1, 2023 to December 31, 2023 and monthly payments during this period are $7,500. Any time prior to May 1, 2023, the Company can early terminate the lease with thirty-day written notice. The Company has an option to purchase the leased property, and the Company has paid $6,000 of option premium. The Company must deposit $25,000 by December 1, 2023 to exercise the option the purchase the property for $1,600,000, against which the option premium of $6,000, the initial deposit of $25,000, and seventy-five percent of paid rent will be credited towards the purchase price. The Company has a right to extend the lease and option terms through calendar year 2024. If the Company extends, a second option premium payment of $15,000 is due by December 1, 2023, monthly rent will be $9,0000 per month, and the property purchase price will be $1,700,000. If extended, both premium payments, the initial deposit of $25,000, and fifty percent of rents paid will apply against the purchase price. |
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Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 26.3 | On January 10, 2023, the Company announced the issuance of 200,000 common shares, reported as shares issuable as at October 31, 2022. The Company also granted options to purchase an aggregate of 6,400,000 common shares of the Company to certain directors, officers, and employees. The options are exercisable at a price of CAD$0.15 per share for a period of four years from the date of grant. This option grant included 4,250,000 options granted to officers and directors of the Company. |
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Exhibit 10
GROWN ROGUE INTERNATIONAL INC.
FORM 51-102F1
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE YEAR ENDED OCTOBER 31, 2022
TABLE OF CONTENTS
i
This Management Discussion and Analysis (“MD&A”) made as of February 28, 2023, should be read in conjunction with the audited condensed consolidated financial statements of Grown Rogue International Inc. (the “Company”, “Grown Rogue”, (“we”, “our”, or “us”) for the year ended October 31, 2022, and 2021 (the “Reporting Period”), and the related notes thereto (the “Financial Statements”). The Company’s Financial Statements are presented on a consolidated basis with its wholly-owned subsidiaries: Grown Rogue Unlimited, LLC (“GR Unlimited”) and GR Unlimited’s wholly-owned subsidiaries Grown Rogue Gardens, LLC (“GR Gardens”) GRU Properties, LLC (“GRU Properties”), GRIP, LLC (“GRIP”), and Grown Rogue Distribution, LLC (“GR Distribution”); as well as GR Unlimited’s 87% interest in GR Michigan, LLC (“GR Michigan”), and GR Unlimited’s 60% interest in Idalia, LLC; and Canopy Management, LLC (“Canopy”), a company controlled by the Company’s CEO, in which the Company did not have an ownership interest as at October 31, 2022, and which owns 60% of Golden Harvests, LLC (“Golden Harvests”). On January 31, 2023, The Company announced that it had exercised its option to obtain 87% of the membership units of Canopy (through GR Unlimited). Grown Rogue’s reporting currency is the United States dollar and all amounts in this MD&A are expressed in United States dollars unless otherwise noted. The use of “CAD$” refers to Canadian dollars.
The 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 bases 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.
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.
Pg 1 of 34
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.
Grown Rogue, headquartered in Medford, Oregon, is a multi-state cannabis company producing high quality and consistent flower that allows consumers to enhance life experiences. Grown Rogue is a mid-premium brand that classifies our products based on “Mind, Body & Mood” effects which resonate with consumers from the so-called canna-curious through the canna-serious. Grown Rogue is committed to educating, inspiring and empowering consumers with information about cannabis so they can “enhance experiences” by selecting the right product. We are focused on high quality, low-cost production of flower and flower-based products. Flower continues to be the leading product category in most states as compared to other categories such as edibles, vape cartridges, or concentrates. With our best-in-class production methods, low-cost cultivation, award winning product, and geographic location in the famed Emerald Triangle, Grown Rogue has positioned itself as a leading flower producer in the cannabis sector.
Grown Rogue 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.
Oregon
Grown Rogue, through its wholly owned subsidiary, GR Gardens, operates four cultivation facilities in Oregon, comprising approximately 130,000 square feet of cultivation area, that currently service the Oregon recreational marijuana market: “Foothill” (sungrown, license transferred from the former “Manzanita Glen” location), “Trail’s End” (sungrown), and two state-of-the-art indoor facilities (“Rossanley” and “Airport”). GR Gardens currently holds four producer licenses in Oregon from the Oregon Liquor Control Commission (“OLCC”), two wholesaler licenses, and two processor licenses. Subsequent to October 31, 2022, we executed a 2-year lease and option to purchase an outdoor facility in Oregon called “Ross Lane,” that includes 35 acres, 3 tax lots and an additional OLCC producer license. Our current plan is to produce with the newly acquired license during 2023 and ultimately transfer the Trail’s End license in 2024 to consolidate outdoor production at Ross Lane.
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.
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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, Trail’s End and Ross Lane are outdoor farms with 40,000 square feet of flowering canopy each, for a total of 120,000 square feet, sitting on a combined land package of approximately 135 acres. Currently, we do not plan on growing at the Trail’s End property in 2023 and will be transferring that license to Ross Lane for production in 2024.
Rossanley, an approximately 17,000 square-foot indoor facility, 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 3,600 pounds annually.
Airport is a 30,000 square foot indoor growing facility 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 nearly 6,800 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 15,000 and 18,000 pounds, depending upon various factors including sungrown growing conditions and strain performance.
Michigan
In February 2020, Grown Rogue, through its subsidiary GR Michigan, signed an Option to Purchase Agreement (the “Option Agreement”) to acquire a 60% controlling interest in Golden Harvests. Golden Harvests is a Michigan-based, fully licensed and operating cultivation company located in Bay City, Michigan. Golden Harvests has an approximately 80,000 square foot facility of which approximately 55,000 square feet is operational. During the year ended October 31, 2021, GR Michigan terminated the Option Agreement. Simultaneously with the termination of the Option Agreement, a new entity, Canopy Management, LLC (“Canopy”), a company controlled by the Company’s CEO, Mr. Strickler, signed an option agreement to purchase Golden Harvests under similar terms as the Option Agreement (the “New Option”), which was exercised in May 2021. Canopy was majority owned by GRIN’s CEO, who has a fiduciary responsibility to the Company and was prohibited from omitting or taking certain actions relating to Canopy where to do so would have been contrary to the economic benefits which the Company expected to derive from the acquisition of Golden Harvests. Canopy had already been approved by the State of Michigan for licensing and this facilitated the Company’s ability to accelerate its option exercise to obtain a 60% interest in Golden Harvests. The Company has (subsequent to October 31, 2022) acquired 87% of Canopy’s membership interests from Mr. Strickler’s membership interest, and as such has identical economic rights as the Company originally had in the Option Agreement. After these transactions and agreements, we own an 87% membership interest in Canopy, and Canopy owns a controlling 60% interest in Golden Harvests.
Golden Harvests added approximately $1.1 million in fixed assets in 2022 and harvested approximately 7,800 pounds, including production from five additional flower rooms in 2022 as compared to 2021. Anticipated 2023 production is approximately 10,800 pounds, reflecting the annualization of rooms built in 2022.
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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 1st place for highest THC content, 1st place for highest terpene content, and 3rd 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.
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 its portfolio. We continue to focus on bringing new unique genetics to bring 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 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 ten 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.
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. |
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| 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 living wage to its team members and is very involved in each of the communities where it operates.
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.
The expansion into Airport (see “Description of the Business – Oregon”) and acquisition by Canopy 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. 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 12 months, we are focused on furthering our footprints and flower market shares in Oregon and Michigan markets, continuing to add new products to our portfolio, and exploring 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.
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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.
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 | 17,757,283 | 9,378,673 | 4,239,604 | |||||||||
| Profit (loss) from operations | 957,149 | 701,576 | (1,574,679 | ) | ||||||||
| Net income (loss) | 419,951 | (1,014,747 | ) | (2,356,488 | ) | |||||||
| Net loss per share, basic and diluted | 0.00 | (0.02 | ) | (0.03 | ) | |||||||
| Comprehensive income (loss) | 400,716 | (1,092,928 | ) | (2,490,605 | ) | |||||||
| Comprehensive loss per share, basic & diluted | 0.00 | (0.02 | ) | (0.03 | ) | |||||||
| Total assets | 16,370,582 | 14,207,700 | 3,764,418 | |||||||||
| Total non-current liabilities | 2,114,978 | 3,224,677 | 2,910,333 | |||||||||
| Cash dividends | Nil | Nil | Nil | |||||||||
Selected financial results of operations for the three and nine months ended October 31, 2022, and 2021, are summarized below:
| Years ended October 31, | 2022 ($) | 2021 ($) | Variance ($) | Variance % | ||||||||||||
| Revenue | 17,757,283 | 9,378,673 | 8,378,610 | 89 | % | |||||||||||
| Cost of goods sold, excluding fair value adjustments | (9,227,439 | ) | (4,151,970 | ) | (5,075,469 | ) | 122 | % | ||||||||
| Gross profit before fair value adjustments | 8,529,844 | 5,226,703 | 3,303,141 | 63 | % | |||||||||||
| Net income (loss) | 419,951 | (1,014,747 | ) | 1,434,698 | - | |||||||||||
Significant items contributing to the generation of net income for the years ended October 31, 2022, and 2021 are summarized in the table below.
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| Years ended October 31, | 2022 ($) | 2021 ($) | Variance $ | Variance % | ||||||||||||
| Total revenues | 17,757,283 | 9,378,673 | 8,378,610 | 89 | % | |||||||||||
| Cost of goods sold, excluding fair value items | 9,227,439 | 4,151,970 | 5,075,469 | 122 | % | |||||||||||
| Realized fair value amounts in inventory sold | 3,685,338 | 950,461 | 2,734,877 | 288 | % | |||||||||||
| Unrealized fair value gain on growth of biological assets | 3,278,572 | 1,824,226 | 1,454,346 | 80 | % | |||||||||||
| Accretion expense | 491,781 | 949,811 | (458,030 | ) | (48 | %) | ||||||||||
| General and administrative expenses | 5,852,236 | 3,983,250 | 1,868,986 | 47 | % | |||||||||||
| Share-based compensation | 70,996 | 280,819 | (209,823 | ) | (75 | %) | ||||||||||
| Interest expense | 402,239 | 197,632 | 204,607 | 104 | % | |||||||||||
| Amortization of property and equipment | 750,916 | 180,015 | 570,901 | 317 | % | |||||||||||
| Gain on debt settlement | 453,858 | 141,180 | 312,678 | 221 | % | |||||||||||
| Unrealized loss on derivative liability | - | 1,258,996 | (1,258,996 | ) | - | |||||||||||
| Unrealized gain (loss) on marketable securities | 333,777 | 35,902 | 297,875 | 829 | % | |||||||||||
More detailed analysis of the components of results of operations are described in the following sections.
Revenues
Revenues – years ended October 31, 2022 and 2021
| Years ended October 31, | 2022 ($) | 2021 ($) | Variance ($) | Variance (%) | ||||||||||||
| Revenue from third-party products | 695 | 1,636 | (941 | ) | (58 | %) | ||||||||||
| Revenue from Grown Rogue production | 17,756,588 | 9,032,982 | 8,723,606 | 97 | % | |||||||||||
| Revenue from management services | - | 344,055 | (344,055 | ) | (100 | %) | ||||||||||
| Total revenue | 17,757,283 | 9,378,673 | 8,378,610 | 89 | % | |||||||||||
The following table summarizes revenues from Grown Rogue production for year ended October 31, 2022, and 2021:
| Years ended October 31, | 2022 ($) | 2021 ($) | Variance ($) | Variance (%) | ||||||||||||
| Indoor | 15,678,541 | 6,713,851 | 8,964,690 | 134 | % | |||||||||||
| Outdoor | 733,212 | 1,266,508 | (533,296 | ) | (42 | %) | ||||||||||
| Pre-rolls | 327,775 | - | 327,775 | - | ||||||||||||
| Trim & other | 1,017,060 | 1,052,623 | (35,563 | ) | (3 | %) | ||||||||||
| Revenue from Grown Rogue production | 17,756,588 | 9,032,982 | 8,723,606 | 97 | % | |||||||||||
Revenues during the year ended October 31, 2022, were higher than the comparative period in 2021, due primarily to the consolidation of $8.9 million Golden Harvests revenues for the full fiscal year of 2022, versus $3.9 million in Golden Harvests revenues for the six months ended October 31, 2021, as the Company acquired a 60% interest at the beginning of our third fiscal quarter of 2021. As detailed further below, we sold more pounds in 2022 than 2021, at lower average selling prices (“ASP”).
The following tables summarize pounds sold and average selling prices.
| Years ended October 31, | 2022 Pounds sold | 2021 pounds sold | Pounds variance | 2022 ASP ($) | 2021 ASP ($) | ASP variance | ||||||||||||||||||
| Indoor flower | 18,325 | 5,212 | 13,113 | 856 | 1,288 | (432 | ) | |||||||||||||||||
| Outdoor flower | 2,828 | 1,956 | 872 | 259 | 647 | (388 | ) | |||||||||||||||||
| Pre-rolls | 187 | - | 187 | 1,754 | - | - | ||||||||||||||||||
| Total | 21,340 | 7,168 | 14,172 | 784 | 1,113 | (329 | ) | |||||||||||||||||
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Costs of goods and services sold
| Years ended October 31, | 2022 ($) | 2021 ($) | Change ($) | Change (%) | ||||||||||||
| Cost of finished cannabis inventory sold | 9,227,439 | 3,997,617 | 5,229,822 | 131 | % | |||||||||||
| Costs of service revenues | - | 154,353 | (154,353 | ) | (100 | %) | ||||||||||
| Costs of goods sold, excl. fair value items | 9,227,439 | 4,151,970 | 5,075,469 | 122 | % | |||||||||||
Cost of finished cannabis inventory sold during the year ended October 31, 2022, increased by 131% from the year ended October 31, 2021, while revenues for the same periods increased 97%, reflecting the mix of operational and scale efficiencies, sales prices which declined during the course of 2022, and increased volume of pounds sold.
Net income and loss
Share-based compensation
During the year ended October 31, 2022, 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 $61,680 during the year ended October 31, 2022 (2021 - $280,819).
General and administrative expenses
| Years ended October 31, | 2022 ($) | 2021 ($) | Change ($) | Change (%) | ||||||||||||
| Office, banking, travel, and overheads | 1,929,384 | 1,185,275 | 744,109 | 63 | % | |||||||||||
| Professional services | 456,532 | 767,050 | (310,518 | ) | (40 | %) | ||||||||||
| Salaries and benefits | 3,466,320 | 2,030,925 | 1,435,395 | 71 | % | |||||||||||
| General and administrative expenses | 5,852,236 | 3,983,250 | 1,868,986 | 47 | % | |||||||||||
Increased general and administrative costs during the years ended October 31, 2022, were primarily due to the consolidation of $1.3 million in general and administrative costs of Golden Harvests for the full year of 2022, versus six months of 2021. Other increases were in part to an increase in total overheads, from growth in facility sizes and number of facilities, and of which a portion of which is attributed to administration. The increases are also due in part to additional staffing required to support expansion and growth, which demanded increases in management expertise in operations and corporate positions, as well as an increased utilization of professional services to support various transactions and costs of regulatory compliance and public disclosure executed during the year ended October 31, 2021 and 2022.
Interest and interest accretion expense
| Years ended October 31, | 2022 ($) | 2021 ($) | Change ($) | Change (%) | ||||||||||||
| Interest and accretion expense | 894,020 | 1,147,443 | (253,423 | ) | (22 | %) | ||||||||||
Interest and accretion expenses reflect the decrease in accretion as debt progresses towards maturity dates, offset in part by interest paid on recent lease additions.
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Segment reporting
We operate in the states of Oregon and Michigan in the United States. The following tables summarize performance by state segment for year ended October 31, 2022.
| Geographical segments | Oregon | Michigan | Corporate | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Non-current assets other than financial instruments: | ||||||||||||||||
| As at October 31, 2022 | 4,719,260 | 3,741,309 | - | 8,460,569 | ||||||||||||
| As at October 31, 2021 | 3,912,430 | 2,979,492 | - | 6,891,922 | ||||||||||||
| Year ended October 31, 2022: | ||||||||||||||||
| Net revenue | 8,852,104 | 8,905,179 | - | 17,757,283 | ||||||||||||
| Gross profit | 3,039,159 | 5,083,919 | - | 8,123,078 | ||||||||||||
| Gross profit before fair value adjustments | 3,089,302 | 5,440,542 | - | 8,529,844 | ||||||||||||
| Year ended October 31, 2021: | ||||||||||||||||
| Net revenue | 5,152,286 | 3,882,332 | 344,055 | 9,378,673 | ||||||||||||
| Gross profit | 2,325,304 | 3,585,462 | 189,702 | 6,100,468 | ||||||||||||
| Gross profit before fair value adjustments | - | - | - | - | ||||||||||||
The year ended October 31, 2022, reflects the contribution of gross profit from Golden Harvests’ operations in Michigan, as well as improved margins in Oregon, as compared to the year ended October 31, 2021, which includes the consolidation of Golden Harvests for the six months ended October 31, 2021.
The following table sets out selected quarterly results of the Company for the eight quarters ended on or before October 31, 2022. 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 $8.9 million in revenues for the year ended October 31, 2022. Revenues in any period are subject to market sales pricing, which historically has fluctuated significantly. Management has observed that pricing and sales volumes tend to be lower seasonally during winter months, in the Company’s first fiscal quarter, although we do not have high confidence that this will persist. Net losses shifted to net income in Q3 2021, the quarter in which we acquired a 60% interest in Golden Harvests. Net income and loss include the impact of significant non-cash expenses, such as losses on the fair valuation of derivative liabilities, marketable securities, share-based payments, and interest accretion. Expenses contributing to net loss do not have significant seasonal trends, except for costs of sales, which follow trends in revenues.
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| 2022 | 2022 | 2022 | 2022 | |||||||||||||
| Fiscal Year Quarter ended | Oct | Jul | Apr | Jan | ||||||||||||
| Revenue ($) | 5,072,635 | 4,251,808 | 4,700,127 | 3,732,713 | ||||||||||||
| Net income ($) | (451,630 | ) | 571,406 | 144,734 | 155,441 | |||||||||||
| Net income/share, basic & diluted | 0.00 | 0.00 | 0.01 | 0.00 | ||||||||||||
| 2021 | 2021 | 2021 | 2021 | |||||||||||||
| Fiscal Year Quarter ended | Oct | Jul | Apr | Jan | ||||||||||||
| Revenue ($) | 3,760,075 | 3,028,991 | 1,538,422 | 1,051,185 | ||||||||||||
| Net income (loss) ($) | 1,102,542 | 240,294 | (1,442,518 | ) | (915,065 | ) | ||||||||||
| Net income (loss)/share, basic & diluted | 0.00 | 0.00 | (0.01 | ) | (0.01 | ) | ||||||||||
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 five recent quarters preceding the three months ended October 31, 2022, and expect to resume 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. We raised gross proceeds of $1.4 million during the year ended October 31, 2022 (2021 - approximately $6.56 million).
We are typically able to sell finished goods shortly after inventory reaches its final state, and sales are primarily made on cash-on-delivery terms, or with short net terms. Our ability to fund operations, to plan capital expenditures, and to plan acquisitions, depends on future operating performance and cash flows and the availability of capital by way of debt or equity investment in the Company, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond the Company’s control.
Cash flows
The following table summarizes certain cash flow items for the years ended October 31, 2022, and 2021.
| Years ended October 31, | 2022 ($) | 2021($) | ||||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Net cash provided by (used in) operating activities | 2,004,175 | (238,461 | ) | |||||
| Net cash used in investing activities | (1,113,283 | ) | (2,727,008 | ) | ||||
| Net cash provided by (used in) financing activities | (422,541 | ) | 3,861,714 | |||||
| Net increase in cash and cash equivalents | 468,351 | 896,245 | ||||||
| Effect of currency translation | 918 | 7,233 | ||||||
| Cash and cash equivalents, beginning | 1,114,033 | 217,788 | ||||||
| Cash and cash equivalents, ending | 1,582,384 | 1,114,033 | ||||||
Operating activities
During the year ended October 31, 2022, cash provided by operating activities was $2,004,175 (2021 – cash used by operations of $238,461). This number was derived by adding back non-cash items to net loss, including the following significant adjustments:
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| ● | $750,916 (2021 - $180,015) in amortization of property & equipment; |
| ● | $1,102,688 (2021 - $733,655) from depreciation expensed in costs of finished inventory sold; |
| ● | Deduction of $3,278,572 (2021 – $1,824,226) from the unrealized change in fair value of biological assets; |
| ● | $3,685,338 (2021 - $950,461) for changes in fair value in inventory sold; |
| ● | $117,913 (2021 - $413,798) 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; |
| ● | $491,781 (2021 - $949,811) in accretion of interest expense on debt and convertible debentures outstanding; |
| ● | $455,674 (2021 - $Nil) gain on debt settlement, almost entirely attributed to the exchange of our investment in PBIC to settle debt owed to PBIC; and |
| ● | $333,777 (2021 – $35,902) from the unrealized loss on our investment in Plant Based Investment Corp. (“PBIC”) shares, measured at PBIC’s publicly quoted share price. |
Changes in non-cash working capital are summarized in the following table.
| Years ended October 31, | 2022 ($) | 2021($) | ||||||
| Accounts receivable | (904,711 | ) | (412,060 | ) | ||||
| Inventory & biological assets | (94,595 | ) | (1,359,567 | ) | ||||
| Prepaid expenses and other assets | 5,267 | (196,261 | ) | |||||
| Accounts payable and accrued liabilities | (124,334 | ) | (294,846 | ) | ||||
| Interest payable | (13,750 | ) | 4,383 | |||||
| Income tax payable | 56,401 | 137,131 | ||||||
| Deferred rent | - | (10,494 | ) | |||||
| Unearned revenue | (95,389 | ) | - | |||||
| Total | (1,171,111 | ) | (2,131,714 | ) | ||||
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
During years ended October 31, 2022, we added $4,000,874 (2021 - $5,824,256) to property and equipment, including non-cash right-of-use asset additions. We expended cash flows of $1,111,283 (2021 - $2,047,136) for property and equipment additions, driven by the expansion of our indoor grow facility in Michigan.
Financing activities
Net cash used from financing activities during the year ended October 31, 2022, were $422,541 (2021 – net cash provided of $3,861,714). Significant financing activities 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. |
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Financing activities during the comparable year ended October 31, 2021, included the following:
| ● | Equity issuance by a subsidiary of $475,000, to advance the acquisition of Airport; |
| ● | Debt proceeds of $150,000 borrowed to expand Rossanley productive capacity; |
| ● | Debt proceeds of $375,000 borrowed to advance the acquisition of Airport; |
| ● | Debt proceeds of $600,000 borrowed for general corporate uses; |
| ● | $1,225,000 raised through a private placement of common shares and warrants; |
| ● | $3,738,564 raised through a brokered private placement; |
| ● | Payment of equity and debenture issuance costs of $500,870; |
| ● | Repayments of $1,312,722 as part of full retirement of convertible debentures; |
| ● | Repayments of $380,543 of lease principal; and |
| ● | Repayments of $507,715 of long-term debt. |
Trends and expected fluctuations in liquidity
| October 31, 2022 ($) | October 31, 2021 ($) | Variance ($) | Variance (%) | |||||||||||||
| Current assets | 7,910,013 | 6,705,686 | 1,204,327 | 18 | % | |||||||||||
| Current liabilities | (5,315,904 | ) | (3,862,460 | ) | (1,453,444 | ) | 38 | % | ||||||||
| Working capital | 2,594,109 | 2,843,226 | (249,117 | ) | (9 | %) | ||||||||||
Working capital varied from October 31, 2021, to October 31, 2022, due to the offsetting impacts of cash generated from operations, outlay of cash for fixed asset investments, debt service, and debt and equity financings (described above), which provided gross cash proceeds of $1.4 million. Cash generated from operations was used to invest in productive capacity and service debt; cash not used for these purposes remains available as part of working capital and for deployment in future business opportunities.
We expect significant ongoing fluctuations in working capital over time, as we are in the early stages of growth. We have historically raised debt with principal due on maturity, and accordingly, we expect significant one-time payments as debt matures, as opposed to smooth cash outflows over time. We have historically been able to meet commitments, modify debt maturities, and raise new financing as required to respond to changes in our liquidity position, although there is no guarantee we will be able to do so in the future. We are exposed to market pricing for cannabis products, which materially impacts our liquidity and is out of our control. The market for cannabis products, including flower, which is our primary product, is relatively immature, having recently become legal to buy and sell in certain markets. We have observed some indications of seasonality, and in addition, we have observed that market conditions can change rapidly without apparent explanations or analyzable causes. We cannot control whether we will be able to raise financing when required or sell cannabis products at profitable prices in the future; however, part of our strategy is to produce flower at sustainable gross margins over a growing productive base, which, holding other factors constant, is expected to result in improved net loss or net income, as well as net cash flows.
Commitments and obligations
Set out below are undiscounted minimum future lease payments after October 31, 2022.
| Total
future minimum lease payments ($) | ||||
| Less than one year | 1,201,966 | |||
| Between one and five years | 1,448,524 | |||
| Total | 2,650,490 | |||
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The Company has four lease contracts with extension options remaining after October 31, 2022, 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 five years | More than five years | |||||||
| Extension options available to be exercised | $ | 1,758,239 | $ | 5,191,881 | ||||
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 | 1,821,875 | - | - | |||||||||
| Lease liabilities | 1,025,373 | 969,344 | 306,412 | |||||||||
| Debt | 1,769,600 | 839,222 | - | |||||||||
| Business acquisition consideration payable | 360,000 | - | - | |||||||||
| Interest payable | - | - | - | |||||||||
| Unearned revenue | 28,024 | |||||||||||
| Income tax | 311,032 | - | - | |||||||||
| Total | 5,315,904 | 1,808,566 | 306,412 | |||||||||
Other liquidity items
On June 20, 2022, the Company announced the settlement of the unsecured promissory note payable to PBIC entered into on September 9, 2021, and which had a principal balance owing of $700,000 (the “PBIC Note”). The Company agreed to transfer its ownership in PBIC, comprised of 2,362,204 common shares in PBIC (the “PBIC Shares), to 2766923 Ontario Inc. (the “Creditor”), 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 PBIC Note automatically terminated upon receipt by the Creditor of the PBIC Shares.
Debt financing
Promissory note with principal of $700,000 - issuance and settlement
On September 9, 2021, the Company entered into an unsecured promissory note agreement with PBIC, a related party, in the amount of $800,000 which was to be fully advanced by September 30, 2021 (the “PBIC Note”). During 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 sun-grown A-flower 2021 harvest (the “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%.
Pg 14 of 34
On June 20, 2022, the Company announced the settlement of the PBIC Note, which had a principal balance owing of $700,000 PBIC Note. The Company agreed to transfer its ownership in PBIC, comprised of 2,362,204 common shares in PBIC (the “PBIC Shares”), to 2766923 Ontario Inc. (the “Creditor”), 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.
Note payable to HSCP for Airport Asset Acquisition with principal amount of $1,250,000
On April 14, 2022, the Company closed the acquisition of an indoor facility with HSCP, LLC, a subsidiary of Acreage Holdings Inc. As a result of the acquisition, a promissory note payable of $1,250,000 was issued which is due on May 1, 2023 (see Description of Business – Oregon). On August 1, 2022, the payment terms of the Secured Promissory Note between Grown Rogue Distribution, LLC and HSCP Oregon, LLC, was amended. The amendment describes that the Secured Promissory Note will be fully settled by two principal amounts of $500,000 (the “First Principal Payment”) and $750,000 which will now be 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.
Equity financing
Non-brokered private placement of common shares raising $1,300,000
On December 9, 2021, the Company closed a non-brokered private placement of common shares (“Private Placement”) for total gross proceeds of $1,300,000 (CAD$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.
Trends and expected fluctuations in capital resources
We expended net cash flows from financing of approximately $423,000 during the year ended October 31, 2022, (2021 – $3.9 million), resulting from net proceeds from equity and debt raises of financing of $1.4 million, less debt, debenture, & lease principal repayments of $1.8 million.
Proceeds of $100,000 were raised from debt issuances during the year ended October 31, 2022, (2021 - $1,125,000), and gross proceeds of $1,300,000 were raised from equity issuances and subscriptions (2021 - $5,438,564).
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 year ended October 31, 2022, the Company completed the following related party transactions:
Through its wholly owned subsidiary, GRU Properties, LLC, the Company leased a property located in Trail, Oregon (“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 were incurred for year ended October 31, 2022 (2021 – 73,000). The lease liability balance for Trail at October 31, 2022, was $193,312 (October 31, 2021 - $242,228).
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 $184,500 (2021 - $60,000) were incurred for the year ended October 31, 2022. The lease liability for Lars at October 31, 2022, was $607,900 (October 31, 2021 - $727,885).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $14,686 at October 31, 2022 (October 31, 2021 - $33,260). Lease payments of $28,871 were made against the equipment leases during the year ended October 31, 2022 (2021 - $17,802).
Leases liabilities payable to the CEO were $810,645 in aggregate at October 31, 2022 (October 31, 2021 - $1,003,373).
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 $305 during the year ended October 31, 2022 (2021 - $18,215).
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.
The Company incurred expenses of $60,000 (2021 - $58,020) for services provided by the spouse of the CEO, who is employed as our Community Relations manager. At October 31, 2022, accounts and accrued liabilities payable to this individual were $1,154 (October 31, 2021 - $1,154).
Key management personnel consists of the President and CEO; the Senior Vice President of Grown Rogue Unlimited, LLC; the former Chief Operating Officer (“COO”)*; and the CFO of the Company. The compensation to key management is presented in the following table:
| Years ended October 31, | 2022 | 2021 | ||||||
| Salaries and consulting fees | $ | 638,067 | $ | 875,058 | ||||
| Share-based compensation | 13,043 | 70,040 | ||||||
| Stock option expense | 6,536 | 64,436 | ||||||
| Total | $ | 657,646 | $ | 1,009,534 | ||||
| * | COO was appointed subsequent to April 30, 2021 and was paid & compensated prior to appointment; compensation for year ended October 31, 2021, is included in the table above for comparability to past & ongoing expenses. COO’s final date of employment was December 27, 2021. |
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Stock options granted to key management personnel and close family members of key management personnel include the following options, granted during the year ended October 31, 2021: 500,000 options were granted to the COO, which expired following the COO’s resignation. During the year ended October 31, 2020: 750,000 options to the CFO of GR Unlimited; 750,000 options to the CMO; and 250,000 options to the CFO (CFO was Chief Accounting Officer at date of grant).
Compensation to directors during the year ended October 31, 2022, was $18,000, as well as compensation in shares comprised of 273,750 shares with a fair value of $20,562 (2021 – fees of $18,000 and common share issuances of 100,908 common shares with a fair value of $58,751).
Accounts payable, accrued liabilities, and lease liabilities due to key management at October 31, 2022, totaled $947,233 (October 31, 2021 $1,199,826).
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 October 31, 2022, and the year ended October 31, 2021. 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; Senior VP of GR Unlimited LLC – Adam August; Directors – Abhilash Patel; and former COO – Thomas Fortner.
| CEO | Senior VP - GR Unlimited LLC | Director | COO | Total | |||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||
| Balance - October 31, 2020 | 61,493 | 122,987 | 184,480 | - | 368,960 | ||||||||||||||||
| Borrowed | - | - | - | 150,000 | 150,000 | ||||||||||||||||
| Interest | 37,589 | 75,178 | 112,767 | 13,750 | 239,284 | ||||||||||||||||
| Payments | (33,543 | ) | (67,087 | ) | (100,630 | ) | - | (201,260 | ) | ||||||||||||
| Balance - October 31, 2021 | 65,539 | 131,078 | 196,617 | 163,750 | 556,984 | ||||||||||||||||
| Borrowed | - | - | - | - | - | ||||||||||||||||
| Interest | 24,621 | 49,242 | 73,863 | 1,250 | 148,976 | ||||||||||||||||
| Payments | (43,361 | ) | (86,717 | ) | (130,076 | ) | (165,000 | ) | (425,154 | ) | |||||||||||
| Balance – October 31, 2022 | 46,799 | 93,603 | 140,404 | - | 280,806 | ||||||||||||||||
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, CFO of GR Unlimited LLC, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan LLC, respectively; third parties obtained 4% as part of the consideration for loaned funds, representing a 13% non-controlling interest in GR Michigan. Concurrent with execution of the New Option, these parties, except the CEO, obtained the same interests in Canopy, and the CEO obtained a 92.5% interest in Canopy. Subsequent to October 31, 2022, the Company obtained 87% of Canopy membership units from the CEO.
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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 $3,175,286 for the year ended October 31, 2022 (2021 - $1,893,253). The Company defines “EBITDA” as the Company’s net income or loss for a period, as reported, before interest, taxes, depreciation and amortization, and is further adjusted to remove transaction costs, stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative liabilities, the effects of fair-value accounting for biological assets and inventory, as well as other non-cash items and items not representative of operational performance as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact of various significant or unusual transactions. The Company believes that this is a useful metric to evaluate its operating performance, as it allows analysts to compare us to our competitors and derive expectations of our future performance. Adjusted EBITDA increases comparability between comparative companies by adjusting for variability resulting from differences in capital structures, resource allocations and investments, the impact of fair value adjustments on biological assets and inventory and financial statements, which may be volatile and fluctuate significantly from period to period.
| Year ended | ||||||||
| October 31, | ||||||||
| Adjusted EBITDA Reconciliation | 2022 ($) | 2021($) | ||||||
| Net income (loss), as reported | 419,951 | (1,014,747 | ) | |||||
| Add back realized fair value amounts included in inventory sold | 3,685,338 | 950,461 | ||||||
| Deduct unrealized fair value gain on growth of biological assets | (3,278,572 | ) | (1,824,226 | ) | ||||
| Add back amortization of property & equipment included in cost of sales | 1,102,688 | 733,655 | ||||||
| 1,929,405 | (1,154,857 | ) | ||||||
| Add back interest and interest accretion expense, as reported | 894,020 | 1,147,443 | ||||||
| Add back amortization of intangible assets, as reported | - | 4,997 | ||||||
| Add back amortization of property and equipment, as reported | 750,916 | 180,015 | ||||||
| Add back share-based compensation | 117,913 | 413,798 | ||||||
| Add back unrealized loss on marketable securities, as reported | 333,777 | 35,902 | ||||||
| Add back unrealized loss on derivative liability, as reported | - | 1,258,996 | ||||||
| Add back unrealized foreign exchange loss | - | 22,927 | ||||||
| Add back loss on settlement of non-controlling interest | - | 189,816 | ||||||
| Add back income tax expense | 245,358 | 150,543 | ||||||
| EBITDA | 4,271,389 | 2,249,580 | ||||||
| Performance incentive bonus payment 1 | 179,685 | - | ||||||
| Severance and inactive employee compensation 2 | 61,077 | - | ||||||
| Business development incentive bonus 3 | 153,825 | - | ||||||
| Gain on debt settlement for marketable securities 4 | (449,684 | ) | - | |||||
| Compliance costs 5 | 98,139 | - | ||||||
| Costs associated with acquisition of Golden Harvests 6 | 80,000 | - | ||||||
| New production location startup costs 7 | 697,120 | |||||||
| Adjusted EBITDA | 5,091,551 | 2,249,580 | ||||||
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| 1 | During the year October 31, 2022, we made a 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 | During the year ended October 31, 2022, we made 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 | During the year ended October 31, 2022, we made payments to the owners of Golden Harvests and Company 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 | During the year ended October 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 (see Capital Resources – Debt Financing). |
| 5 | During the year ended October 31, 2022, we incurred $63,587 in 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. |
| 6 | During the year ended October 31, 2022, we incurred $30,000 in costs associated with our acquisition of the Michigan assets. We incurred $20,000 in the same costs during the three months ended April 30, 2022, and did not add these costs to Adjusted EBITDA on our MD&A for that period; these costs have been added back to the Adjusted EBITDA calculation for the year ended October 31, 2022. |
| 7 | During the year ended October 31, 2022, we incurred $697,120 in non-recurring costs associated with the first year of operations at our Foothill outdoor facility, including product quality and sales prices not reflective of mature operations. |
Below we reconcile aEBITDA to cash flows from operations before changes in non-cash working capital, in order to present the efficiency with which aEBITDA is converted into cash flows.
| Year ended | ||||||||
| October 31, | ||||||||
| Reconciliation of aEBITDA to cash from operations before CNCWC | 2022 ($) | 2021($) | ||||||
| aEBITDA | 5,091,551 | 2,249,580 | ||||||
| Less: interest expense | (402,239 | ) | (197,632 | ) | ||||
| Less: Income tax expense | (245,358 | ) | (150,543 | ) | ||||
| Less: non-cash gain on debt settlement | (455,674 | ) | - | |||||
| Add back: non-cash loss on asset disposal | 6,250 | 7,542 | ||||||
| Impact of foreign exchange | 918 | (15,694 | ) | |||||
| Add-backs (deductions) to EBITDA to arrive at aEBITDA: | ||||||||
| Performance incentive bonus payment | (179,685 | ) | - | |||||
| Severance and inactive employee compensation | (61,077 | ) | - | |||||
| Business development incentive bonus | (153,825 | ) | - | |||||
| Gain on debt settlement for marketable securities | 449,684 | - | ||||||
| Compliance costs | (98,139 | ) | - | |||||
| Costs associated with acquisition of Golden Harvests | (80,000 | ) | - | |||||
| New production location startup costs | (697,120 | ) | ||||||
| Cash flows from operations before CNCWC, as reported | 3,175,286 | 1,893,253 | ||||||
| Cash flows from operations before CNCWC as % of aEBITDA | 62 | % | 84 | % | ||||
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During the year ended October 31, 2022, cash flows from operations reflect the significant non-cash deduction for the gain on the settlement of debt owed to PBIC (see “Capital Resources – Debt Financing” above), which occurred during the three months ended July 31, 2022. Adding this gain back to cash flows from operations before CNCWC results in cash flows from operations before CNCWC as a percent of aEBITDA of 71% for the year ended October 31, 2022.
As of the date of this MD&A, the Company had 170,832,611 common shares outstanding.
As of the date of this MD&A, the Company has the following warrants outstanding, exercisable into common shares:
| Exercise price (CAD$) | Warrants outstanding | Life (years) | Expiry date | ||||||||
| 0.30 | 23,162,579 | 0.01 | March 5, 2023 | ||||||||
| 0.44 | 2,148,117 | 0.3 | June 28, 2023 | ||||||||
| 0.25 | 6,716,499 | 2.8 | December 2, 2025 | ||||||||
| $ | 0.30 | 32,027,195 | 0.6 | ||||||||
As of the date of this MD&A, the Company has the following Agent Warrants outstanding, exercisable into compensation options (“Compensation Options”) for no additional consideration. Each Compensation Option entitles the holder thereof to purchase one unit of the Company (a “Compensation Unit”) at the Issue Price of CAD$0.225 for a period of twenty-four (24) months. Each Compensation Unit is comprised of one common share and one common share purchase warrant of the Company (a “Compensation Warrant”). Each Compensation Warrant shall entitle the holder thereof to purchase one common share in the capital of the Company at a price of CAD$0.30 for twenty-four (24) months. The following table sets out the Agent Warrants issued and outstanding at the date of this MD&A.
| Exercise price (CAD$) | Agent Warrants outstanding and exercisable | Remaining contractual life (years) | Expiry date | ||||||||
| $ | 0.225 | 1,241,258 | 0.01 | March 5, 2023 | |||||||
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 outstanding | Number exercisable | Remaining Contractual Life (years) | Expiry period | ||||||||||||
| 0.15 | 1,970,000 | 1,827,500 | 1.4 | July 2024 | ||||||||||||
| 0.15 | 200,000 | 200,000 | 1.7 | November 2024 | ||||||||||||
| 0.32 | 1,000,000 | 675,000 | 2.2 | April 2025 | ||||||||||||
| 0.16 | 1,150,000 | 1,075,000 | 2.2 | May 2025 | ||||||||||||
| 0.15 | 85,000 | 75,000 | 2.7 | November 2025 | ||||||||||||
| 0.15 | 400,000 | - | 3.1 | April 2026 | ||||||||||||
| 0.15 | 6,400,000 | 400,000 | 3.9 | January 2027 | ||||||||||||
| 0.17 | 11,205,000 | 4,252,500 | 3.0 | |||||||||||||
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 $30,000. The debentures mature December 2, 2025. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December. Shares issuable upon conversion as of the date of this MD&A are presented in the table below.
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| Debenture principal | Accrued interest | USD/CAD exchange rate * | Exercise price (CAD$) | Shares issuable if converted | ||||||||||||||
| 2,000,000 | 30,000 | 1.3573 | 0.20 | 13,776,595 | ||||||||||||||
| * | 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
No new accounting pronouncements were adopted during the year ended October 31, 2022.
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, 2022 and October 31, 2021, 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, 2022, the Company had accounts payable and accrued liabilities of CAD$616,345. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
Pg 21 of 34
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:
| October 31, 2022 | October 31, 2021 | |||||||
| $ | $ | |||||||
| Cash | 1,582,384 | 1,114,033 | ||||||
| Accounts Receivable | 1,643,959 | 739,248 | ||||||
| Total | 3,226,343 | 1,853,281 | ||||||
The allowance for doubtful accounts at October 31, 2022 was $264,719 (October 31, 2021 - $48,744).
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, 2022, the Company’s working capital accounts were as follows:
| October 31, 2022 | October 31, 2021 | |||||||
| $ | $ | |||||||
| Cash | 1,582,384 | 1,114,033 | ||||||
| Current assets excluding cash | 6,327,629 | 5,591,653 | ||||||
| Total current assets | 7,910,013 | 6,705,686 | ||||||
| Current liabilities | (5,315,904 | ) | (3,862,460 | ) | ||||
| Working capital | 2,594,109 | 2,843,226 | ||||||
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.
COVID-19 Pandemic
The Company’s business, operations and financial condition could be materially and adversely affected by the outbreak of epidemics or pandemics or other health crises, including the recent outbreak of COVID-19. On January 30, 2020, the World Health Organization declared the outbreak a global health emergency, on March 11, 2020, the World Health Organization declared the outbreak a pandemic and on March 13, 2020, the U.S. declared that the COVID-19 outbreak in the United States constitutes a national emergency. The Company will continue to evaluate the situation with respect to the COVID-19 pandemic as it develops and will implement any such changes to its business as may deemed appropriate to mitigate any potential impacts to its business. Such public health crises can result in volatility and disruptions in the supply and demand for products and financial markets, as well as declining trade and market sentiment and reduced mobility of people, all of which could affect consumer good prices, interest rates, credit ratings, credit risk and inflation. The risks to the Company of such public health crises also include risks to employee health and safety, a slowdown or temporary suspension of operations impacted by an outbreak, increased labour and fuel costs, regulatory changes, political or economic instabilities or civil unrest. At this point, COVID-19 has not had a significant impact on the Company’s supply chain nor its ability to continue operations and sustain revenues; however, it is possible that COVID-19 may in the future have a material adverse effect on the Company’s business, results of operations and financial condition.
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Fair Values
The carrying amounts for the Company’s cash, accounts receivable, amounts due from a related company, short-term advance to a related party, accounts payable and accrued liabilities, amounts due to employee/director, short-term advance payable, promissory notes and convertible promissory notes approximate their fair values because of the short-term nature of these items.
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).
During the year ended October 31, 2022, 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.
Non-brokered private placement of convertible debentures raising $2,000,000
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) are subject to a statutory hold period of four months and one day from the closing date.
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Outdoor lease with purchase option – ross lane
On December 20, 2022, the Company entered into a new lease agreement for approximately 35 acres of outdoor property. The initial lease term is January 1, 2023 to December 31, 2023 and monthly payments during this period are $7,500. Any time prior to May 1, 2023, the Company can early terminate the lease with thirty-day written notice. The Company has an option to purchase the leased property, and the Company has paid $6,000 of option premium. The Company must deposit $25,000 by December 1, 2023 to exercise the option the purchase the property for $1,600,000, against which the option premium of $6,000, the initial deposit of $25,000, and seventy-five percent of paid rent will be credited towards the purchase price. The Company has a right to extend the lease and option terms through calendar year 2024. If the Company extends, a second option premium payment of $15,000 is due by December 1, 2023, monthly rent will be $9,0000 per month, and the property purchase price will be $1,700,000. If extended, both premium payments, the initial deposit of $25,000, and fifty percent of rents paid will apply against the purchase price.
Issuance of 200,000 common shares and grant of 6,400,000 stock options
On January 10, 2023, the Company announced the issuance of 200,000 common shares, reported as shares issuable as at October 31, 2022. The Company also granted options to purchase an aggregate of 6,400,000 common shares of the Company to certain directors, officers, and employees. The options are exercisable at a price of CAD$0.15 per share for a period of four years from the date of grant. This option grant included 4,250,000 options granted to officers and directors of the Company.
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.
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.
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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”.
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”
See the following risk factors included in the Company’s Listing Statement available on www.SEDAR.com:
Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law
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.SEDAR.com:
Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law
Section 17 – Risk Factors – Because marijuana is illegal under federal law, investing in cannabis business could be found to violate the US Federal CSA
Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations
Section 17 – Risk Factors – Current and Future Consumer Protection Regulatory Requirements
Section 17 – Risk Factors – Operational Risks
Section 17 – Risk Factors – Grown Rogue will not be able to deduct many normal business expenses
Section 17 – Risk Factors – External Factors
Section 17 – Risk Factors – Failure to Protect Intellectual Property |
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| All Issuers with US Marijuana-Related Activities | Response |
Section 17 – Risk Factors – Agricultural Operations
Section 17 – Risk Factors – Liability, Enforcement Complaints etc.
Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits, and cards
Section 17 – Risk Factors – Licenses
Section 17 – Risk Factors – Local Laws and Ordinances
Section 17 – Risk Factors – Third party service providers to Grown Rogue may withdraw or suspend their service
Section 17 – Risk Factors – Grown Rogue may not be able to obtain or maintain a bank account
Section 17 – Risk Factors – Grown Rogue’s contracts may be unenforceable and property may be subject to seizure
Section 17 – Risk Factors – The protections of US bankruptcy law may be unavailable
Section 17 – Risk Factors – Grown Rogue may have a difficult time obtaining insurance which may expose Grown Rogue to additional risk and financial liabilities
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
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”.
See the following risk factor included in the Company’s Listing Statement available on www.SEDAR.com:
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. |
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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. 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”
See the following risk factors included in the Company’s Listing Statement available on www.SEDAR.com:
Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law
Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations
Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits, and cards
Section 17 – Risk Factors – Licenses
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 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.
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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.
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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.
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.
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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 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. |
Pg 33 of 34
| ● | 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 Chief Executive Officer (“CEO”) and the Chief Financial Officer (“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 year ended October 31, 2022, 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, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Pg 34 of 34
Exhibit 11
FORM 52-109FV1
CERTIFICATION
OF ANNUAL 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 AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of Grown Rogue International Inc. (the “issuer”) for the financial year ended October 31, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual 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, for the period covered by the annual filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual 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 annual filings. |
Date: February 28, 2023
| /s/ J. Obie Strickler | ||
| Name: | J. Obie Strickler | |
| Title: | President and | |
| Chief Executive Officer | ||
Note to Reader | ||
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of | ||
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | |
| ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. | |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation. |
||
Exhibit 12
FORM 52-109FV1
CERTIFICATION
OF ANNUAL 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 AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of Grown Rogue International Inc. (the “issuer”) for the financial year ended October 31, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual 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, for the period covered by the annual filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual 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 annual filings. |
Date: February 28, 2023.
| /s/ Ryan Kee | ||
| Name: | Ryan Kee | |
| Title: | Chief Financial Officer | |
| and Corporate Secretary | ||
Note to Reader | ||
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of | ||
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | |
| ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. | |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation. |
||
Exhibit 13
FORM 13-502F1
CLASS
1 AND CLASS 3B REPORTING ISSUERS –
PARTICIPATION FEE
| MANAGEMENT CERTIFICATION | ||||
| I, Ryan Kee, 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) “Ryan Kee” | February 28, 2023 | |||
| Name: | Ryan Kee | Date: | ||
| Title: | Chief Financial Officer | |||
| and Corporate Secretary | ||||
| Reporting Issuer Name: | Grown Rogue International Inc. | |
| End date of previous financial year: | October 31, 2022 | |
| Type of Reporting Issuer: | ☑ Class 1 reporting issuer ☐ Class 3B reporting issuer | |
Highest Trading Marketplace: |
Canadian Securities Exchange | |
(refer to the definition of “highest trading marketplace” under OSC Rule 13-502 Fees)
Market value of listed or quoted equity securities:
(in Canadian Dollars - refer to section 7.1 of OSC Rule 13-502 Fees)
| Equity Symbol | GRIN | |||
| 1st
Specified Trading Period (dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
01/11/21 | to | 31/01/22 | |
| 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 | $ | 0.110 | (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 | 170,415,111 | (ii) | ||||
| Market value of class or series | (i) x (ii) | $ | 18,745,662.21 | (A) |
| 2nd Specified Trading Period
(dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
01/02/22 | to | 30/04/22 |
| 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 | $ | 0.065 | (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 | 170,632,611 | (iv) | ||||
| Market value of class or series | (iii) x (iv) | $ | 11,091,119.715 | (B) |
3rd
Specified Trading Period (dd/mm/yy) |
|
01/05/22 | to | 31/07/222 |
| 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 | $ | 0.080 | (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 | 170,632,611 | (vi) | ||||
| Market value of class or series | (v) x (vi) | $ | 13,650,608.88 | (C) |
| 4th
Specified Trading Period (dd/mm/yy) (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) |
01/08/22 | to | 31/10/22 |
| 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 | 0.105 | (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 | 170,632,611 | (viii) | ||||
| Market value of class or series | (vii) x (viii) | $ | 17,916,424.155 | (D) |
5th
Specified Trading Period (dd/mm/yy) |
|
to |
| 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 | $ | (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 | (x) | |||||
| Market value of class or series | (ix) x (x) | $ | (E) |
2
| 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)) |
$ | 15,350,953.74 | (1) | |||
| (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 2.8(1)(c) of OSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year) | ||||||
| Fair value of outstanding debt securities: | ||||||
| (See paragraph 2.8(1)(b), and if applicable, paragraph 2.8(1)(c) of OSC Rule 13-502 Fees) | $ | 0.00 | (2) | |||
| (Provide details of how value was determined) | ||||||
| Capitalization for the previous financial year | (1) + (2) | $ | 15,350,953.74 | |||
| Participation Fee | $ | 1,070 | ||||
| (For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee) | ||||||
| (For Class 3B reporting issuers, from Appendix A.1 of OSC Rule 13-502 Fees, select the participation fee) | ||||||
| Late
Fee, if applicable (As determined under section 2.7 of OSC Rule 13-502 Fees) |
$ | NIL | ||||
| Total
Fee Payable (Participation Fee plus Late Fee) |
$ | 1,070 | ||||
3
Exhibit 14
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
CLASS
1 REPORTING ISSUERS AND CLASS 3B REPORTING ISSUERS –
PARTICIPATION FEE
| MANAGEMENT CERTIFICATION | ||||
| I, Ryan Kee, an officer of the reporting issuer noted below have examined this Form 13-501F1 (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. | ||||
| (signed) “Ryan Kee” | February 28, 2023 | |||
| Name: | Ryan Kee | Date: | ||
| Title: | Chief Financial Officer | |||
| and Corporate Secretary | ||||
| Reporting Issuer Name: | Grown Rogue International Inc. | |
| End date of previous financial year: | October 31, 2022 | |
| Type of Reporting Issuer: | ☒ Class 1 reporting issuer ☐ Class 3B reporting issuer | |
Highest Trading Marketplace: |
Canadian Securities Exchange | |
Market value of listed or quoted equity securities:
| Equity Symbol | GRIN | |||
| 1st Specified Trading Period (dd/mm/yy) | 01/11/21 | to | 31/01/22 | |
| 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 | $ | 0.1100 | (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 | 170,415,111 | (ii) | ||||
| Market value of class or series | (i) x (ii) | $ | 18,745,662.21 | (A) |
| 2nd Specified Trading Period (dd/mm/yy) | 01/02/22 | to | 30/04/22 |
| 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 | $ | 0.0650 | (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 | 170,632,611 | (iv) | ||||
| Market value of class or series | (iii) x (iv) | $ | 11,091,119.715 | (B) |
3rd Specified Trading Period (dd/mm/yy) |
|
01/05/22 | to | 31/07/22 |
| 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 | $ | 0.0800 | (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 | 170,632,611 | (vi) | ||||
| Market value of class or series | (v) x (vi) | $ | 13,650,608.88 | (C) |
| 4th Specified Trading Period (dd/mm/yy) | 01/08/22 | to | 31/10/22 |
| 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 | $ | 0.1050 | (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 | 170,632,611 | (viii) | ||||
| Market value of class or series | (vii) x (viii) | $ | 17,916,424.155 | (D) |
5th Specified Trading Period (dd/mm/yy) |
|
to |
| 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 | $ | (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 | (x) | |||||
| Market value of class or series | (ix) x (x) | $ | (E) |
2
| 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)) |
$ | 15,350,953.74 | (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) | $ | 0.0000 | (2) | |||
| Capitalization for the previous financial year | (1) + (2) | $ | 15,350,953.74 | |||
| Participation Fee | $ | 500.0000 | ||||
| Late Fee, if applicable | $ | 0.0000 | ||||
| Total
Fee Payable (Participation Fee plus Late Fee) |
$ | 500.0000 | ||||
3
Exhibit 15
Grown
Rogue Reports Fiscal 2022 Results, Revenue Growth of 89%
and Positive Free Cash Flow
| ● | Revenue of $17.8M compared to $9.4M in 2021, an increase of 89% |
| ● | Operating Cash Flow (OCF), before changes in working capital (WC), of $3.2M compared to $1.9M in 2021, an increase of 68% |
| ● | Free Cash Flow1 (FCF) of $0.9M, after a $1.2M increase in WC and $1.1M in capital expenditures |
| ● | The Company anticipates an increase in free cash flow in 2023 as a result of higher operating cash flow and lower capital expenditures compared to 2022 |
| ● | Subsequent to year-end, closed a $2.0M convertible debenture financing |
Medford, Oregon, March 1, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, is pleased to report its audited 2022 results for the twelve months ended October 31, 2022. All financial information is provided in U.S. dollars unless otherwise indicated.
Fiscal 2022 Financial Summary ($USD Millions)
| Fiscal 2022 Summary | 2022 | 2021 | +/- % | |||||||||
| Revenue | 17.8 | 9.4 | +89 | % | ||||||||
| aEBITDA | 5.1 | 2.3 | +126 | % | ||||||||
| aEBITDA % | 28.7 | % | 24.0 | % | +4.7 | % | ||||||
| OCF (Before Changes in WC) | 3.2 | 1.9 | +68 | % | ||||||||
| OCF % | 17.9 | % | 20.1 | % | (2.2 | %) | ||||||
Management Commentary
“I’m thrilled to report our fiscal 2022 results, which continue to show our ability to carefully and profitably scale our business, including being free cash flow positive and increasing revenue and aEBITDA by 89% and 126% respectively year-over-year,” said Obie Strickler, CEO of Grown Rogue. “Our relentless focus on delivering a high-quality craft product at the best price has led to customers responding by giving us more share in the markets we serve. I look forward to continuing this trend into our fiscal 2023, especially as Michigan’s capital improvements are now complete and we continue to optimize yields and institute a rigid focus on genetics.”
Continued Mr. Strickler: “Regarding our go-forward strategy and our capital allocation priorities, I want to note that many previously insulated markets are beginning to experience price normalization which we have long been familiar with in our home state of Oregon and now Michigan. But, even in markets where prices have fallen from their highs, they are still significantly above prevailing Oregon and Michigan pricing. This normalization has created distress among companies which cannot operate at prices we are comfortable with, and this distress has, in turn, lowered asset prices creating new and exciting opportunities for us. Our capital allocation is guided by our disciplined search for the most compelling ways of entering new markets where the ‘Grown Rogue Way’ will be successful. Our focus in 2023 on new market entry has been significantly bolstered by the $2M investment we recently closed, strengthening our balance sheet on great terms for the Company.”
Oregon Market Highlights ($USD Millions)
| Oregon | 2022 | 2021 | +/- % | |||||||||
| Revenue | 8.9 | 5.2 | +72 | % | ||||||||
| aEBITDA | 2.6 | 1.7 | +271 | % | ||||||||
| aEBITDA Margin % | 29.0 | % | 32.7 | % | (3.8 | %) | ||||||
| ● | #1 Flower brand and #3 brand overall in 2022, according to LeafLink’s MarketScape data |
| ● | #1 Flower brand for six consecutive quarters |
| ● | Total harvested wet weights for the state of Oregon decreased 5% YoY for indoor, 18% YoY for mixed, and 17% YoY for outdoor, according to the Oregon Liquor and Cannabis Commission (OLCC) |
| ● | Grown Rogue wet weight harvested for indoor and outdoor increased 45% and 88%, respectively, compared to 2021 |
| ● | Subsequent to year-end, Grown Rogue increased Oregon sungrown capacity with a lease option of 35 acres in Medford |
Michigan Market Highlights ($USD Millions)
| Michigan | 2022 | 2021 | +/- % | |||||||||
| Revenue | 8.9 | 3.9 | +129 | % | ||||||||
| aEBITDA | 3.9 | 2.2 | +77 | % | ||||||||
| aEBITDA Margin % | 43.8 | % | 56.4 | % | (12.6 | %) | ||||||
| ● | #10 wholesale flower brand in 2022, according to LeafLink’s MarketScape data |
| ● | Added an additional $1.1M in fixed assets, including production from five additional flower rooms |
| ● | More than doubled production in 2022 compared to 2021 and expect an additional 50% growth in 2023 reflecting the annualization of rooms built in 2022 |
| ● | Launched one gram pre-rolls (including nitrogen sealed varieties) in Q2 2022 |
| ● | Subsequent to year-end, Grown Rogue exercised its option to acquire its controlling interest in Golden Harvests, LLC |
Michigan operations are through Golden Harvests, LLC.
2
Financial Statements and aEBITDA reconciliation
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | October 31, 2022 | October 31, 2021 | ||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 1,582,384 | 1,114,033 | ||||||
| Accounts receivable (Note 20) | 1,643,959 | 739,248 | ||||||
| Biological assets (Note 4) | 1,199,519 | 1,188,552 | ||||||
| Inventory (Note 5) | 3,131,877 | 3,306,312 | ||||||
| Prepaid expenses and other assets | 352,274 | 357,541 | ||||||
| Total current assets | 7,910,013 | 6,705,686 | ||||||
| Marketable securities (Note 6) | - | 610,092 | ||||||
| Other investments and purchase deposits (Note 8) | - | 750,000 | ||||||
| Property and equipment (Note 11) | 7,734,901 | 5,742,584 | ||||||
| Intangible assets and goodwill (Note 12) | 725,668 | 399,338 | ||||||
| TOTAL ASSETS | 16,370,582 | 14,207,700 | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 1,821,875 | 1,766,707 | ||||||
| Current portion of lease liabilities (Note 10) | 1,025,373 | 624,935 | ||||||
| Current portion of long-term debt (Note 13) | 1,769,600 | 843,900 | ||||||
| Business acquisition consideration payable (Note 7) | 360,000 | 358,537 | ||||||
| Interest payable (Note 13) | - | 13,750 | ||||||
| Unearned revenue | 28,024 | - | ||||||
| Income tax | 311,032 | 254,631 | ||||||
| Total current liabilities | 5,315,904 | 3,862,460 | ||||||
| Accrued liabilities (Note 9) | - | 123,413 | ||||||
| Lease liabilities (Note 10) | 1,275,756 | 1,735,503 | ||||||
| Long-term debt (Note 13) | 839,222 | 1,365,761 | ||||||
| TOTAL LIABILITIES | 7,430,882 | 7,087,137 | ||||||
| EQUITY | ||||||||
| Share capital (Note 14) | 21,858,827 | 20,499,031 | ||||||
| Shares issuable (Note 7) | 35,806 | 74,338 | ||||||
| Contributed surplus (Notes 15, 16) | 6,505,092 | 6,407,935 | ||||||
| Accumulated other comprehensive loss | (109,613 | ) | (90,378 | ) | ||||
| Accumulated deficit | (21,356,891 | ) | (21,804,349 | ) | ||||
| Equity attributable to shareholders | 6,933,221 | 5,086,577 | ||||||
| Non-controlling interests (Note 25) | 2,006,479 | 2,033,986 | ||||||
| TOTAL EQUITY | 8,939,700 | 7,120,563 | ||||||
| TOTAL LIABILITIES AND EQUITY | 16,370,582 | 14,207,700 | ||||||
3
| CONSOLIDATED STATEMENTS OF INCOME & LOSS | Years ended
October 31, | |||||||
| AND COMPREHENSIVE INCOME & LOSS | 2022 | 2021 | ||||||
| $ | $ | |||||||
| Revenue | ||||||||
| Product sales | 17,757,283 | 9,034,618 | ||||||
| Service revenue | - | 344,055 | ||||||
| Total revenue | 17,757,283 | 9,378,673 | ||||||
| Cost of goods sold | ||||||||
| Cost of finished cannabis inventory sold | (9,227,439 | ) | (3,997,617 | ) | ||||
| Costs of service revenue | - | (154,353 | ) | |||||
| Gross profit, excluding fair value items | 8,529,844 | 5,226,703 | ||||||
| Realized fair value amounts in inventory sold | (3,685,338 | ) | (950,461 | ) | ||||
| Unrealized fair value gain on growth of biological assets | 3,278,572 | 1,824,226 | ||||||
| Gross profit | 8,123,078 | 6,100,468 | ||||||
| Expenses | ||||||||
| Accretion expense | 491,781 | 949,811 | ||||||
| Amortization of intangible assets | - | 4,997 | ||||||
| Amortization of property and equipment | 750,916 | 180,015 | ||||||
| General and administrative | 5,852,236 | 3,983,250 | ||||||
| Share-based compensation | 70,996 | 280,819 | ||||||
| Total expenses | 7,165,929 | 5,398,892 | ||||||
| Income from operations | 957,149 | 701,576 | ||||||
| Other income and (expense) | ||||||||
| Interest expense | (402,239 | ) | (197,632 | ) | ||||
| Other expense | (3,432 | ) | (17,072 | ) | ||||
| Gain on debt settlement | 453,858 | 141,180 | ||||||
| Loss on settlement of non-controlling interest | - | (189,816 | ) | |||||
| Unrealized loss on marketable securities | (333,777 | ) | (35,902 | ) | ||||
| Unrealized loss on derivative liability | - | (1,258,996 | ) | |||||
| Loss on disposal of property and equipment | (6,250 | ) | (7,542 | ) | ||||
| Gain (loss) from operations before income tax | 665,309 | (864,204 | ) | |||||
| Income tax | (245,358 | ) | (150,543 | ) | ||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Other comprehensive income (items that may be subsequently reclassified to profit & loss) | ||||||||
| Currency translation loss | (19,235 | ) | (78,181 | ) | ||||
| Total comprehensive income (loss) | 400,716 | (1,092,928 | ) | |||||
| Gain (loss) per share attributable to owners of the parent – basic & diluted | 0.00 | (0.02 | ) | |||||
| Weighted average shares outstanding - basic | 169,193,812 | 135,231,802 | ||||||
| Net income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | (27,507 | ) | 1,395,558 | |||||
| Shareholders | 447,458 | (2,410,305 | ) | |||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Comprehensive income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | (27,507 | ) | 1,395,558 | |||||
| Shareholders | 428,223 | (2,488,486 | ) | |||||
| Total comprehensive income (loss) | 400,716 | (1,092,928 | ) | |||||
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| Year
ended October 31, | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | 2022 | 2021 | ||||||
| $ | $ | |||||||
| Operating activities | ||||||||
| Net income (loss) | 419,951 | (1,014,747 | ) | |||||
| Adjustments for non-cash items in net income (loss) | ||||||||
| Amortization of property and equipment | 750,916 | 180,015 | ||||||
| Amortization of property and equipment include in costs of inventory sold | 1,102,688 | 733,655 | ||||||
| Amortization of intangible assets | - | 4,997 | ||||||
| Unrealized gain on changes in fair value of biological assets | (3,278,572 | ) | (1,824,226 | ) | ||||
| Changes in fair value of inventory sold | 3,685,338 | 950,461 | ||||||
| Share-based compensation | 21,264 | 170,136 | ||||||
| Stock option expense | 96,649 | 243,662 | ||||||
| Accretion expense | 491,781 | 949,811 | ||||||
| Loss on disposal of property & equipment | 6,250 | 7,542 | ||||||
| Unrealized loss on marketable securities | 333,777 | 35,902 | ||||||
| Gain on debt settlement | (455,674 | ) | - | |||||
| Loss on fair value of derivative liability | - | 1,258,996 | ||||||
| Loss on acquisition of non-controlling interest paid in shares | - | 189,816 | ||||||
| Effects of foreign exchange | 918 | 7,233 | ||||||
| 3,175,286 | 1,893,253 | |||||||
| Changes in non-cash working capital (Note 17) | (1,171,111 | ) | (2,131,714 | ) | ||||
| Net cash provided by (used in) operating activities | 2,004,175 | (238,461 | ) | |||||
| Investing activities | ||||||||
| Purchase of property and equipment and intangibles | (1,111,283 | ) | (2,047,136 | ) | ||||
| Net cash acquired | - | 76,128 | ||||||
| Payments of acquisition payable | (2,000 | ) | (6,000 | ) | ||||
| Other investments | - | (750,000 | ) | |||||
| Net cash used in investing activities | (1,113,283 | ) | (2,727,008 | ) | ||||
| Financing activities | ||||||||
| Third party investment in subsidiary | - | 475,000 | ||||||
| Proceeds from long-term debt | 100,000 | 1,125,000 | ||||||
| Proceeds from private placement | 1,300,000 | 1,225,000 | ||||||
| Proceeds from brokered private placement | - | 3,738,564 | ||||||
| Payment of equity and debenture issuance costs | - | (500,870 | ) | |||||
| Repayment of long-term debt | (732,803 | ) | (507,715 | ) | ||||
| Repayment of convertible debentures | - | (1,312,722 | ) | |||||
| Payments of lease principal | (1,089,738 | ) | (380,543 | ) | ||||
| Net cash provided by (used in) financing activities | (422,541 | ) | 3,861,714 | |||||
| Change in cash and cash equivalents | 468,351 | 896,245 | ||||||
| Cash and cash equivalents balance, beginning | 1,114,033 | 217,788 | ||||||
| Cash and cash equivalents balance, ending | 1,582,384 | 1,114,033 | ||||||
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SEGMENTED aEBITDA YEAR ENDED OCTOBER 31, 2022 | Oregon | Michigan | Corporate | Consolidated | ||||||||||||
| Sales revenues | 8,852,104 | 8,905,179 | - | 17,757,283 | ||||||||||||
| Costs of goods sold, excluding fair value (“FV”) adjustments | (5,762,802 | ) | (3,464,637 | ) | - | (9,227,439 | ) | |||||||||
| Gross profit before fair value adjustments | 3,089,302 | 5,440,542 | - | 8,529,844 | ||||||||||||
| Net fair value adjustments | (50,143 | ) | (356,623 | ) | - | (406,766 | ) | |||||||||
| Gross profit | 3,039,159 | 5,083,919 | - | 8,123,078 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administration | 1,982,911 | 2,217,413 | 1,651,912 | 5,852,236 | ||||||||||||
| Depreciation and amortization | 84,919 | 562,443 | 103,554 | 750,916 | ||||||||||||
| Share based compensation | - | - | 70,996 | 70,996 | ||||||||||||
| Other income and expense: | ||||||||||||||||
| Loss on sale of assets | (6,250 | ) | - | - | (6,250 | ) | ||||||||||
| Interest and accretion | (293,103 | ) | (242,601 | ) | (358,316 | ) | (894,020 | ) | ||||||||
| Gain (loss) on debt settlement | 6,020 | (1,847 | ) | 449,685 | 453,858 | |||||||||||
| Unrealized gain on marketable securities | - | - | (333,777 | ) | (333,777 | ) | ||||||||||
| Other income and expense | 5,400 | - | (8,832 | ) | (3,432 | ) | ||||||||||
| Net income (loss) before tax | 683,396 | 2,059,615 | (2,077,702 | ) | 665,309 | |||||||||||
| Tax | 27,787 | 217,571 | - | 245,358 | ||||||||||||
| Net income after tax | 655,609 | 1,842,044 | (2,077,702 | ) | 419,951 | |||||||||||
| Add back (deduct) from net income after tax: | ||||||||||||||||
| Realized FV amounts included in inventory sold | 1,388,657 | 2,296,681 | - | 3,685,338 | ||||||||||||
| Unrealized FV gain on growth of biological assets | (1,338,514 | ) | (1,940,058 | ) | - | (3,278,572 | ) | |||||||||
| Amortization of property & equipment included in cost of sales | 756,795 | 345,893 | - | 1,102,688 | ||||||||||||
| Interest and interest accretion expense | 293,103 | 242,601 | 358,316 | 894,020 | ||||||||||||
| Amortization of property and equipment | 84,919 | 562,443 | 103,554 | 750,916 | ||||||||||||
| Share-based compensation | - | - | 117,913 | 117,913 | ||||||||||||
| Unrealized loss on marketable securities | - | - | 333,777 | 333,777 | ||||||||||||
| Income tax expense | 27,787 | 217,571 | - | 245,358 | ||||||||||||
| EBITDA | 1,868,356 | 3,567,175 | (1,164,142 | ) | 4,271,389 | |||||||||||
| Add back (deduct) from EBITDA: | ||||||||||||||||
| Performance incentive bonus payment | - | 179,685 | - | 179,685 | ||||||||||||
| Severance and inactive employee compensation | - | - | 61,077 | 61,077 | ||||||||||||
| Business development incentive bonus | - | 153,825 | - | 153,825 | ||||||||||||
| Gain on debt settlement for marketable securities | - | - | (449,684 | ) | (449,684 | ) | ||||||||||
| Compliance costs | - | - | 98,139 | 98,139 | ||||||||||||
| Costs associated with acquisition of Golden Harvests | - | - | 80,000 | 80,000 | ||||||||||||
| New production location startup costs | 697,120 | - | - | 697,120 | ||||||||||||
| aEBITDA | 2,565,476 | 3,900,685 | (1,374,610 | ) | 5,091,551 | |||||||||||
| aEBITDA margin % | 29.0 | % | 43.8 | % | - | 28.7 | % | |||||||||
NOTES:
| 1. | The Company’s “Free cash flow” metric is defined by cash flow from operations minus capital expenditures. |
| 2. | The Company’s “aEBITDA,” or “Adjusted EBITDA,” 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. 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. |
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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 (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.
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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.
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Obie@grownrogue.com
Investor Relations Desk
Inquiries
invest@grownrogue.com
(458) 226-2100
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