Grown Rogue International Inc 6-K, filed Mar 11, 2021
Grown Rogue International Inc. (GRUSF)
About this 6-K
Grown Rogue International Inc filed this 6-K on March 11, 2021.
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 11, 2021
Commission File No. 0-53646
Grown Rogue International Inc.
(formerly
Novicius Corp.)
(Translation of Registrant’s name into English)
340 Richmond Street West
Toronto, Ontario, Canada M5V 1X2
(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 11, 2021 | GROWN ROGUE INTERNATIONAL INC. | |
| (FORMERLY: NOVICIUS CORP.) | ||
| By: | /s/ Obie Strickler | |
| Name: | Obie Strickler | |
| Title: | President & Chief Executive Officer | |
2
Exhibit 1
Steve Lightman Joins Grown Rogue’s Board of Directors
Medford, Oregon, January 27, 2021 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a multi-state cannabis company with operations and assets in Oregon and Michigan, today announced the appointment of Steve Lightman, Group President, Gourmet Foods & Gift Baskets, 1-800-FLOWERS.COM, Inc., as an independent director of Grown Rogue, effective immediately. Mr. Lightman’s appointment expands the board to 5 directors, 4 of whom are independent directors.
“Steve’s 30 years of broad experience across retail and consumer products combined with extensive knowledge within the agriculture industry will be an outstanding addition to our Board of Directors,” said Obie Strickler, CEO of Grown Rogue. “As we continue to scale our business, Steve’s exceptional background in a variety of industries including one of the most respected food and gift companies, Harry & David which is local to Medford, will help Grown Rogue in the next phase of our Company’s growth”.
Mr. Lightman is Group President at 1-800-FLOWERS.COM, Inc., responsible for driving strategy and enhancing operational agility within the company’s Gourmet Foods and Gift Baskets segment, which is comprised of more than half a dozen brands, including Harry & David®, Cheryl’s Cookies® and The Popcorn Factory®. After joining the company in 2015, he led the digital transformation for Harry & David as its President, evolving it from a traditional catalog retailer to an e-commerce destination for gourmet foods and gifts. Prior to joining the organization, Mr. Lightman led diligence and restructuring efforts for a number of private equity firms. He also served as Chief Executive Officer, Boston Apparel Group (BAG) and President, Orchard Brands, Inc., as well as President and Chief Executive Officer, The Sharper Image. During his tenure at The Sharper Image, he led efforts to transform the business, including building a multi-channel marketing platform, recruiting a new executive team and creating a licensing division.
“Grown Rogue has achieved impressive growth within a challenging industry and is poised to continue that growth in the years to come,” said Lightman. “After making an investment into the Company in December, I’m excited to be working with the Grown Rogue team and my fellow board members to help expand our product offerings to meet the demands of cannabis businesses in Oregon, Michigan, and beyond.”
Mr. Lightman is a member of the Board of Directors of KEH and Distinctive Apparel, Inc., among others. He is also very active in community business and civic activities. He earned a Bachelor of Science and a Bachelor of Arts degree in accounting and business administration from the University of Hartford in Connecticut.
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a vertically-integrated, multi-state Cannabis family of brands on a mission to inspire consumers to “enhance experiences” through cannabis. We have combined an expert management team, award winning grow team, state of the art indoor and outdoor manufacturing facilities, and consumer insight based product categorization, to create innovative products thoughtfully curated from “seed to experience.” The Grown Rogue family of products include sungrown and indoor premium flower, along with nitro sealed indoor and sungrown pre-rolls and jars.
DISCLAIMER
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
|
2
Exhibit 2
Grown Rogue Raises USD$1,275,000 in Upsized Financing
NOT FOR DISTRIBUTION IN THE U.S. OR OVER U.S. NEWSWIRES
Medford, Oregon, February 5, 2021 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a multi-state cannabis company with operations and assets in Oregon and Michigan, is pleased to announce that it has closed the second tranche of its previously announced non-brokered private placement (the “Second Tranche”), including an upsized amount for total gross proceeds of USD $1,025,000. In addition, one of the Company’s non-operating subsidiaries raised an additional USD$250,000 by way of an unsecured promissory note.
The Second Tranche consisted of units of Grown Rogue (the “Unit”) with an issuance price offered at CDN$0.16 per Unit (the “Second Tranche Issuance Price”). Each Unit under the Second Tranche is comprised of one common share of the Company and one common share purchase warrant (each, a “Warrant”) entitling the holder to purchase one common share of the Company at an exercise price equal to CDN$0.20 per share for a period of two years. The Company has the right to accelerate the expiry date of the Warrants to be thirty (30) days following written notice to the holder if during the term the common shares of the Company close at, or above, CDN$0.32 on each trading day for a period of ten (10) consecutive trading days.
Grown Rogue’s non-operating subsidiary issued an unsecured promissory note in the amount of US$250,000. Terms of the note include 10% interest, payable monthly and a 3-year maturity. In addition, the subsidiary will make payments in months 39, 42, 45, and 48 that will double the principal investment (minus any interest paid).
The funds raised under the above financings will be used for strategic acquisitions, expansion into Michigan and for general corporate purposes.
“We are excited to see upsized demand to this financing, including additional support from some of our largest shareholders furthering reinforcing their support and belief in our growth trajectory,” said Obie Strickler, Grown Rogue’s Chief Executive Officer. “This investment will provide capital for strategic acquisitions that we have been targeting and will further our expansion in the exciting Michigan market.”
All securities issued pursuant to the Second Tranche offering are subject to a mandatory hold period of four months and a day.
Insiders of Grown Rogue invested an aggregate of USD$700,000 in the Second Tranche and will receive 5,600,000 common shares of the Company and 5,600,000 Warrants. Such insider participation represents a related-party transaction under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”), but the transaction is exempt from the formal valuation and minority shareholder approval requirements of MI 61-101 as neither the fair market value of the subject matter of the transaction, nor the consideration paid, exceed 25% of Grown Rogue’s market capitalization. The Company did not file a material change report more than 21 days before the expected closing Second Tranche as the details of the participation by such insiders was not settled until shortly prior to closing of the Second Tranche.
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a vertically-integrated, multi-state Cannabis family of brands on a mission to inspire consumers to “enhance experiences” through cannabis. We have combined an expert management team, award winning grow team, state of the art indoor and outdoor manufacturing facilities, and consumer insight based product categorization, to create innovative products thoughtfully curated from “seed to experience.” The Grown Rogue family of products include sungrown and indoor premium flower, along with nitro sealed indoor and sungrown pre-rolls and jars.
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 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.
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.
2
This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available. Not for distribution to U.S. Newswire Services or for dissemination in the United States. Any failure to comply with this restriction may constitute a violation of U.S. Securities laws.
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 3
Form 62-103F1
Required Disclosure under the Early Warning Requirements
Item 1 – Security and Reporting Issuer
| 1.1 | State the designation of securities to which this report relates and the name and address of the head office of the issuer of the securities.9 |
This report relates to common shares (“Shares”) and Share purchase warrants (“Warrants”) of the Issuer (as defined below).
Grown Rogue International Inc. (the “Issuer”)
340 Richmond Street West
Toronto, Ontario
M5V 1X2
| 1.2 | State the name of the market in which the transaction or other occurrence that triggered the requirement to file this report tookplace. |
Not applicable. See item 2.2 below.
Item 2 – Identity of the Acquiror
| 2.1 | State the name and address of the acquiror. |
Plant-Based Investment Corp. (the “Securityholder”)
(formerly, Cannabis Growth Opportunity Corporation)
240 Richmond Street West
Toronto, Ontario
M5V 1V6
The Securityholder is an investment corporation that offers unique exposure to the global cannabis sector. The Securityholder’s main objective is to provide shareholders with long-term total returns through its portfolio of securities, both public and private, operating in, or that derive a significant portion of its revenue or earnings from products, services and technologies related to the cannabis plant family, its various compounds and other combinatory ingredients and products.
| 2.2 | State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence. |
On February 5,2021, the Securityholder acquired 2,000,000 units (“Units”) of the Issuer. Each Unit is comprised of one Share and one Warrant. Each Warrant entitles the Securityholder to acquire one Share at a price of $0.20 until February 4, 2023, provided that the Issuer has the right to accelerate the expiry date of the Warrants to 30 days following written notice to the Securityholder if during the term of the Warrants the closing price of the Shares on the Canadian Securities Exchange is at or above $0.32 per Share on each trading day for a period 10 consecutive trading days.
The acquisition of the Units is referred to herein as the “Offering”.
| 2.3 | State the names of any joint actors. |
Not applicable.
1
Item 3 – Interest in Securities of the Reporting Issuer
| 3.1 | State the designation and number or principal amount of securities acquired or disposed of that triggered the requirement to file this report and the change in the acquiror’s security holding percentage in the class of securities. |
Immediately prior to completion of the Offering, the Securityholder held 30,000,000 Shares and 15,000,000 Warrants of the Issuer, representing approximately 27.31% of the issued and outstanding Shares on a non-diluted basis and approximately 36.04% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Warrants held by the Securityholder.
Pursuant to the Offering, the Securityholder acquired an additional 2,000,000 Shares and 2,000,000 Warrants of the Issuer. After giving effect to the Offering, the Securityholder beneficially owns or controls 32,000,000 Shares and 17,000,000 Warrants, representing approximately 27.11% of the issued and outstanding Shares on a non-diluted basis and approximately 36.28% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Warrants held by the Securityholder.
| 3.2 | State whether the acquiror acquired or disposed ownership of, or acquired or ceased to have control over, the securities that triggered the requirement to file this report. |
The Securityholder acquired ownership of the Shares and Warrants pursuant to the Offering. See item 2.2.
| 3.3 | If the transaction involved a securities lending arrangement, state that fact. |
Not applicable.
| 3.4 | State the designation and number or principal amount of securities and the acquiror’s security holding percentage in the class of securities, immediately before and after the transaction or other occurrence that triggered the requirement to file this report. |
Immediately prior to completion of the Offering, the Securityholder held 30,000,000 Shares and 15,000,000 Warrants of the Issuer, representing approximately 27.31% of the issued and outstanding Shares on a non-diluted basis and approximately 36.04% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Warrants held by the Securityholder.
Pursuant to the Offering, the Securityholder acquired an additional 2,000,000 Shares and 2,000,000 Warrants of the Issuer. After giving effect to the Offering, the Securityholder beneficially owns or controls 32,000,000 Shares and 17,000,000 Warrants, representing approximately 27.11% of the issued and outstanding Shares on a non-diluted basis and approximately 36.28% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Warrants held by the Securityholder.
| 3.5 | State the designation and number or principal amount of securities and the acquiror’s security holding percentage in the class of securities referred to in Item 3.4 over which |
| (a) | the acquiror, either alone or together with any joint actors, has ownership and control, |
See Item 3.1 above.
2
| (b) | the acquiror, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the acquiror or any joint actor, and |
Not applicable.
| (c) | the acquiror, either alone or together with any joint actors, has exclusive or shared control but does not have ownership. |
Not applicable.
| 3.6 | If the acquiror or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the acquiror’s security holdings. |
Not applicable.
| 3.7 | If the acquiror or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement. |
State if the securities lending arrangement is subject to the exception provided in section 5.7 of NI62-104.
Not applicable.
| 3.8 | If the acquiror or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the acquiror’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding. |
Not applicable.
Item 4 – Consideration Paid
| 4.1 | State the value, in Canadian dollars, of any consideration paid or received per security and in total. |
The Securityholder acquired the 2,000,000 Units at a price of $0.16 per Unit for aggregate consideration of $320,000 pursuant to the terms of a subscription agreement dated February 5, 2021 between the Issuer and the Securityholder (the “Unit Subscription Agreement”).
| 4.2 | In the case of a transaction or other occurrence that did not take place on a stock exchange or other market that represents a published market for the securities, including an issuance from treasury, disclose the nature and value, in Canadian dollars, of the consideration paid or received by the acquiror. |
See item 4.1 above.
3
| 4.3 | If the securities were acquired or disposed of other than by purchase or sale, describe the method of acquisition or disposition. |
Not applicable.
Item 5 – Purpose of the Transaction
State the purpose or purposes of the acquiror and any joint actors for the acquisition or disposition of securities of the reporting issuer. Describe any plans or future intentions which the acquiror and any joint actors may have which relate to or would result in any of the following:
| (a) | the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer; |
| (b) | a corporate transaction, such as a merger, reorganization or liquidation, involving the reporting issuer or any of its subsidiaries; |
| (c) | a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries; |
| (d) | a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board; |
| (e) | a material change in the present capitalization or dividend policy of the reportingissuer; |
| (f) | a material change in the reporting issuer’s business or corporate structure; |
| (g) | a change in the reporting issuer’s charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person or company; |
| (h) | a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace; |
| (i) | the issuer ceasing to be a reporting issuer in any jurisdiction of Canada; (j) a solicitation of proxies from securityholders; |
| (k) | an action similar to any of those enumerated above. |
The Shares and the Warrants were acquired for investment purposes. The Securityholder currently has no current plan or future intentions which relate to, or would result in, acquiring additional securities of the Issuer, disposing of securities of the Issuer, or any of the other actions listed in (a) through (k) above. Depending on market conditions, the Securityholder’s view of the Issuer’s prospects, other investment opportunities and other factors considered relevant by the Securityholder, the Securityholder may from time to time acquire additional securities of the Issuer in the future, in the open market or pursuant to privately negotiated transactions, may sell all or a portion of its securities of the Issuer or may continue to hold the Shares, Warrants or other securities of the Issuer.
4
Item 6 – Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer
Describe the material terms of any agreements, arrangements, commitments or understandings between the acquiror and a joint actor and among those persons and any person with respect to securities of the class of securities to which this report relates, including but not limited to the transfer or the voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Include such information for any of the securities that are pledged or otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over such securities, except that disclosure of standard default and similar provisions contained in loan agreements need not be included.
Pursuant to the terms of a voting and resale agreement between the Issuer and the Securityholder, dated February 10,2020, the Securityholder has agreed to vote a total of 15,000,000 Shares held by it at any and all annual and/or special meetings of the shareholders of the Issuer in such manner as the Issuer may in its absolute and unfettered discretion determine, until August 10, 2021. In addition, the Securityholder has agreed not to sell such 15,000,000 Shares held by it prior to August 10, 2021, without the prior written consent of the Issuer.
Item 7 – Change in Material Fact
If applicable, describe any change in a material fact set out in a previous report filed by the acquiror under the early warning requirements or Part 4 in respect of the reporting issuer’s securities.
Not applicable.
Item 8 – Exemption
If the acquiror relies on an exemption from requirements in securities legislation applicable to formal bids for the transaction, state the exemption being relied on and describe the facts supporting that reliance.
Not applicable.
Item 9 – Certification
I, as the acquiror, certify, or I, as the agent filing this report on behalf of an acquiror, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.
DATED this 5th day of February, 2021
| “Paul Crath “ (signed) | |
| Name: Paul Crath | |
| Title: Chief Executive Officer |
5
Exhibit 4
Form 62-103F1
Required Disclosure under the Early Warning Requirements
Item 1 – Security and Reporting Issuer
| 1.1 | State the designation of securities to which this report relates and the name and address of the head office of the issuer of the securities. |
This report relates to common shares and share purchase warrants of the Issuer (as defined below).
Grown Rogue International Inc. (the “Issuer”)
340 Richmond Street West
Toronto, Ontario
M5V 1X2
| 1.2 | State the name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place. |
Not applicable. See item 2.2 below.
Item 2 – Identity of the Acquiror
| 2.1 | State the name and address of the acquiror. |
J. Obie Strickler (the “Securityholder”)
c/o Grown Rogue International Inc.
340 Richmond Street West
Toronto, Ontario
M5V 1X2
| 2.2 | State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence. |
On February 5, 2021, the Securityholder acquired 1,600,000 units (“Units”) of the Issuer. Each Unit is comprised of one common share of the Issuer (“Shares”) and one common share purchase warrant (“Warrants”). Each Warrant entitles the Securityholder to acquire one Share at a price of $0.20 until February 5, 2023, provided that the Issuer has the right to accelerate the expiry date of the Warrants to 30 days following written notice to the Securityholder if during the term of the Warrants the closing price of the Shares on the Canadian Securities Exchange is at or above $0.32 per share on each trading day for a period 10 consecutive trading days.
The acquisition of the Units is referred to herein as the “Offering”.
| 2.3 | State the names of any joint actors. |
Not applicable.
Item 3 – Interest in Securities of the Reporting Issuer
| 3.1 | State the designation and number or principal amount of securities acquired or disposed of that triggered the requirement to file this report and the change in the acquiror’s security holding percentage in the class of securities. |
Immediately prior to completion of the Offering, the Securityholder held 29,418,766 Shares and controlled 500,000 stock options of the Issuer (the “Options”), representing approximately 26.78% of the issued and outstanding Shares on a non-diluted basis and approximately 27.11% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Options controlled by the Securityholder.
Pursuant to the Offering, the Securityholder acquired 1,600,000 Shares and 1,600,000 Warrants. After giving effect to the Offering, the Securityholder beneficially owns or controls 31,018,766 Shares, 1,600,000 Warrants and 500,000 Options, representing approximately 26.27% of the issued and outstanding Shares on a non-diluted basis and approximately 27.56% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Warrants and Options held and controlled by the Securityholder.
| 3.2 | State whether the acquiror acquired or disposed ownership of, or acquired or ceased to have control over, the securities that triggered the requirement to file this report. |
The Securityholder acquired ownership of the Shares and Warrants pursuant to the Offering. See item 2.2.
| 3.3 | If the transaction involved a securities lending arrangement, state that fact. |
Not applicable.
| 3.4 | State the designation and number or principal amount of securities and the acquiror’s security holding percentage in the class of securities, immediately before and after the transaction or other occurrence that triggered the requirement to file this report. |
Immediately prior to completion of the Offering, the Securityholder held 29,418,766 Shares and controlled 500,000 Options, representing approximately 26.78% of the issued and outstanding Shares on a non-diluted basis and approximately 27.11% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Options controlled by the Securityholder.
Pursuant to the Offering, the Securityholder acquired 1,600,000 Shares and 1,600,000 Warrants. After giving effect to the Offering, the Securityholder beneficially owns or controls 31,018,766 Shares, 1,600,000 Warrants and 500,000 Options, representing approximately 26.27% of the issued and outstanding Shares on a non-diluted basis and approximately 27.56% of the issued and outstanding Shares on a partially diluted basis, assuming the exercise of the all of the Warrants and Options held and controlled by the Securityholder.
| 3.5 | State the designation and number or principal amount of securities and the acquiror’s security holding percentage in the class of securities referred to in Item 3.4 over which |
| (a) | the acquiror, either alone or together with any joint actors, has ownership and control, |
See Item 3.1 above.
2
| (b) | the acquiror, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the acquiror or any joint actor, and |
Not applicable.
| (c) | the acquiror, either alone or together with any joint actors, has exclusive or shared control but does not have ownership. |
See Item 3.1 above.
| 3.6 | If the acquiror or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the acquiror’s security holdings. |
Not applicable.
| 3.7 | If the acquiror or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement. |
State if the securities lending arrangement is subject to the exception provided in section 5.7 of NI 62-104.
Not applicable.
| 3.8 | If the acquiror or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the acquiror’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding. |
Not applicable.
Item 4 – Consideration Paid
| 4.1 | State the value, in Canadian dollars, of any consideration paid or received per security and in total. |
The Securityholder acquired the 1,600,000 Units at a price of $0.16 per Unit for aggregate consideration of $256,000 pursuant to the terms of a subscription agreement dated February 5, 2021 between the Issuer and the Securityholder (the “Unit Subscription Agreement”).
| 4.2 | In the case of a transaction or other occurrence that did not take place on a stock exchange or other market that represents a published market for the securities, including an issuance from treasury, disclose the nature and value, in Canadian dollars, of the consideration paid or received by the acquiror. |
See item 4.1 above.
3
| 4.3 | If the securities were acquired or disposed of other than by purchase or sale, describe the method of acquisition or disposition. |
Not applicable.
Item 5 – Purpose of the Transaction
State the purpose or purposes of the acquiror and any joint actors for the acquisition or disposition of securities of the reporting issuer. Describe any plans or future intentions which the acquiror and any joint actors may have which relate to or would result in any of the following:
| (a) | the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer; |
| (b) | a corporate transaction, such as a merger, reorganization or liquidation, involving the reporting issuer or any of its subsidiaries; |
| (c) | a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries; |
| (d) | a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board; |
| (e) | a material change in the present capitalization or dividend policy of the reporting issuer; |
| (f) | a material change in the reporting issuer’s business or corporate structure; |
| (g) | a change in the reporting issuer’s charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person or company; |
| (h) | a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace; |
| (i) | the issuer ceasing to be a reporting issuer in any jurisdiction of Canada; (j) a solicitation of proxies from securityholders; |
| (k) | an action similar to any of those enumerated above. |
The Shares and the Warrants were acquired for investment purposes. Presently, the Securityholder has no intention of acquiring any securities of the Issuer. The Securityholder may acquire ownership of or control over further securities of the Issuer in the future depending upon market circumstances. Increase or decrease in ownership of securities of the Issuer will depend on numerous conditions, including the price of the Shares and general market conditions.
4
Item 6 – Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer
Describe the material terms of any agreements, arrangements, commitments or understandings between the acquiror and a joint actor and among those persons and any person with respect to securities of the class of securities to which this report relates, including but not limited to the transfer or the voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Include such information for any of the securities that are pledged or otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over such securities, except that disclosure of standard default and similar provisions contained in loan agreements need not be included.
Not applicable.
Item 7 – Change in Material Fact
If applicable, describe any change in a material fact set out in a previous report filed by the acquiror under the early warning requirements or Part 4 in respect of the reporting issuer’s securities.
Not applicable.
Item 8 – Exemption
If the acquiror relies on an exemption from requirements in securities legislation applicable to formal bids
for the transaction, state the exemption being relied on and describe the facts supporting that reliance.
Not applicable.
Item 9 – Certification
I, as the acquiror, certify, or I, as the agent filing this report on behalf of an acquiror, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.
DATED this 8th day of February, 2021
(signed) “J. Obie Strickler
J. Obie Strickler
5
Exhibit 5
Grown Rogue Acquires Strategic Assets from Acreage Holdings Inc. bringing Total Indoor Capacity to 127,000 Sq Ft
Medford, Oregon, February 8, 2021 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a multi-state cannabis company with operations and assets in Oregon and Michigan, announced today that its subsidiary, Grown Rogue Distribution, LLC, has signed a Definitive Agreement (“Agreement”) and Management Services Agreement (“MSA”) with HSCP, LLC, (“HSCP”) a subsidiary of Acreage Holdings Inc. (CSE:ACRG.A.U, ACRG.B.U) (OTC: ACRHF, ACRDF) effective February 5, 2021 for a previously operational, state-of-the-art 30,000 Sq Ft indoor facility located in Medford, Oregon, and a fully operational retail dispensary in Portland, Oregon. The acquisition brings Grown Rogue’s total indoor capacity to 127,000 Sq Ft.
Transaction Highlights:
| ● | Added 30,000 Sq Ft state-of-the-art indoor facility + Portland retail dispensary |
| ● | Total annual revenue capacity increased to $20M USD |
| ● | Further reduces one of the industry’s lowest cash cost of production of $0.80 USD/gram with improved economies of scale |
“This strategic asset acquisition further solidifies our commitment to the Oregon cannabis market, which saw a record $1.1B USD in sales in 2020 according to the Oregon Liquor Control Commission” said Obie Strickler, Chief Executive Officer of Grown Rogue. “The new indoor facility will more than double our Oregon capacity and yearly production volume and, more importantly, Grown Rogue is positioned to generate $20M USD per year in revenue on a pro-forma basis including $10M USD in wholesale sales in Oregon and a projected $10M USD of revenue from our Michigan partner’s operations. Over the past 5 years, we have developed proprietary operational and sales processes to achieve a consistent operating margin greater than 40%, which we expect to continue. We have reinvested the healthy cash flow into the company and this asset acquisition actualizes our commitment to scaling a robust profitable model providing our shareholders even greater value creation.”
The recently constructed, state-of-the-art indoor facility is located only five minutes from the existing Grown Rogue facility. The physical proximity of the two facilities offers economies of scale which will further drive down Grown Rogue’s cash cost to produce at or below $0.80 USD/gram. The new facility is expected to produce an estimated 2,400 pounds or $2.5M USD in revenue (against expenses of $1M USD) of high-quality indoor flower for the remainder of 2021 (partial year) and upon conversion of a fourth growing room from vegetative to flower, the facility will have capacity to produce 5,000 pounds or $6M USD in revenue (against expenses of $2.5M USD) of Oregon’s highest quality flower in 2022 (full year). Grown Rogue will begin retrofitting and implementing proprietary operating procedures immediately under the MSA until final close of the asset, which is expected in approximately 6 months, subsequent to final regulatory approvals.
The retail dispensary is located in Portland, Oregon the 6th largest metro area on the west coast. Grown Rogue expects to take possession of the retail operation in two to four months, after regulatory approval of the transaction. In addition to connecting with consumers to better understand trends in purchasing habits and preferences, Grown Rogue expects to add an additional $1M USD plus to its yearly top-line revenue through retail sales from the dispensary with an estimated 30% operating margin.
Total consideration for the acquisiton is $3M USD to be paid in a series of tranches based on estimated regulatory approvals not to exceed 18 months.
“This value acquisition is another example of our talented team’s disciplined focus on our core competency of high-quality, low-cost flower production,” added Mr. Strickler. “We are picking up where we left off in 2020, when we completed a controlling interest acquisition of a first-rate cannabis asset in Michigan. We continue to execute on our business strategy of acquiring undervalued assets, creating further value and profitability by applying our proven best practices, and providing excellent return on invested capital.”
Strategic Indoor Assets:
| ● | Oregon |
| o | 17,000 Sq Ft (Existing facility) |
| o | 30,000 Sq Ft (New facility) |
| ● | Michigan |
| o | 80,000 Sq Ft (partnership with Golden Harvests, LLC) |
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a multi-state Cannabis family of brands on a mission to inspire consumers to “enhance experiences” through cannabis. We have combined an expert management team, award winning grow team, state of the art indoor and outdoor manufacturing facilities, and consumer insight-based product categorization, to create innovative products thoughtfully curated from “seed to experience.” The Grown Rogue family of products include sungrown and indoor premium flower, along with patented nitro sealed indoor and sungrown pre-rolls and jars.
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, without limitation, 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 www.sedar.com.
2
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.
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 6
J. OBIE STRICKLER OF GROWN ROGUE TO FILE EARLY WARNING REPORT
MEDFORD, OR - February 8, 2021 - Mr. J. Obie Strickler, President and Chief Executive Officer of Grown Rogue International Inc. (the “Issuer”), will file an early warning report advising of his acquisition of 1,600,000 units (“Units”) of the Issuer.
Mr. Strickler subscribed for a total of 1,600,000 Units, at a price of $0.16 per Unit, for a total subscription of $256,000. Each Unit is comprised of one common share of the Issuer (each a “Common Share”) and one Common Share purchase warrant (each a “Warrant”), each Warrant entitling Mr. Strickler to acquire one additional Common Share until February 5, 2023 at a price of $0.20 per Common Share. The Issuer has the right to accelerate the expiry date of the Warrants to thirty days following written notice to Mr. Strickler if the closing market price of the Common Shares is at or above $0.32 per Common Share for a period of ten consecutive trading days.
Early Warning Disclosure Pursuant to National Instrument 62-103
Immediately prior to completion of the offering, Mr. Strickler held 29,418,766 Common Shares and controlled 500,000 stock options of the Issuer (the “Options”), representing approximately 26.78% of the issued and outstanding Common Shares on a non-diluted basis and approximately 27.11% of the issued and outstanding Common Shares on a partially diluted basis, assuming the exercise of the all of the Options controlled by Mr. Strickler.
Pursuant to the offering which was completed on February 5, 2021, Mr. Strickler acquired 1,600,000 Common Shares and 1,600,000 Warrants. Mr. Strickler now beneficially owns or controls 31,018,766 Common Shares, 1,600,000 Warrants and 500,000 Options, representing approximately 26.27% of the issued and outstanding Common Shares on a non-diluted basis and approximately 27.56% of the issued and outstanding Common Shares on a partially diluted basis, assuming the exercise of the all of the Warrants and Options held and controlled by Mr. Strickler.
The Common Shares and Warrants of the Issuer were acquired for investment purposes. Presently, Mr. Strickler has no intention of acquiring any securities of the Issuer. Mr. Strickler may acquire ownership of or control over further securities of the Issuer in the future depending upon market circumstances. Increase or decrease in ownership of securities of the Issuer will depend on numerous conditions, including the price of the Common Shares and general market conditions.
This news release is issued pursuant to National Instrument 62-103 - The Early Warning System and Related Take-Over Bid and Insider Reporting Issues of the Canadian Securities Administrators, which also requires an early warning report to be filed with the applicable securities regulators containing additional information with respect to the foregoing matters. A copy of the early warning report can be obtained by contacting Mr. Strickler at do Grown Rogue International Inc., 340 Richmond Street West, Toronto, Ontario, M5V 1X2. A copy of the early warning report in connection with the foregoing will appear under the Issuer’s profile on SEDAR (www.sedar.com).
J. Obie Strickler
obie@grownrogue.com
Exhibit 7
Form 51-102F3
Material Change Report
| Item 1 | Name and Address of Company |
Grown Rogue International Inc. (the “Company”)
340 Richmond Street West
Toronto, Ontario
M5V 1X2
| Item 2 | Date of Material Change |
February 5, 2021 and February 8, 2021
| Item 3 | News Release |
A news release was issued by the Company on February 5, 2021 and February 8, 2021 through the facilities of Business Wire and was subsequently filed on SEDAR.
| Item 4 | Summary of Material Change |
On February 5, 2021, the Company announced that it completed the second and final tranche of its previously announced private placement for aggregate gross proceeds of $1,565,973.
On February 8, 2021, the Company announced that its subsidiary, Grown Rogue Distribution, LLC, has signed a definitive agreement and management services agreement with HSCP, LLC, a subsidiary of Acreage Holdings Inc. for a previously operational, state-of-the-art 30,000 Sq Ft indoor facility located in Medford, Oregon, and a retail dispensary in Portland, Oregon.
| Item 5.1 | Full Description of Material Change |
The Company completed a non-brokered private placement offering of common shares and units for total gross proceeds of $1,565,973. On January 19, 2021, the Company completed the first tranche of the non-brokered private placement offering and issued 2,031,784 common shares of the Company, at a price of CAD$0.125 per share. On February 5, 2021, the Company completed the second tranche of the non- brokered private placement offering and issued 8,200,000 units (the “Units”) at a price of CAD$0.16 per Unit (the “Second Tranche”). Each Unit is comprised of one common share and one warrant of the Company (the “Warrants”). Each Warrant entitles the holder to acquire one additional common share for a period of 24 months from the date of issuance at an exercise price of CAD$0.20 per share. Furthermore, the Company may accelerate the expiration date of the Warrants to a period of 30 days following written notice to the holder in the event that the Company’s common shares close at or above CAD$0.32 per share for a period of 10 consecutive trading days on the Canadian Securities Exchange.
All securities issued pursuant to the private placement are subject to a hold period of four months and a day under applicable Canadian securities laws.
Insiders of the Company invested an aggregate of $896,000 in the Second Tranche and received 5,600,000 common shares of the Company and 5,600,000 Warrants. Such insider participation represents a related-party transaction under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“Ml 61-101”), but the transaction was exempt from the formal valuation and minority shareholder approval requirements of Ml 61-101 as neither the fair market value of the subject matter of the transaction, nor the consideration paid, exceed 25% of the Company’s market capitalization. The Company did not file a material change report more than 21 days before the expected closing Second Tranche as the details of the participation by such insiders was not settled until shortly prior to closing of the Second Tranche.
- 2 -
On February 8, 2021, the Company announced that its subsidiary, Grown Rogue Distribution, LLC, signed a definitive agreement and management services agreement (the “MSA”) with HSCP, LLC, a subsidiary of Acreage Holdings Inc. for a previously operational, state-of-the-art 30,000 Sq Ft indoor facility located in Medford, Oregon, and a fully operational retail dispensary in Portland, Oregon. The asset acquisition brings the Company’s total indoor capacity to 127,000 Sq Ft. Total consideration for the acquisition is $3M USD to be paid in a series of tranches based on estimated regulatory approvals not to exceed 18 months. Transaction highlights also include (i) total annual revenue capacity increased to $20M USD on a pro forma basis including $10M USD in wholesale sales in Oregon and a projected $10M USD of revenue from the Company’s Michigan partner’s operations and (ii) further reduction of one of the industry’s lowest cash cost of production of $0.80 USD/gram with improved economies of scale. The new facility is expected to produce an estimated 2,400 pounds or $2.5M USD in revenue (against expenses of $1M USD) of high-quality indoor flower for the remainder of 2021 (partial year) and upon conversion of a fourth growing room from vegetative to flower, the facility will have capacity to produce 5,000 pounds or $6M USD in revenue (against expenses of $2.5M USD) of Oregon’s highest quality flower in 2022 (full year). The Company will begin retrofitting the facility and implementing proprietary operating procedures immediately under the MSA until final close of the asset, which is expected in approximately 6 months, subsequent to final regulatory approvals. The Company expects to add an additional $1M USD plus to its yearly top-line revenue through retail sales from the dispensary with an estimated 30% operating margin. The Company expects to take possession of the retail operation in two to four months, after regulatory approval of the transaction.
| 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 16, 2021.
- 3 -
Cautionary Note Regarding Forward Looking Information
This 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, without limitation, 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 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.
Exhibit 8
FORM 13-502F1
CLASS 1 AND CLASS 3B REPORTING ISSUERS - PARTICIPATION FEE
| MANAGEMENT CERTIFICATION | ||||||
I, J. Obie Strickler_________ , 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) | “Obie Strickler” | March 1,2021 | ||||
| Name: | J. Obie Strickler | Date: | ||||
| Title: | Chief Executive Officer | |||||
| Reporting Issuer Name: | Grown Rogue International Inc. | |
| End date of previous financial year: | October 31, 2020 | |
| 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) | 01/11/20 ___________ to 31/01/20_____________ |
| 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 | $ 0.090_______________ ______(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 | 74,518,897 __________________(ii) |
| Market value of class or series | (i) x (ii) $6,706,701 ___________________ (A) |
2nd Specified Trading Period (dd/mm/yy) |
|
| (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees | 01/02/20 ___________ to 30/04/20______________ |
| 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 | $ 0.085 ______________________(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 | 95,618,897 ____________________(iv) |
| Market value of class or series | (iii) x (iv) $ 8,127,606 ___________________ (B) |
| 3rd Specified Trading Period (dd/mm/yy) | |
| (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) | 01/05/20______________ to 31/07/20_________________ |
| 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 | $ 0.135_______________________ (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 | 106,759,533___________________ (vi) |
| Market value of class or series | (v) x (vi) $ 14,412,537____________________ (C) |
| 4th Specified Trading Period (dd/mm/yy) | |
| (refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) | 01/08/20_______________ to 31/10/20________________ |
| 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 | 0.120__________________________ (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 | 107,559,533 _____________________(viii) |
| Market value of class or series | (vii) x (viii) $ 12,90,,144_____________________ (D) |
| 5th Specified Trading Period (dd/mm/yy) | |
| (if applicable - refer to the definition of “specified trading period” under OSC Rule 13-502 Fees) | ______________________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) |
| 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)) | |
| $ 10,538,497 ______________________ (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) $ 10,538,497_______________________ |
| 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__________________________ |
Exhibit 9
GROWN ROGUE INTERNATIONAL INC.
Consolidated Financial Statements
For the Years ended October 31, 2020 and 2019
Expressed in United States Dollars
Grown Rogue International Inc.
Consolidated Statements of Financial Position
Expressed in United States Dollars
| October 31, 2020 | October 31, 2019 | |||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash | $ | 217,788 | $ | 74,926 | ||||||||
| Accounts receivable | (Note 24) | 172,121 | 134,423 | |||||||||
| Biological assets | (Note 5) | 250,690 | 156,589 | |||||||||
| Inventory | (Note 6) | 1,124,360 | 940,715 | |||||||||
| Prepaid expenses and other assets | 69,816 | 126,309 | ||||||||||
| Total current assets | $ | 1,834,775 | $ | 1,432,962 | ||||||||
| Property and equipment | (Note 11) | $ | 1,101,331 | $ | 1,464,917 | |||||||
| Intangible assets | 4,997 | 34,597 | ||||||||||
| Right-of-use assets | (Note 10) | 50,468 | — | |||||||||
| Marketable securities | (Note 7) | 585,035 | — | |||||||||
| Other investment | (Note 8) | 187,812 | — | |||||||||
| TOTAL ASSETS | $ | 3,764,418 | $ | 2,932,476 | ||||||||
| LIABILITIES | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable and accrued liabilities | $ | 1,059,971 | $ | 1,526,855 | ||||||||
| Convertible debentures | (Note 14) | — | 1,995,609 | |||||||||
| Current portion of long-term debt | (Note 12) | 46,099 | 150,000 | |||||||||
| Unearned revenue | — | 35,000 | ||||||||||
| Current portion of lease liabilities | (Note 10) | 100,277 | 129,876 | |||||||||
| Interest payable | (Notes 12, 13, 14) | 9,367 | 55,829 | |||||||||
| Derivative liabilities | (Note 14.1) | 583,390 | 249,320 | |||||||||
| Total current liabilities | $ | 1,799,104 | $ | 4,142,489 | ||||||||
| Accrued liabilities | (Note 9) | 389,816 | 180,799 | |||||||||
| Lease liabilities | (Note 10) | 16,630 | 12,329 | |||||||||
| Long-term debt | (Note 12) | 753,715 | — | |||||||||
| Convertible debentures | (Note 14) | 1,739,678 | — | |||||||||
| Deferred rent | 10,494 | 24,505 | ||||||||||
| TOTAL LIABILITIES | $ | 4,709,437 | $ | 4,360,122 | ||||||||
| EQUITY | ||||||||||||
| Share capital | (Note 16) | $ | 14,424,341 | $ | 12,647,930 | |||||||
| Shares to be issued | — | 5,136 | ||||||||||
| Contributed surplus | (Notes 17, 19, 20) | 4,070,264 | 2,890,435 | |||||||||
| Accumulated other comprehensive income (loss) | (12,197 | ) | 121,920 | |||||||||
| Accumulated deficit | (19,394,044 | ) | (17,112,605 | ) | ||||||||
| Equity attributable to shareholders | $ | (911,636 | ) | $ | (1,447,184 | ) | ||||||
| Non-controlling interest | (Notes 1, 31) | (33,383 | ) | 19,538 | ||||||||
| TOTAL EQUITY | $ | (945,019 | ) | $ | (1,427,646 | ) | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 3,764,418 | $ | 2,932,476 | ||||||||
Going Concern (Note 1)
Subsequent Events (Note 31)
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 2 of 57
Grown Rogue International Inc.
Consolidated Statements of Comprehensive Loss
Expressed in United States Dollars
| Year ended October 31, | ||||||||||||
| 2020 | 2019 | |||||||||||
| Revenue | ||||||||||||
| Product sales | $ | 3,846,223 | $ | 3,924,983 | ||||||||
| Service revenue | 393,381 | — | ||||||||||
| Total revenue | $ | 4,239,604 | $ | 3,924,983 | ||||||||
| Cost of goods sold | ||||||||||||
| Cost of finished cannabis inventory sold | (Note 6) | (2,155,507 | ) | (2,935,934 | ) | |||||||
| Costs of service revenues earned | (271,167 | ) | — | |||||||||
| Gross profit, excluding fair value items | $ | (2,426,674 | ) | $ | (2,935,934 | ) | ||||||
| Realized fair value amounts in inventory sold | (1,482,725 | ) | (622,804 | ) | ||||||||
| Unrealized fair value gain on growth of biological assets | (Note 5) | 1,515,492 | 486,354 | |||||||||
| Gross profit | $ | 1,845,697 | $ | 852,599 | ||||||||
| Expenses | ||||||||||||
| Accretion expense | $ | 609,357 | $ | 153,195 | ||||||||
| Amortization of intangible assets | 26,600 | 31,373 | ||||||||||
| Amortization of property and equipment | (Note 11) | 153,991 | 63,295 | |||||||||
| Amortization of right-of-use assets | (Note 10) | 96,845 | — | |||||||||
| General and administrative | (Note 25) | 2,196,421 | 4,660,675 | |||||||||
| Share-based compensation | 337,162 | 113,227 | ||||||||||
| Transaction costs | (Note 2) | — | 3,453,790 | |||||||||
| Total expenses | $ | 3,420,376 | $ | 8,475,555 | ||||||||
| Loss from operations | $ | (1,574,679 | ) | $ | (7,622,956 | ) | ||||||
| Other income and (expense) | ||||||||||||
| Interest expense | $ | (249,296 | ) | $ | (245,549 | ) | ||||||
| Other income | 14,750 | 16,733 | ||||||||||
| Gain on disposal of subsidiary | 1,574 | — | ||||||||||
| Loss on debt restructure | (Note 14.1) | (765,707 | ) | — | ||||||||
| Gain (Loss) on debt settlement | 23,939 | (4,942 | ) | |||||||||
| Gain on derecognition of derivative liability | (Note 14.1) | 244,572 | 39,500 | |||||||||
| Unrealized loss on marketable securities | (263,483 | ) | — | |||||||||
| Unrealized gain on derivative liability | (Note 14.1) | 221,820 | 121,811 | |||||||||
| Gain (loss) on disposal of property and equipment | (9,978 | ) | (70,403 | ) | ||||||||
| Acquisition Costs | — | (126,202 | ) | |||||||||
| Impairment of technology license | (Note 15.2) | — | (1,574,761 | ) | ||||||||
| Debt issuance cost | — | (10,165 | ) | |||||||||
| Net loss | $ | (2,356,488 | ) | $ | (9,476,934 | ) | ||||||
| Other comprehensive income (items that may be subsequently reclassified to profit & loss) | ||||||||||||
| Currency translation | (134,117 | ) | 121,920 | |||||||||
| Total comprehensive loss | $ | (2,490,605 | ) | $ | (9,355,014 | ) | ||||||
| Loss per share attributable to owners of the parent - basic & diluted | $ | (0.03 | ) | $ | (0.13 | ) | ||||||
| Weighted average shares outstanding - basic & diluted | 90,596,827 | 70,928,833 | ||||||||||
| Net loss for the period attributable to: | ||||||||||||
| Non-controlling interest | $ | (75,049 | ) | $ | (176,712 | ) | ||||||
| Shareholders | (2,281,439 | ) | (9,300,222 | ) | ||||||||
| Net loss | $ | (2,356,488 | ) | $ | (9,476,934 | ) | ||||||
| Comprehensive loss for the period attributable to: | ||||||||||||
| Non-controlling interest | $ | (75,049 | ) | $ | (176,712 | ) | ||||||
| Shareholders | (2,415,556 | ) | (9,178,302 | ) | ||||||||
| Total comprehensive loss | $ | (2,490,605 | ) | $ | (9,355,014 | ) | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
Pg 3 of 57
Grown Rogue International Inc.
Consolidated Statements of Changes in Equity Holders' Deficit
Expressed in United States Dollars
| Number of common shares | Share capital | Subscriptions payable | Contributed surplus | Currency translation reserve | Accumulated deficit | Non-controlling interests | Total equity | |||||||||||||||||||||||||
| Balance at October 31, 2019 | 73,219,916 | $ | 12,647,930 | $ | 5,136 | $ | 2,890,435 | $ | 121,920 | $ | (17,112,605 | ) | $ | 19,538 | $ | (1,427,646 | ) | |||||||||||||||
| Issuance pursuant to private placement (Notes 16.1) | 15,000,000 | 564,147 | — | 520,188 | — | — | — | 1,084,335 | ||||||||||||||||||||||||
| Common shares issued pursuant to share swap (Note 16.1) | 15,000,000 | 848,011 | — | — | — | — | — | 848,011 | ||||||||||||||||||||||||
| Share issuance costs (Note 16.1) | — | (11,508 | ) | — | (5,083 | ) | — | — | — | (16,591 | ) | |||||||||||||||||||||
| Common shares issued for compensation (Note 16.5) | 909,386 | 76,797 | — | — | — | — | — | 76,797 | ||||||||||||||||||||||||
| Common shares issued for services (Note 16.4) | 2,300,000 | 163,543 | — | — | — | — | — | 163,543 | ||||||||||||||||||||||||
| Common shares issued for investment (Notes 16.2, 8.1) | 200,000 | 12,812 | — | — | — | — | — | 12,812 | ||||||||||||||||||||||||
| Conversion of debt into common shares (Note 14.1, 16.3) | 1,038,095 | 112,863 | — | — | — | — | — | 112,863 | ||||||||||||||||||||||||
| Issuances pursuant to convertible agreements (Note 16.3, 17.3) | 115,000 | 9,746 | — | 424,645 | — | — | — | 434,391 | ||||||||||||||||||||||||
| Stock option grants (Note 20.3) | — | — | — | 240,079 | — | — | — | 240,079 | ||||||||||||||||||||||||
| Elimination of non-controlling interest of sold subsidiary (Notes 1, 31) | — | — | — | — | — | — | 22,128 | 22,128 | ||||||||||||||||||||||||
| Subscription payable to be settled as trade payable | — | — | (5,136 | ) | — | — | — | — | (5,136 | ) | ||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | (134,117 | ) | — | — | (134,117 | ) | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,281,439 | ) | (75,049 | ) | (2,356,488 | ) | |||||||||||||||||||||
| Balance at October 31, 2020 | 107,782,397 | $ | 14,424,341 | $ | — | $ | 4,070,264 | $ | (12,197 | ) | $ | (19,394,044 | ) | $ | (33,383 | ) | $ | (945,019 | ) | |||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Pg 4 of 57
Grown Rogue International Inc.
Statements of Changes in Equity Holders’ Equity (Deficit)
Expressed in United States Dollars
| Number of Common Shares | Share Capital | Common Units | Seed Round Preferred Units | Total Members’ Capital | Subscriptions Payable | Equity Component of Convertible Debentures | Contributed Surplus | Currency Translation Reserve | Accumulated Deficit | Non- controlling Interest | Total Equity Holders’ Deficit | ||||||||||||||||||||||||||
| Balance October 31, 2018 | 40,706,873 | $ | — | $ | 3,426,829 | $ | 1,274,944 | $ | 4,701,773 | $ | 720,516 | $ | 132,000 | $ | 2,010,489 | $ | — | $ | (7,812,383 | ) | $ | — | $ | (247,605 | ) | ||||||||||||
| Common units issued pursuant to conversion of notes payable (Note 17) | 5,465,877 | — | 1,451,400 | — | 1,451,400 | — | — | — | — | — | — | 1,451,400 | |||||||||||||||||||||||||
| Common units issued pursuant to technology license agreement (Note 17) | 6,600,000 | — | 1,574,761 | — | 1,574,761 | — | — | — | — | — | — | 1,574,761 | |||||||||||||||||||||||||
| Common units issued pursuant to exercise of purchase option (Note 17) | 4,202,429 | — | 1,218,784 | — | 1,218,784 | — | — | (1,218,784 | ) | — | — | — | — | ||||||||||||||||||||||||
| Subscription receipts (Note 18) | — | — | — | — | — | 554,000 | — | — | — | — | — | 554,000 | |||||||||||||||||||||||||
| Common units issued pursuant to subscription receipts (Note 17.9) | 3,771,023 | — | 913,698 | — | 913,698 | (1,274,516 | ) | — | 360,818 | — | — | — | — | ||||||||||||||||||||||||
| Exchange of Units for common shares pursuant to the Transaction (Note 16) | — | 9,860,416 | (8,585,472 | ) | (1,274,944 | ) | (9,860,416 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Common units issued to existing shareholders of the Company pursuant to the Transaction (Note 16.6) | 3,773,689 | 900,403 | — | — | — | — | — | — | — | — | — | 900,403 | |||||||||||||||||||||||||
| Common shares issued to former debt holders of the Company (Note 16.8) | 839,790 | 200,651 | — | — | — | — | — | 79,237 | — | — | — | 279,888 | |||||||||||||||||||||||||
| Common shares pursuant to acquisition of Grown Rogue Canada (Note 16.10) | 100,000 | 23,860 | — | — | — | — | — | — | — | — | — | 23,860 | |||||||||||||||||||||||||
| Common shares issued pursuant to subscription receipts (Note 16.9, 17.7) | 6,193,917 | 1,479,947 | — | — | — | — | — | 584,430 | — | — | — | 2,064,377 | |||||||||||||||||||||||||
| Fair value of broker warrants | — | (50,508 | ) | — | — | — | — | — | 50,508 | — | — | — | — | ||||||||||||||||||||||||
| Issuance costs (Note 16.9) | — | (143,786 | ) | — | — | — | — | — | (56,781 | ) | — | — | — | (200,567 | ) | ||||||||||||||||||||||
| Fair value of warrants issued to debenture holders (Note 17.10) | — | — | — | — | — | — | — | 893,646 | — | — | — | 893,646 | |||||||||||||||||||||||||
| Debt settlements | — | — | — | — | — | 5,136 | — | — | — | — | — | 5,136 | |||||||||||||||||||||||||
| Common shares issued for services rendered | 1,035,500 | 255,360 | — | — | — | — | — | — | — | — | — | 255,360 | |||||||||||||||||||||||||
| Common shares issued for debt | 530,818 | 121,587 | — | — | — | — | — | — | — | — | — | 121,587 | |||||||||||||||||||||||||
| Stock based compensation expenses | — | — | — | — | — | — | — | 112,080 | — | — | — | 112,080 | |||||||||||||||||||||||||
| Derivative liability | — | — | — | — | — | — | (132,000 | ) | — | — | — | — | (132,000 | ) | |||||||||||||||||||||||
| Issuance of convertible debentures (Note 16) | — | — | — | — | — | — | — | 74,792 | — | — | — | 74,792 | |||||||||||||||||||||||||
| Currency Translation Adjustment | — | — | — | — | — | — | — | — | 121,920 | — | 121,920 | ||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | — | — | — | — | — | — | 196,250 | 196,250 | |||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | (9,300,222 | ) | (176,712 | ) | (9,476,934 | ) | ||||||||||||||||||||||
| Balance, October 31, 2019 | 73,219,916 | $ | 12,647,930 | $ | — | $ | — | $ | — | $ | 5,136 | $ | — | $ | 2,890,435 | $ | 121,920 | $ | (17,112,605 | ) | $ | 19,538 | $ | (1,427,646 | ) | ||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Pg 5 of 57
Grown Rogue International Inc.
Consolidated Cash Flow Statements
Expressed in United States Dollars
| Year ended October 31, | ||||||||||||
| Cash provided by (used in) | 2020 | 2019 | ||||||||||
| Operating activities | ||||||||||||
| Net loss | $ | (2,356,488 | ) | $ | (9,476,934 | ) | ||||||
| Adjustments for non-cash items in net loss | ||||||||||||
| Amortization of property and equipment | 153,991 | 63,295 | ||||||||||
| Amortization of right-of-use assets | 96,845 | — | ||||||||||
| Amortization of intangible assets | 26,600 | 31,373 | ||||||||||
| Unrealized gain on changes in fair value of biological assets | (1,515,492 | ) | (486,354 | ) | ||||||||
| Share-based compensation | 162,270 | 113,227 | ||||||||||
| Stock option expense | 174,892 | — | ||||||||||
| Services paid in shares or membership units | 76,797 | 322,985 | ||||||||||
| Amortization of debt issuance costs | — | 64,914 | ||||||||||
| Accretion expense | 568,969 | 153,195 | ||||||||||
| Gain on liability settlement | (23,939 | ) | — | |||||||||
| Loss on disposal of property & equipment | 9,978 | 70,403 | ||||||||||
| Gain on sale of subsidiary | (1,574 | ) | — | |||||||||
| Transaction costs | — | 3,453,790 | ||||||||||
| Loss on sale of subsidiary | (1,034 | ) | — | |||||||||
| Loss from debt restructuring | 765,707 | — | ||||||||||
| Unrealized loss on marketable securities | 263,483 | — | ||||||||||
| Change in fair value of derivative liability | (221,820 | ) | (121,811 | ) | ||||||||
| Gain (Loss) on derecognition of derivative liability | (244,572 | ) | (39,500 | ) | ||||||||
| Acquisition costs | — | 126,202 | ||||||||||
| Impairment of technology license | — | 1,574,761 | ||||||||||
| Bad debt expense | — | 54,892 | ||||||||||
| Loss on debt settlement | — | 4,509 | ||||||||||
| Effects of foreign exchange | (134,117 | ) | 153,003 | |||||||||
| $ | (2,199,504 | ) | $ | (3,938,050 | ) | |||||||
| Changes in non-cash working capital | (Note 21) | 1,905,660 | 511,214 | |||||||||
| Net cash used in operating activities | $ | (293,844 | ) | $ | (3,426,836 | ) | ||||||
| Investing activties | ||||||||||||
| Purchase of intangible assets | $ | — | $ | (996 | ) | |||||||
| Purchase of property and equipment | (557,758 | ) | (216,088 | ) | ||||||||
| Other investment | (175,000 | ) | — | |||||||||
| Receipt from sale of subsidiary | 85,000 | — | ||||||||||
| Payment upon execution of Letter of Intent | — | (50,000 | ) | |||||||||
| Cash acquired upon close of Transaction | — | 5,875 | ||||||||||
| Net cash used in investing activities | $ | (647,758 | ) | $ | (261,209 | ) | ||||||
| Financing activities | ||||||||||||
| Proceeds from convertible debentures | $ | — | $ | 1,105,126 | ||||||||
| Proceeds from long-term debt | 615,000 | 100,000 | ||||||||||
| Repayment of long-term debt | (226,126 | ) | (250,145 | ) | ||||||||
| Proceeds of subscription receipts | — | 2,514,377 | ||||||||||
| Payments of lease principal | (372,154 | ) | (117,125 | ) | ||||||||
| Payment of equity and debenture issuance costs | — | (200,567 | ) | |||||||||
| Proceeds from private placement | 1,067,744 | — | ||||||||||
| Payment of debt issuance costs | — | (47,975 | ) | |||||||||
| Transaction costs | — | (167,363 | ) | |||||||||
| Net cash provided by financing activities | $ | 1,084,464 | $ | 2,936,328 | ||||||||
| Change in cash | $ | 142,862 | $ | (751,717 | ) | |||||||
| Cash balance, beginning | 74,926 | 826,643 | ||||||||||
| Cash balance, ending | $ | 217,788 | $ | 74,926 | ||||||||
The accompanying notes form an integral part of these consolidated financial statements.
Pg 6 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 1. | Corporate Information and Going Concern |
These consolidated financial statements (the “Financial Statements”) for the years ended October 31, 2020 and 2019, 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 340 Richmond Street West, Toronto, Ontario, M5V 1X2.
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 |
| Grown Rogue Distribution, LLC | 100% by Grown Rogue Unlimited, LLC |
| GRU Properties, LLC | 100% by Grown Rogue Unlimited, LLC |
| GRIP, LLC | 100% by Grown Rogue Unlimited, LLC |
| GR Michigan, LLC | 87% by Grown Rogue Unlimited, LLC |
| Idalia, LLC | 60% by Grown Rogue Unlimited, LLC |
GRIN is primarily engaged in the business of growing and selling cannabis products. The primary cannabis product produced and sold is cannabis flower.
These Financial Statements are prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of the business.
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. As at the end of the year ended October 31, 2020, the Company incurred a net loss of $2,356,488 and as of that date, the Company's accumulated deficit was $19,394,044. As at October 31, 2020, the Company had limited working capital of $35,671. These aforementioned 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.
| 2. | Reverse Takeover |
The Company entered into a definitive transaction agreement (the "Definitive Agreement") dated October 31, 2018 with Grown Rogue Unlimited LLC (“GR Unlimited”) and Grown Rogue Canada Inc. ("Grown Rogue Canada") and Novicius Acquisition Corp. ("Novicius Subco") which resulted, through a series of transactions, in the acquisition of all of the equity interests of GR Unlimited and Grown Rogue Canada by the Company (the "Transaction"), such that, immediately following completion of the Transaction, approximately 86% of the issued and outstanding shares of the Company were owned by the former unitholders of GR Unlimited. Prior to close of the Transaction the Company completed a consolidation of its common shares on the basis of 1.4 pre-consolidated common shares for 1 post-consolidated common share. Upon close of the Transaction, the Company issued, in aggregate, 60,746,202 common shares to the GR Unlimited unitholders for all of the outstanding units of GR Unlimited, 100,000 common shares to a director of Grown Rogue Canada and 839,790 common shares to former debtholders of the Company. Holders of warrants and convertible debentures of GR Unlimited and Grown Rogue Canada exchanged such securities for warrants and convertible debentures, with substantially the same terms, of the Company on a one for one basis.
-
Pg 7 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
The Transaction constituted a reverse takeover of the Company by the shareholders of GR Unlimited but did not meet the definition of a business combination under IFRS 3. As such, the Transaction is accounted for under IFRS 2, where the difference between the consideration given to acquire the Company and the net asset value of the Company is recorded as a transaction expense. Since GR Unlimited is deemed to be the accounting acquirer for accounting purposes, these financial statements present the historical financial information of GR Unlimited up to the date of the Transaction.
The allocation of the consideration transferred is as follows:
| 3,773,689 shares at a price of CAD$0.315 per share | $ | 900,403 | ||
| Net assets (liabilities) of the Company acquired | (604,107 | ) | ||
| Transaction costs | $ | 1,504,510 |
The acquisition-date fair value of the consideration transferred by the existing equity holders of GR Unlimited is based on the number of equity interests GR Unlimited would have had to issue to give the owners of the Company the same percentage equity interest in the combined entity that results from the transaction described above. The fair value of the number of equity interests calculated was based on the private placement transactions entered into by GR Unlimited.
Upon completion of the Transaction, the former shareholder of Grown Rogue Canada controlled less than 1% of the issued and outstanding common shares of the Company (not including holders of subscription receipts of Grown Rogue Canada). For accounting purposes, the Company has been identified as the acquirer and Grown Rogue Canada the acquired company. Since Grown Rogue Canada's operations do not constitute a business, this transaction has been accounted for as a share-based payment. As such, Grown Rogue Canada’s balances are accounted for at fair value, with the balance of the purchase price in excess of the fair value of the acquired assets and liabilities of Grown Rogue Canada accounted for as transaction costs. Grown Rogue Canada's historical share capital, deficit and contributed surplus have been eliminated.
The allocation of the consideration transferred is as follows:
| 100,000 common shares at a price of CAD$0.315 per share | $ | 23,860 | ||
| Fair value of warrants of the Company issued (Note 17.10) | 893,646 | |||
| Total consideration transferred | 917,506 | |||
| Net assets of Grown Rogue Canada acquired | 61,447 | |||
| Transaction costs | $ | 856,059 |
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Pg 8 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
In addition to the costs mentioned above, the Company incurred cash transaction costs of $1,093,221 during the year ended October 31, 2019. The aforementioned costs are summarized as set out below:
| Consideration transferred by shareholders of GR Unlimited | $ | 1,504,510 | ||
| Balance of purchase price in excess of the fair value of acquired assets and liabilities of Grown Rogue Canada | 856,059 | |||
| Cash Transaction costs | 1,093,221 | |||
| Total Transaction costs during the year ended October 31, 2019, as reported on the statement of comprehensive loss | $ | 3,453,790 |
| 3. | Basis of Presentation |
Statement of Compliance
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.
These consolidated financial statements were approved and authorized for issuance by the Company's Board of Directors on March 1, 2021.
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 audited consolidated financial statements are presented in U.S. dollars.
Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates prevailing at the end of the reporting period. All exchange gains and losses are included in the statement 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.
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Pg 9 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
Basis of Consolidation
The Subsidiaries are 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 of all of the issued and outstanding common shares. The financial statements of subsidiaries are included in these audited consolidated 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 (coronavirus) 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 period ended October 31, 2020, 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.
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.
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Pg 10 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 4. | Significant Accounting Policies and Significant Judgements |
| 4.1 | 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.
| 4.2 | 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 & 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.
| 4.3 | Cost of finished cannabis inventory sold |
Cost of finished cannabis inventory sold includes the value of inventory sold (policy described in Note 4.2), 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.
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Pg 11 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 4.4 | 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 & 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’.
| 4.5 | Loss per share |
Basic loss per share is calculated by dividing the 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 loss attributable to owners of the Company. Diluted 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.
| 4.6 | 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.
| 4.7 | 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.
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Pg 12 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 4.8 | 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.
As at October 31, 2020, the Company was in the process of completing construction of its warehouse facility in order to expand its cultivation and wholesale activities. The Company has capitalized the costs incurred to date on the construction in process asset, as the assets were not available for use as intended by management as at October 31, 2020, amortization expense was not recorded.
| 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 | months on a straight-line basis |
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.
| 4.9 | Intangible Assets |
Intangible assets are initially measured at cost. The useful life of intangible assets is assessed as either finite or indefinite. Following the initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses, if any. If impairment indicators are present, these assets are subject to an impairment review. Amortization is calculated using the straight-line method over the estimated useful lives of the intangible assets of two to three years.
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Pg 13 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 4.10 | 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.
| 4.11 | Deferred transaction costs |
Deferred transaction costs represent professional fees incurred with respect to a contemplated transaction that is to be completed in a future period. The transaction costs will be recognized in profit and loss in the period in which the transaction is completed.
| 4.12 | Unit/Share Based Compensation |
Unit/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.
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Pg 14 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
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.
Unit/ 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.
| 4.13 | Member's Capital |
Member's capital consists of common units, which are classified as equity on the statements of financial position. Incremental costs attributable directly to the issuance of member's capital are recognized as deduction from equity, net of any tax effects.
| 4.14 | 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.
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Pg 15 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 4.15 | Financial Instruments |
| 4.15.1 | Financial assets |
Initial Recognition
The Company initially recognizes financial assets at fair value on the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Classification and measurement
Under IFRS 9, financial 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. |
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Pg 16 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 4.15.2 | 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. |
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 | 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.
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Pg 17 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
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.
| 4.16 | IFRS 16 - Leases ("IFRS 16") |
On November 1, 2019, the Company adopted IFRS 16, which replaced IAS 17 – Leases and related interpretations, using the modified retrospective method which does not require restatement of prior period financial information. Accordingly, comparative information in the Company’s financial statements is not restated. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize a right-of-use asset representing its right to use the underlying asset, and a lease liability representing its obligation to make lease payments.
On transition to IFRS 16, the Company elected to use the following practical expedient, as permitted under this standard:
| - | Grandfather the assessment of which transactions are leases and apply IFRS 16 only to contracts that were previously identified as leases under IAS 17; and |
| - | Apply a single discount rate to a portfolio of leases with similar characteristics. |
On adoption of IFRS 16, the Company has elected to record right-of-use assets based on the corresponding lease liability. Lease liabilities were measured at the present value of the remaining lease payments outstanding from commitments disclosed as at October 31, 2019, excluding short-term leases, leases of low-value assets, and variable lease payments, and discounted using the Company’s incremental borrowing rate as of November 1, 2019. A reconciliation of the Company’s operating lease commitments at October 31, 2019, to the Company’s lease obligations as at the date of transition of November 2, 2019 is set out below:
| Operating lease commitments at October 31, 2019 | $ | 322,100 | ||
| Discounted using incremental borrowing rate | (45,669 | ) | ||
| Lease liabilities for purchased assets | 142,205 | |||
| Lease obligations - November 1, 2019 | $ | 418,636 |
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Pg 18 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
The following table summarizes the impacts of adopting IFRS 16 on the consolidated financial statements:
| Balance - | Restated balance, | |||||||||||
| October 31, 2019 | Adoption of IFRS 16 | November 1, 2020 | ||||||||||
| Right-of-use assets | $ | — | $ | 276,431 | $ | 276,431 | ||||||
| Property & equipment | $ | 232,059 | $ | — | $ | 232,059 | ||||||
| Current portion of lease liability | $ | 129,876 | $ | 225,862 | $ | 355,738 | ||||||
| Lease liability | $ | 12,329 | $ | 50,569 | $ | 62,898 | ||||||
Update to significant accounting policies
The Company recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made on or before the commencement date, plus any initial direct costs incurred, less any lease incentive received. The right-of-use asset is subsequently depreciated to the earlier of the end of the useful life of the right-of-use asset or the least term using the straight-line method. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. The right-of-us asset may be adjusted for certain remeasurements of the lease liability and impairment losses, if any.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The Company uses a single discount rate for a portfolio of leases with similar characteristics. The lease liability is measure at the amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a a change in index or rate, a change in the amount expected to be payable under a residual value guarantee, or if there is a change in the Company’s assessment of whether it will exercise a purchase, extension, or termination option.
Leases that have term of less than twelve months or leases with an underlying asset of low value are recognized as expenses in profit or loss.
Significant judgments and estimates
In determining the lease term, the Company considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant event of a significant change in circumstance occurs which affects this assessment.
To determine the carrying amount of right-of-use assets and lease liabilities, the Company must estimate the incremental borrowing rate for each leased asset if the interest rate implicit in the lease cannot be readily determined. Management determines the incremental borrowing rate for each leased asset by taking into account the Company’s credit standing, the guarantee, the term and the value of the underlying leased asset, as well as the economic environment in which the leased asset is operated. Incremental borrowing rates can be changed due to macroeconomic changes in the environment.
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Pg 19 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 5. | Biological Assets |
Biological assets consist of cannabis plants. The reconciliation of changes in the carrying amounts of biological assets as at October 31, 2020 and October 31, 2019 are as follows:
| Balance October 31, 2018 | $ | 149,617 | ||
| Add: purchased cannabis plants | 308,324 | |||
| Change in fair value less costs to sell due to biological transformation | 486,354 | |||
| Allocation of operational overhead | 438,859 | |||
| Transferred to inventory upon harvest | (1,226,565 | ) | ||
| Balance October 31, 2019 | $ | 156,589 | ||
| Add: purchased cannabis plants | 724,878 | |||
| Change in fair value less costs to sell due to biological transformation | 1,515,492 | |||
| Allocation of operational overhead | 1,130,712 | |||
| Transferred to inventory upon harvest | (3,276,981 | ) | ||
| Balance October 31, 2020 | $ | 250,690 |
The Company measures its biological assets at their fair value less costs to sell. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price per gram 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 60-day growing cycle that biological assets have reached as of the measurement date based on historical evidence. The Company assigns fair value basis according to the stage of growth and estimated costs to complete cultivation. |
| Impact of 20% change | ||||||||||||||||
| October 31, 2020 | October 31, 2019 | October 31, 2020 | October 31, 2019 | |||||||||||||
| Estimated selling price per pound | $ | 1,123 | $ | 840 | $ | 57,879 | $ | 37,747 | ||||||||
| Estimated stage of growth | 71 | % | 60 | % | $ | 46,209 | $ | 30,970 | ||||||||
| Estimated flower yield per harvest (pound) | 216 | 263 | $ | 46,209 | $ | 30,970 | ||||||||||
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Pg 20 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 6. | Inventory |
The Company's inventory composition is as follows:
| October 31, | ||||||||
| 2020 | 2019 | |||||||
| Raw materials | $ | 8,588 | $ | 27,860 | ||||
| Work in process | 919,464 | 819,675 | ||||||
| Finished goods | 196,308 | 93,180 | ||||||
| Balance | $ | 1,124,360 | $ | 940,715 | ||||
The cost of inventories included as an expense and included in cost of goods sold for the year ended October 31, 2020, was $2,155,507 (2019 - $2,935,934).
| 7. | Marketable Securities |
During the period 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. On the date of the transaction, February 10, 2020, the fair value of PBIC shares per share was CAD$0.635 per share, for a fair value of $848,011 (Note 16.1). The Company does not have control or significant influence over PBIC and has accounted for the investment at fair value through profit or loss.
As at October 31, 2020, the fair value of the shares was $585,035, based upon the publicly quote price of PBIC shares. The Company recorded an unrealized loss on the shares in the amount of $263,483 and foreign currency translation gain of $507 during year ended October 31, 2020.
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Pg 21 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 8. | Other Investment |
On February 6, 2020, the Company entered into a purchase agreement to acquire an option to acquire a 60% controlling interest (the “Option”) of a fully-licensed Michigan based operator pending Municipal and State regulatory approval. The optionee is called Golden Harvests, LLC (“GH”). In order to exercise the Option, the Company will pay $810,000 in cash and issue 800,000 common shares of the Company in four tranches:
| 8.1 | Payment of $150,000 within five days of signing the Option and the issuance of 200,000 common shares of the Company within 60 days after signing the Option (during the year ended October 31, 2020, the cash amount of $150,00 was paid and 200,000 common shares were issued with a fair value of $12,812). |
| 8.2 | Payment of $200,000 and the issuance of 200,000 common shares of the Company on the sixth-month anniversary of signing the Option. The Company paid $25,000 and issued 25,000 shares subsequent to October 31, 2020 to extend this payment for six-months. Subsequent to October 31, 2020, cash payment of $100,000 was made and a note payable for $100,000 was issued to fulfilled the $200,000 payment. The note payable bears interest at $2,000 per month. |
| 8.3 | Payment of $260,000 and the issuance of 200,000 common shares of the Company on the twelve-month anniversary of signing the Option. The Company can elect to extend the due date of this tranche of the purchase consideration for an additional six months by paying $25,000 and issuing 25,000 common shares of the Company. Subsequent to October 31, 2020, the extension term was modified to require issuance of 200,000 shares instead of the aforementioned cash and share payments. |
| 8.4 | Payment of $200,000 and the issuance of 200,000 common shares of the Company due upon exercise of the Option, pending Municipal and State regulatory approval. |
The aggregate invested into GH as at October 31, 2020, included the following:
| Investment | Amount | |||
| Cash payments against Option | $ | 175,000 | ||
| Share payments against Option | 12,812 | |||
| Total | $ | 187,812 | ||
The Option agreement was modified subsequent to October 31, 2020 (Note 31)
The
Company has a contract to provide operations management services to GH. Under this agreement, during the year ended October 31,
2020, the Company earned revenues of $393,381 and costs for those revenues were $271,167.
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Pg 22 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
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, 2020 and 2019:
| CEO | Trade vendors | Total | ||||||||||
| Balance at November 1, 2018 | $ | — | $ | — | $ | — | ||||||
| Amount deferred | 180,799 | — | 180,799 | |||||||||
| Balance at October 31, 2019 | $ | 180,799 | $ | — | $ | 180,799 | ||||||
| Amounts deferred | 45,000 | 241,255 | 286,255 | |||||||||
| Amounts settled | — | (77,238 | ) | (77,238 | ) | |||||||
| Balance at October 31, 2020 | $ | 225,799 | $ | 164,017 | $ | 389,816 | ||||||
| 10. | Leases |
The Company has two leases of property for growing operations that expire December 31, 2020 and one lease for warehouse and office space that expires March 31, 2021. The warehouse lease can be extended for four years after March 31, 2021.
Set out below are the carrying amounts of right-of-use assets recognized and the movements during the year ended October 31, 2020:
| Land and Buildings | Leased equipment | Total | |||||||||||
| Balance - October 31, 2019 | $ | — | $ | 232,059 | $ | 232,059 | |||||||
| Adoption of IFRS 16 | 276,431 | — | 276,431 | ||||||||||
| Additions | — | 68,035 | 68,035 | ||||||||||
| Amortization | (225,963 | ) | (79,401 | ) | (305,364 | ) | |||||||
| Balance - October 31, 2020 | $ | 50,468 | $ | 220,693 | $ | 271,161 | |||||||
All of the depreciation for land and buildings was capitalized during the year ended October 31, 2020.
Set out below are the carrying amounts and movements of lease liabilities:
| October 31, | ||||||||
| Lease liabilities | 2020 | 2019 | ||||||
| Balance - beginning | $ | 142,205 | $ | 196,814 | ||||
| Adoption of IFRS 16 | 276,431 | — | ||||||
| Additions | 68,035 | 62,516 | ||||||
| Accretion of interest | 63,043 | 30,299 | ||||||
| Payments | (435,197 | ) | (147,424 | ) | ||||
| Balance - ending | $ | 114,517 | $ | 142,205 | ||||
| Current | 100,277 | 129,876 | ||||||
| Non-current | 16,630 | 12,329 | ||||||
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Pg 23 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
Payments during the year ended October 31, 2020 of $435,197 included principal payments of $372,154 and interest of $63,043. Payments during the year ended October 31, 2019 of $147,424 included principal payments of $117,125 and interest of $30,299.
Set out below are the minimum future lease payments from October 31, 2020:
| Total future minimum | ||||
| lease payments | ||||
| Less than one year | $ | 114,010 | ||
| Between one and five years | 17,525 | |||
| Total | $ | 131,535 | ||
The Company has lease contracts that include extension options, which are 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:
| More than | ||||||||
| Within five years | five years | |||||||
| Extension options available to be exercised | $ | 580,250 | $ | 199,000 | ||||
| New lease terms executed subsequent to October 31, 2020 | 405,600 | — | ||||||
| Total | $ | 985,850 | $ | 199,000 | ||||
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Pg 24 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 11. | Property and Equipment |
| Production | ||||||||||||||||||||
| Computer and | Equipment and | Construction in | Leasehold | |||||||||||||||||
| Office Equipment | Other | Progress | Improvements | Total | ||||||||||||||||
| COST | ||||||||||||||||||||
| Balance October 31, 2018 | $ | 75,883 | $ | 357,115 | $ | 578,158 | $ | 1,067,725 | $ | 2,078,881 | ||||||||||
| Additions | 50,480 | 86,483 | 17,308 | 242,746 | 397,017 | |||||||||||||||
| Disposals | (70,403 | ) | — | (118,683 | ) | — | (189,086 | ) | ||||||||||||
| Balance October 31, 2019 | $ | 55,960 | $ | 443,598 | $ | 476,783 | $ | 1,310,471 | $ | 2,286,812 | ||||||||||
| Additions | 1,031 | 283,065 | 90,342 | 251,355 | 625,793 | |||||||||||||||
| Transfers | (2,061 | ) | 2,061 | (512,719 | ) | 512,719 | — | |||||||||||||
| Disposals | (39,764 | ) | (17,350 | ) | (9,331 | ) | (947 | ) | (67,392 | ) | ||||||||||
| Balance October 31, 2020 | $ | 15,166 | $ | 711,374 | $ | 45,075 | $ | 2,073,598 | $ | 2,845,213 | ||||||||||
| ACCUMULATED AMORTIZATION | ||||||||||||||||||||
| Balance October 31, 2018 | $ | 1,907 | $ | 71,157 | $ | — | $ | 429,896 | $ | 502,960 | ||||||||||
| Amortization for the period | 17,794 | 61,322 | — | 239,819 | 318,935 | |||||||||||||||
| Balance October 31, 2019 | $ | 19,701 | $ | 132,479 | $ | — | $ | 669,715 | $ | 821,895 | ||||||||||
| Amortization for the period | 6,360 | 106,441 | — | 824,977 | 937,778 | |||||||||||||||
| Transfers | (2,405 | ) | 2,405 | — | — | — | ||||||||||||||
| Disposals | (8,490 | ) | (7,301 | ) | — | — | (15,791 | ) | ||||||||||||
| Balance October 31, 2020 | $ | 15,166 | $ | 234,024 | $ | — | $ | 1,494,692 | $ | 1,743,882 | ||||||||||
| NET BOOK VALUE | ||||||||||||||||||||
| As at October 31, 2019 | $ | 36,259 | $ | 311,119 | $ | 476,783 | $ | 640,756 | $ | 1,464,917 | ||||||||||
| As at October 31, 2020 | $ | — | $ | 477,350 | $ | 45,075 | $ | 578,906 | $ | 1,101,331 | ||||||||||
Production equipment includes $220,693 in leased assets (2019 - $232,059). For the year ended October 31, 2020, $518,999 in amortization costs were included in cost of sales (2019 – $129,202). As at October 31, 2020, $72,165 (2019 – $18,365) in amortization costs were included in biological assets, and $208,177 (2019 – $108,073) in amortization costs were included in inventory. Depreciation expense not capitalized left net depreciation expense of $153,991 on the statement of comprehensive loss for the year ended October 31, 2020 (2019 – $63,295).
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Pg 25 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 12. | Long-term Debt |
Transactions related to the Company’s unsecured promissory notes during the years ended October 31, 2020 and October 31, 2019, include the following:
| Face | Carrying | Interest | ||||||||||
| value | amount | payable | ||||||||||
| Balance October 31, 2018 | $ | 50,000 | $ | 50,000 | $ | 10,444 | ||||||
| 60% October 2, 2019 (12.1) | 50,000 | 50,000 | — | |||||||||
| 60% October 17, 2019 (12.2) | 50,000 | 50,000 | — | |||||||||
| Interest expense on long term debt | — | — | 9,535 | |||||||||
| Debt repayments | — | — | (12,000 | ) | ||||||||
| Balance October 31, 2019 | $ | 150,000 | $ | 150,000 | $ | 7,979 | ||||||
| 60% December 5, 2019 (12.3) | 15,000 | 15,000 | — | |||||||||
| Interest expense on long term debt | — | — | 24,854 | |||||||||
| Debt repayments | (151,000 | ) | (151,000 | ) | (23,466 | ) | ||||||
| Proceeds (12.4) | 600,000 | 600,000 | — | |||||||||
| Debt repayments (12.4) | (75,126 | ) | (75,126 | ) | — | |||||||
| Interest accretion | — | 260,940 | — | |||||||||
| Balance October 31, 2020 | $ | 538,874 | $ | 799,814 | $ | 9,367 | ||||||
| Less: current portion | 46,099 | 46,099 | 9,367 | |||||||||
| Balance October 31, 2020 non-current portion | $ | 492,775 | $ | 753,715 | $ | — | ||||||
| 12.1 | On October 2, 2019: Principal of $50,000 with simple interest accrued at a rate of 60% per annum and a maturity of 90 days. On December 5, 2019 an additional $15,000 was advanced under the same terms and conditions. On February 18, 2020 all outstanding principal and accrued interest of $13,274 (October 31, 2019 - $2,384) was repaid in full. This amount was owed to a director and officer of the Company. |
| 12.2 | On October 17, 2019: Principal of $50,000 with simple interest accrued at a rate of 60% per annum and a maturity of 90 days. On February 18, 2020 all outstanding principal and accrued interest of $9,041 (October 31, 2019 - $1,151) was repaid in full. This amount was owed to a key member of management. |
| 12.3 | On December 5, 2019: Principal of $15,000 with simple interest accrued at a rate of 60% per annum and a maturity of 60 days. On February 18, 2020, all principal and interest were repaid. This amount was owed to a key member of management. |
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Pg 26 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 12.4 | Debt issuance by GR Michigan, LLC |
On March 20, 2020: Principal of $600,000 was received under a secured debt investment of $600,000 (the “Michigan Debt”). The Michigan Debt carries a two-year term, with monthly payments of principal commencing June 15, 2020, and with payments calculated at 1% of cash sales receipts of GH (Note 8). Once the principal is repaid, each investor will receive a monthly royalty of 1% per $100,000 invested of cash receipts for sales by GH (see Note 8) (the “Royalty”). The Royalty commences on the date that repayments equal to principal have been made for a period of two years. The Royalty maximum is two times the amount of principal invested and the Royalty minimum is equal to the principal loaned; the Company expects to pay the Royalty maximum by July 2023. The Company has the right but not the obligation, to purchase the Royalty from any lender by paying an amount equal to the original principal invested by such lender. The debt is reported at the carrying value of the probability-weighted estimated future cash flows of all payments under the Michigan Debt agreement at amortized cost using the effective interest method. Interest accreted during the year ended October 31, 2020 was $260,940 calculated using an effective interest rate of 73%. During the year ended October 31, 2020, $75,126 was repaid against this debt.
Principal amounts of the Michigan Debt of $50,000 and $100,000 (a total of $150,000), were loaned by officers of the Company. Principal of $150,000, was loaned by a director of the Company.
| 13. | Convertible Promissory Notes |
Transactions related to GR Unlimited’s convertible promissory notes during the years ended October 31, 2020 and 2019, include the following:
| Face | Carrying | Interest | ||||||||||
| value | amount | payable | ||||||||||
| Balance October 31, 2018 | $ | 1,343,171 | $ | 1,299,376 | $ | 454,775 | ||||||
| Amortization of deferred financing costs | 22,106 | 23,759 | — | |||||||||
| Interest expense on long term debt | — | — | 2,154 | |||||||||
| Interest accretion | — | 5,502 | — | |||||||||
| Repaid | (265,277 | ) | (265,277 | ) | (137,889 | ) | ||||||
| Converted to common units | (1,100,000 | ) | (1,063,360 | ) | (279,040 | ) | ||||||
| Balance October 31, 2019 | $ | — | $ | — | $ | 40,000 | ||||||
| Interest paid | — | — | (30,000 | ) | ||||||||
| Interest forgiven upon settlement | — | — | (10,000 | ) | ||||||||
| Balance October 31, 2020 | $ | — | $ | — | $ | — | ||||||
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Pg 27 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
During the period ended October 31, 2018, GR Unlimited issued the following unsecured convertible promissory notes:
| 13.1 | Effective November 14, 2017, GR Unlimited entered into an agreement with certain purchasers (collectively the “Purchasers” and individually the “Purchaser”), to issue a series of notes with substantially similar terms, including maturity, interest rates, and conversion terms. Under the agreements, the Purchasers purchased convertible promissory notes with aggregate principal of $550,000. The notes accrued simple interest at an annual rate of 50% calculated on the basis of a year of 365 days. |
During the year ended October 31, 2018, GR Unlimited made aggregate principal repayments of $442,223. During the year ended October 31, 2019, GR Unlimited repaid the remaining aggregate principal of $107,777. As at October 31, 2018, accrued interest of $127,915 remained unpaid, which was subsequently paid during the year ended October 31, 2019.
| 13.2 | Effective December 15, 2017, GR Unlimited entered into an agreement whereby the holder purchased a convertible promissory note for the total principal of $1,000,000 with simple interest accrued at a rate of 25%. |
During the year ended October 31, 2019, the principal of $1,000,000 and unpaid interest of $272,991 were converted into 1,144.15 common units of GR Unlimited (4,782,284 common shares of the Company) as described in Note 15.4.
During the period ended October 31, 2017, GR Unlimited issued the following unsecured convertible promissory notes:
| 13.3 | Effective February 1, 2017: Principal of $100,000 with simple interest accrued at a rate of 15%. Principal and interest due and payable on the three-year anniversary of the promissory note, February 1, 2020. In the event GR Unlimited completes a qualified equity financing transaction on or before the maturity date of the promissory note, the holder has the right to convert in whole or in part the unpaid principal and interest balance into fully paid nonassessable shares of common stock of GR Unlimited. The conversion price per unit will equal 80% of the price per unit paid in cash by purchasers of new units in a qualified equity transaction. As at October 31, 2018, accrued interest of $26,219 was incurred. The fair value of the conversion option was estimated as $Nil. During the year ended October 31, 2019, the principal of $100,000 and unpaid interest of $22,438 were converted into 126.13 common units of GR Unlimited (485,379 common shares of the Company) as described in Note 15.3. |
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Pg 28 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 13.4 | Effective July 26, 2017, GR Unlimited through its wholly owned subsidiary GRU Properties, LLC entered into an agreement whereby the holder purchased a convertible promissory note for the total principal of $100,000 with simple interest calculated at a rate of 50% per annum for the first 6 months. The note became due on February 1, 2018 and was extendable for another 6 months at the holder’s option. On January 31, 2018, $50,000 of principal was repaid. |
On January 31, 2018, $50,000 of the outstanding principal was repaid and the remaining principal of $50,000 was extended to August 1, 2018. On August 1, 2018, the holder of the convertible promissory note accepted a new convertible promissory note in the amount of $57,500 in exchange for the current note and $7,500 of accrued interest. The new convertible promissory note had a maturity date to August 1, 2019, with interest at 12.5% per annum, payable monthly. During the year ended October 31, 2019, the principal and accrued interest was paid in full and the Company derecognized the corresponding derivative liability resulting in a gain on derecognition of $39,500 included in the statement of loss and comprehensive loss.
| 13.5 | Effective October 20, 2017, principal of $100,000 with simple interest accrued at a rate of 50% per annum. During the year ended October 31, 2019, GR Unlimited repaid the principal of $100,000, leaving accrued interest of $40,000 payable. During the year ended October 31, 2020, $30,000 was repaid and $10,000 was forgiven. |
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Pg 29 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 14. | Convertible Debentures |
Transactions related to the Company’s convertible debentures during the years ended October 31, 2020 and 2019, include the following:
| Face | Carrying | Interest | ||||||||||
| value | amount | payable | ||||||||||
| Balance October 31, 2018 | $ | 1,029,314 | $ | 931,099 | $ | 7,758 | ||||||
| Issued during the year | 1,105,127 | 1,105,127 | — | |||||||||
| Fair value of derivative liability | — | (232,925 | ) | — | ||||||||
| Issuance costs | (38,064 | ) | (38,064 | ) | — | |||||||
| Amortization of issuance costs | 54,748 | 54,748 | — | |||||||||
| Interest accretion | — | 147,693 | — | |||||||||
| Interest expense | — | — | 126,901 | |||||||||
| Interest payments | — | — | (126,809 | ) | ||||||||
| Effects of foreign exchange | 27,931 | 27,931 | — | |||||||||
| Balance October 31, 2019 | $ | 2,179,056 | $ | 1,995,609 | $ | 7,850 | ||||||
| Interest accretion through July 10, 2020 | — | 246,015 | — | |||||||||
| Conversion to common shares (14.1) | (37,733 | ) | (37,733 | ) | — | |||||||
| Effects of foreign exchange | (56,341 | ) | (56,341 | ) | ||||||||
| Deemed extinguishment (14.1) | (2,084,982 | ) | (2,147,550 | ) | — | |||||||
| Balance after deemed extinguishment | $ | — | $ | — | $ | 7,850 | ||||||
| Deemed re-issuance (14.1) | 2,169,135 | 2,464,241 | — | |||||||||
| Fair value of derivative liability | — | (787,264 | ) | — | ||||||||
| Conversion to common shares (14.1) | (75,130 | ) | (75,130 | ) | ||||||||
| Interest accretion | — | 146,964 | — | |||||||||
| Interest payments | — | (44,138 | ) | (7,850 | ) | |||||||
| Effects of foreign exchange | — | 35,005 | — | |||||||||
| Balance October 31, 2020 | $ | 2,094,005 | $ | 1,739,678 | $ | — | ||||||
| 14.1 | Modification of terms during the year ended October 31, 2020 and conversion |
During the year ended October 31, 2020, two conversions of principal were recorded, totaling $112,863 (CAD$150,000), into a total of 1,038,095 common shares.
During the year ended October 31, 2020, the Company extended the maturity of all convertible notes outstanding, such that the following terms apply to all convertible notes outstanding as at October 31, 2020.
| o | Original principal loan amount of $2,169,135 (CAD$2,950,000) due on November 1, 2021 (October 31, 2020 balance was $2,138,925 (CAD$2,850,000); |
| o | Interest payable at 8% per annum; |
| o | Convertible at CAD$0.125 into shares of the Company; |
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Pg 30 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| o | If at any time while the debentures are outstanding the Company issues securities for cash in a private placement at a price per share lower than CAD$0.125, the conversion price for any unconverted portion of the convertible debentures would be reduced to such lower price per security; and |
| o | Convertible at CAD$0.05 if the Company defaults on debt service. |
Pursuant to the modification of the debentures, the following warrant transactions occurred:
| o | Cancellation of 6,818,182 warrants issued pursuant to the convertible debenture agreements outstanding prior to the modification on July 10, 2020; |
| o | Issuance of 6,818,182 new warrants with as exercise price of CAD$0.16 and an expiration date of November 1, 2021 (Note 17.3); |
| o | The fair value of the newly issued warrants was recognized as an expense of debt restructuring on the statement of loss and comprehensive loss for the year ended October 31, 2020; |
| o | Issuance of 1,590,909 warrants as part of the consideration to the creditors for extending the maturity of the debt (Note 17.3). The fair value of these warrants was recognized as an expense of debt restructuring on the statement of loss and comprehensive loss for the year ended October 31, 2020. |
As described above, the conversion price of the debenture is subject to change based upon whether a lower-than-CAD$0.125 private placement of equity is completed. This conversion feature was determined to be a derivative liability in accordance with IFRS 9. The value of the derivative liability as at October 31, 2020 was estimated to be $787,264, using the Black-Scholes pricing model with the following assumptions:
| o | Expected dividend yield | Nil |
| o | Risk-free interest rate | 0.24% |
| o | Expected life | 1.0 years |
| o | Expected volatility | 90% |
The derivative liability will be remeasured at fair value through profit and loss at each reporting period using the Black-Scholes pricing model. The fair value as at October 31, 2020, was $583,390 (2019 - $249,320), and the unrealized gain for the year ended October 31, 2020 as a result of remeasurement was $221,820 (2019 – see Note 14.2).
The fair value of the deemed reissuance was allocated as follows:
| CAD | USD | |||||||
| Convertible debentures, principal | $ | 2,280,671 | $ | 1,676,977 | ||||
| Conversion option | 1,070,670 | 787,264 | ||||||
| $ | 3,351,341 | $ | 2,464,241 | |||||
The discounted value of the loan after the modifications of terms was more than 10% lower than the carrying value of the loan and was therefore deemed an extinguishment and reissuance under IFRS 9. The costs of completing the modification were expensed.
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Pg 31 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
The loss of restructuring this debt, as recognized on the statement of loss and comprehensive loss for the year ended October 31, 2020, was comprised of the following:
| Composition of loss from debt restructuring | ||||
| Difference: carrying value of deemed prior debt and deemed reissued debt | $ | 337,997 | ||
| Replacement warrants - quantity 6,818,182 (Note 17.3) | 346,792 | |||
| Consideration warrants - quantity 1,590,909 (Note 17.3) | 80,918 | |||
| Total loss from deemed restructuring | $ | 765,707 |
The Company recorded a gain of $244,572 on the derecognition of the Company’s previously recorded derivative liability on the modification of the debt.
| 14.2 | Convertible debentures issued during the year ended October 31, 2019 |
During the year ended October 31, 2019, the Company issued secured convertible debentures with aggregate principal of CAD$1,500,000 ($1,105,126). The convertible debentures bear interest at 2% quarterly payable on the last day of March, June, September, and December. The convertible debentures were scheduled to mature on August 10, 2020; the maturity date was extended to November 1, 2021 by an agreement dated July 10, 2020 (Note 14.1). The debentures were secured by a general security agreement granting a security interest in the Company’s property and assets. The debentures could be converted by the holder into common shares of the Company at a conversion price of CAD$0.44 per share. If at any time while the debentures were outstanding, the Company issued securities at a price per security lower than CAD$0.44 per share, the conversion price for any unconverted portion of the convertible debentures would be reduced to such lower price per security. The adjustment to the conversion price was considered a derivative, as it changes in relation to the share price of the Company and does not meet the fixed for fixed criteria. In connection with the issuance of the convertible debentures, the Company paid issuance costs of $47,975. The Company also issued 3,409,091 warrants to the convertible debenture holders, as described in Note 17.9. Of the total debt issuance costs of $47,975, $10,165 was allocated to the derivative liability and included as expenses in the statement of loss and comprehensive loss.
GR Unlimited allocated the proceeds from the issuance of the convertible debentures as follows:
| Convertible debentures, principal | $ | 872,202 | ||
| Conversion option | 232,925 | |||
| $ | 1,105,127 |
The fair value of the derivative liability was calculated by way of a Monte Carlo simulation which utilized Geometric Brownian Motion to simulate share prices over the term of the convertible debenture. Estimates included in the Monte Carlo simulation included a market interest rate of 20% and share price volatility of 126.9%. The estimated fair value of the derivative liability upon initial recognition was estimated to be CAD$316,151 ($232,925).
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Pg 32 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
As at October 31, 2019, the Company estimated the fair value of the derivative liability using the same methodologies as described above and an estimated market interest rate of 20% and a share price volatility of 105.4%. As at October 31, 2019, the estimated fair value of the derivative liability was CAD$164,053 ($124,660), and the change in the fair value since initial recognition of $121,811 has been included as income in the Company’s statement of loss and comprehensive loss. As at October 31, 2019, if the volatility, or discount rate used was increased by 10%, the impact would be an increase to the derivative of $5,000, with a corresponding increase to loss.
| 14.3 | Convertible debentures issued during the year ended October 31, 2018 |
During the year ended October 31, 2018, GR Unlimited issued a series of secured convertible debentures with aggregate principal of CAD$1,500,000 ($1,141,060). This series of convertible debentures bear interest at 2% quarterly payable on the last day of March, June, September, and December. The convertible debentures mature twenty-four months from the effective date of the agreement or December 1, 2018 if a change in ownership has not occurred. The debentures are secured by a general security agreement granting a security interest in all of GR Unlimited’s property and assets. The debentures can be converted by the holder into common units of GR Unlimited at a conversion price of CAD$0.44 per Unit. In the event of a default, the Conversion Price shall be reduced to CAD$0.05 per Unit. In connection with the issuance of the convertible debentures, GR Unlimited incurred issuance costs of $111,746.
GR Unlimited allocated the proceeds from the issuance of the convertible debentures as follows:
| Convertible debentures, principal | $ | 1,009,060 | ||
| Conversion option | 132,000 | |||
| $ | 1,141,060 |
The value of the conversion option was calculated by subtracting the net present value of the debenture from the face value of the convertible debentures. The net present value of the debenture was calculated using a discount rate of 15% over a period of 24 months.
Upon close of the Transaction, these debentures were replaced by convertible debentures of the Company with similar terms.
As at October 31, 2019, the Company estimated the fair value of the derivative liability by way of a Monte Carlo simulation which utilized Geometric Brownian Motion to simulate share prices over the term of the convertible debenture. Estimates included in the Monte Carlo simulation included a market interest rate of 20% and share price volatility of 105.4%. As at October 31, 2019, the estimated fair value of the derivative liability was CAD$164,053 ($124,660). As at October 31, 2019, if the volatility, or discount rate used was increased by 10%, the impact would be an increase to the derivative of $5,000, with a corresponding increase to loss.
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Pg 33 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 15. | Members’ Capital |
GR Unlimited is authorized to issue up to 20,000 common units, up to 750 Seed Round Preferred Units and up to 3,000 Incentive Units.
The following table summarizes the common unit activities of GR Unlimited during the year ended October 31, 2019, all of which occurred prior to completion of the Transaction:
| Number of | ||||||||
| Common Shares* | Member’s Capital | |||||||
| Balance, October 31, 2018 | 40,706,873 | $ | 4,701,773 | |||||
| Issued pursuant to conversion of promissory notes | 5,465,877 | 1,451,400 | ||||||
| Issued in connection with Technology License Agreement (15.2) | 6,600,000 | 1,574,761 | ||||||
| Issued upon exercise of unit purchase options | 4,202,429 | 1,218,784 | ||||||
| Issued pursuant to Subscription Receipts | 3,771,023 | 913,968 | ||||||
| Balance at date of Transaction (Note 2) | 60,746,202 | $ | 9,860,686 | |||||
*The number of common shares per the table above represents the number of common shares exchanged for the common units, Seed Round Preferred Units and Incentive Units in connection with completion of the Transaction.
| 15.1 | Effective January 31, 2018, the holder of two convertible promissory notes in the original principal amount of $100,000 took the following actions: |
| 15.1.1 | Received a return of principal of $50,000 from one of the convertible promissory notes. |
| 15.1.2 | Extended the maturity date of the continuing convertible promissory note for the principal amount of $50,000 to August 1, 2018 with a coupon interest rate of 30% per annum. All principal and accrued and unpaid interest, shall become due on the earlier of a) August 1, 2018 or b) the occurrence of a change of control of the Company; and |
| 15.1.3 | Converted the original principal of the second convertible promissory note and accrued and unpaid interest of $50,000 into 89.8 uncertified common units of the GR Unlimited (462,500 common shares of the Company). |
| 15.2 | During the year ended October 31, 2018, GR Unlimited entered into a technology license agreement pursuant to which, GR Unlimited was granted the exclusive license to certain intellectual property in the field of development, breeding, cultivation, growing, harvesting, processing and commercializing cannabis, hemp and related plants and products (the “Technology”) in exchange for 6,600,000 common units of GR Unlimited (6,600,000 common shares of the Company). Immediately prior to the Transaction disclosed in Note 2, GR Unlimited issued the common units. As at October 31, 2019, the Company determined that the license was impaired as the development of underlying technology had been halted. As such, the Company reduced the carrying amount to the estimated recoverable amount of $Nil, resulting in a loss on impairment of $1,574,761. |
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Pg 34 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 15.3 | Immediately prior to the Transaction disclosed in Note 2, the holder of a convertible promissory note converted the original principal amount of $100,000 and all accrued and unpaid interest of $22,438 into 126.13 uncertified common units of GR Unlimited (485,379 common shares of the Company). |
| 15.4 | Immediately prior to the Transaction disclosed in Note 2, the holder of a convertible promissory note converted the original principal amount of $1,000,000 and accrued and unpaid interest of $248,958 into 1,144.15 uncertified common units of GR Unlimited (4,782,284 common shares of the Company). |
| 15.5 | Immediately prior to the Transaction disclosed in Note 2, the holder of a convertible promissory note converted the original principal amount of $50,000 and accrued and unpaid interest of $7,644 into 52.06 uncertified common units of GR Unlimited (198,214 common shares of the Company). |
| 15.6 | Immediately prior to the Transaction disclosed in Note 2, GR Unlimited issued 1,475,979 common units (1,475,979 common shares of the Company) pursuant to the exercise of the unit purchase option disclosed in Note 19.2. |
| 15.7 | Immediately prior to the Transaction disclosed in Note 2, GR Unlimited issued 2,000,000 common units (2,000,000 common shares of the Company) pursuant to the exercise of the unit purchase option disclosed in Note 19.3. |
| 15.8 | Immediately prior to the Transaction disclosed in Note 2, GR Unlimited issued 727,250 common units (727,250 common shares of the Company), pursuant to a partial exercise of the unit purchase option disclosed in Note 19.1. |
| 15.9 | In connection with the Transaction, GR Unlimited issued, 3,771,023 units (the “GR Units”) containing one Common Unit and one GR Unlimited purchase warrant (the “GR Warrant”) for gross proceeds of CAD$1,646,050 ($1,274,516), of which $360,818 was allocated to the GR Warrants. Upon close of the Transaction, the GR Units were automatically converted into 3,771,023 common units of GR Unlimited (3,771,023 common shares of the Company) and 3,771,023 warrants of GR Unlimited (3,771,023 warrants of the Company). |
| 16. | Share Capital |
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.
-
Pg 35 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2020, the following share transactions occurred:
| 16.1 | The Company issued 15,000,000 equity units (each unit comprised of one common share and one warrant to purchase one common share) to PBIC, of which $564,147 was recorded in share capital and $520,188 was allocated to warrants (Notes 17.1 and 17.2). Issuance costs of $11,508 were recognized in share capital and $5,083 in contributed surplus. The net proceeds from this issuance were $1,067,744. |
In addition, PBIC and the Company entered into subscriptions agreements to exchange each other’s shares (the “Share Swap”). In connection with the Share-Swap agreement, the Company issued 15,000,000 common shares resulting in an aggregate fair value of $848,011.
As part of the Share Swap, each of PBIC and Grown Rogue have signed a voting and resale agreement providing that each party will be required to vote the shares acquired under the Share Swap as recommended by the other party and will be restricted from trading the shares for a period of 18 months.
The private placement agreement with PBIC gives PBIC the pre-emptive right to participate in future offerings of the Company to maintain its ownership share of the Company. In addition, the Company has agreed to nominate one board member of the Company as recommended by PBIC at future shareholder meetings and the ability, if PBIC does not have its nominee on Grown Rogue’s board of directors, to appoint a board observer.
| 16.2 | Issuance of 200,000 common shares, with a fair value of $12,812, issued to the owner of GH (Note 8.1). |
| 16.3 | Issued 1,153,095 common shares, of which 1,038,095 represented convertible debt conversions with a value of $112,863 (see Note 14.1) and 115,000 shares, with a value of $9,746, which represented consideration for long-term debt. |
| 16.4 | As consideration for services provided, the Company issued 2,300,000 common shares with a fair value of $163,543. |
| 16.5 | The Company issued 909,386 shares to employees for compensation with a fair value of $76,797. |
-
Pg 36 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2019, the following share transactions occurred:
| 16.6 | In connection with the Transaction disclosed in Note 2, the Company completed a consolidation of its common shares on the basis of 1.4 pre-consolidated common shares for 1 post-consolidated common shares. Following this consolidation, the Company had 3,773,689 common shares outstanding. |
| 16.7 | In connection with the Transaction disclosed in Note 2, the Company issued 60,746,202 common shares in exchange for the issued and outstanding common units and seed round preferred units of GR Unlimited. |
| 16.8 | In connection with the Transaction disclosed in Note 2, the Company assigned CAD$369,508 ($279,888) of indebtedness to Novicius Subco which was subsequently converted (the “Debt Conversion”) into 839,790 units of Novicius Subco at CAD$0.44 per unit (the “Debt Conversion Units”). Each Debt Conversion Unit was comprised of one common share of Novicius Subco (a “Debt Conversion Share”) and one Novicius Subco purchase warrant (“Novicius Subco Warrants”). In accordance with the Definitive Agreement, upon close of the Transaction, the Debt Conversion Shares were exchanged for 839,790 common shares of the Company and the 839,790 Novicius Subco Warrants were exchanged, without additional consideration or action, for the same number of warrants of the Company. Of the deemed proceeds of the Debt Conversion Units of $279,888 related to the assigned indebtedness, $200,651 were assigned to the common shares of Novicius Subco and $79,237 were allocated to the Novicius Subco Warrants. |
| 16.9 | In connection with the Transaction disclosed in Note 2, Grown Rogue Canada, completed a brokered private placement of 6,193,917 subscription receipts (the “Brokered Subscription Receipts”) for gross proceeds of CAD$2,725,323 ($2,064,377). The Grown Rogue Canada Shares and Grown Rogue Canada Warrants issued upon conversion of the Brokered Subscription Receipts were immediately exchanged, without additional consideration or action, for common shares and warrants of the Company upon close of the Transaction. Of the gross proceeds of $2,064,377, $584,430 was allocated to the Grown Rogue Canada Warrants. |
The fair value of the Grown Rogue Canada Warrants of $584,430 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| o | Expected dividend yield | Nil |
| o | Risk-free interest rate | 1.690% |
| o | Expected life | 2.0 months |
| o | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
-
Pg 37 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
In connection with the issuance of the Grown Rogue Canada Units, Grown Rogue Canada paid cash commissions and expenses of $200,567, of which $143,786 was allocated to the Grown Rogue Canada shares and $56,781 was allocated to the Grown Rogue Canada Warrants. Grown Rogue also issued 757,125 Grown Rogue Canada Broker Warrants with each Grown Rogue Canada Broker Warrant entitling the holder to acquire one Grown Rogue Canada Unit at an exercise price of CAD$0.44 per Grown Rogue Canada Unit for a period of 24 months. Of the fair value of the Grown Rogue Canada Broker Warrants of $133,690, $50,508 was allocated to the Grown Rogue Canada shares and $19,871 was allocated to the Grown Rogue Canada Warrants. The remaining $63,311 was expensed as a transaction cost in relation to the Transaction.
| 16.10 | In connection with the Transaction disclosed in Note 2, the Company issued 100,000 common shares to a director of Grown Rogue Canada a payment for services rendered. The fair value of the common shares was estimated to be $33,328. |
| 16.11 | In connection with various service agreements, the Company issued 1,035,500 common shares to officers and directors resulting in an aggregate fair value of $255,360. |
| 16.12 | In connection with various debt settlement agreements, the Company issued 530,818 common shares to service providers with an aggregate fair value of $121,587. In connection with the debt settlements, the Company incurred a loss on debt settlement of $4,942. |
17. WARRANTS
The following table summarizes the warrant activities for the years ended October 31, 2020 and October 31, 2019:
| Number | Weighted
Average Exercise Price | |||||||
| Balance November 1, 2018 | 148,722 | $ | 7.39 | |||||
| Issued in connection with the Transaction (Notes 17.4, 17.5, 17.9, 17.10) | 11,288,149 | 0.55 | ||||||
| Issued pursuant to subscription receipts (Notes 17.6, 17.7) | 9,964,940 | 0.55 | ||||||
| Issued in connection with convertible debentures (Notes 17.11) | 3,409,091 | 0.55 | ||||||
| Issued to brokers (Note 17.8) | 757,125 | 0.44 | ||||||
| Issued to terminate purchase agreement (Notes 17.12, 28) | 2,148,117 | 0.44 | ||||||
| Expired | (131,539 | ) | (6.52 | ) | ||||
| Balance October 31, 2019 | 27,584,605 | $ | 0.53 | |||||
| Issued pursuant to private placement (Notes 16.1, 17.1) | 5,000,000 | 0.13 | ||||||
| Issued pursuant to private placement (Note 16.1, 17.1) | 10,000,000 | 0.13 | ||||||
| Expired | (17,183 | ) | (14.05 | ) | ||||
| Cancellation of prior warrants associated with convertible debt (Note 14.1) | (6,818,182 | ) | 0.55 | |||||
| Issuance of new warrants associated with convertible debt (Notes 14.1, 17.3) | 6,818,182 | 0.16 | ||||||
| Consideration warrants for convertible debt maturity extension (Notes 14, 17.3) | 1,590,909 | 0.16 | ||||||
| Balance October 31, 2020 | 44,158,331 | $ | 0.33 | |||||
-
Pg 38 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2020, the Company:
| 17.1 | Issued 5,000,000 warrants in February 2020 to subscribers of the offering disclosed in Note 16.1. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.125 per unit for a period of 24 months. |
The fair value of the warrants was $138,119 which was the residual value of the offering after the fair value of the shares on the transaction date.
| 17.2 | Issued 10,000,000 warrants in May 2020 to subscribers of the offering disclosed in Note 16.1. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.13 per unit for a period of 24 months. |
The fair value of the warrants was $382,069, which was the residual value of the offering after the fair value of the shares on the transaction date.
| 17.3 | Issued 6,818,182 replacement warrants and 1,590,909 warrants (totaling 8,409,091) to the creditors of the July 10, 2020 debt agreement described at Note 14.1. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.16 with an expiration date of November 1, 2021. |
The fair value of the warrants of $424,645 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 0.30% | |
| ○ | Expected life | 1.3 years | |
| ○ | Expected volatility | 131% |
During the year ended October 31, 2019, the Company:
| 17.4 | Issued 839,790 warrants in exchange for the same amount of Novicius Subco Warrants as disclosed in Note 16.8. Each Novicius Subco Warrant was exercisable into one common share at an exercise price of CAD$0.55 per share for 24 months. |
The fair value of the Novicius Subco Warrants of $79,237 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 months | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
-
Pg 39 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 17.5 | Issued 1,675,979 warrants in exchange for the same amount of GR Unlimited warrants disclosed in Note 19.2. Each warrant is exercisable into one common share at an exercise price of CAD$0.55 per share for twenty four months. |
The fair value of the warrants of $152,798 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
| 17.6 | Issued 3,771,023 warrants in exchange for the same amount of GR Unlimited warrants disclosed in Note 15.9. Each warrant allows the holder to purchase one common share of the Company at an exercise price of CAD$0.55 per unit for a period of 24 months. |
The fair value of the warrants of $360,818 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
| 17.7 | Issued 6,193,917 warrants in exchange for the same amount of Grown Rogue Canada warrants disclosed in Note 16.9. Each warrant allows the holder to purchase one common share of the Company at an exercise price of CAD$0.55 per unit for a period of 24 months. |
The fair value of the warrants of $584,430 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
-
Pg 40 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 17.8 | Issued 757,125 broker warrants in exchange for the same amount of Grown Rogue Canada broker warrants disclosed in Note 16.9. Each warrant allows the holder to purchase one unit of the Company at an exercise price of CAD$0.44 per unit for a period of 24 months. Each unit contains one common share of the Company and one warrant entitling the holder to acquire one common share of the Company at an exercise price of CAD$0.55 per unit for a period of 24 months. |
The fair value of the GR Broker Warrants of $119,864 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
| 17.9 | Issued 3,409,091 warrants in exchange for the same amount of Grown Rogue Canada warrants that were issued to subscribers of the GR Unlimited convertible debenture offering disclosed in Note 14.3. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.55 per unit for a period of 24 months. |
The fair value of the warrants of $321,654 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
| 17.10 | Issued 5,364,089 warrants in exchange for the same amount of Grown Rogue Canada warrants that were issued to certain investors prior to the acquisition of Grown Rogue Canada. Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.55 per unit for a period of 24 months. |
The fair value of the warrants of $893,646 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
-
Pg 41 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 17.11 | Issued 3,409,091 warrants to subscribers of the convertible debenture offering disclosed in Note 14.2. Each warrant entitled the holder to acquire one common share of the Company at an exercise price of CAD$0.55 per unit for a period of 24 months. |
The fair value of the warrants of $376,594 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.710% | |
| ○ | Expected life | 2.0 years | |
| ○ | Expected volatility | 101%* |
* Based on the volatility of comparable publicly traded companies
| 17.12 | Issued 2,148,117 warrants to finalize a termination agreement (Note 28). Each warrant entitles the holder to acquire one common share of the Company at an exercise price of CAD$0.44 per unit for a period of 48 months. Of these warrants, 859,247 vest immediately, and the remaining 1,288,870 vest upon future activities. |
The fair value of the warrants of $193,438 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil | |
| ○ | Risk-free interest rate | 1.640% | |
| ○ | Expected life | 4.0 years | |
| ○ | Expected volatility | 101%* |
* Based on the volatility of comparable publicly traded companies
The fair value of the warrants that vested of $77,014 have been expensed as an acquisition cost on the statement of loss and comprehensive loss.
As at October 31, 2020, the following warrants were issued and outstanding:
| Exercise price | Warrants outstanding | Remaining Contractual Life (years) | Expiry date | |||||||||
| $ | 0.55 | 17,843,998 | 0.1 | November 30, 2020 | ||||||||
| 0.44 | 757,125 | 0.1 | November 30, 2020 | |||||||||
| 0.16 | 8,409,091 | 1.0 | November 01, 2021 | |||||||||
| 0.13 | 5,000,000 | 1.3 | February 10, 2022 | |||||||||
| 0.13 | 10,000,000 | 1.5 | May 15, 2022 | |||||||||
| 0.44 | 2,148,117 | 2.7 | June 28, 2023 | |||||||||
| $ | 0.33 | 44,158,331 | 0.8 | |||||||||
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Pg 42 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
18. SUBSCRIPTIONS PAYABLE
During the year ended October 31, 2018, GR Unlimited received aggregate proceeds of CAD$923,630 ($720,516) for 2,099,159 Subscription Receipts. Each Subscription Receipt includes one common unit of GR Unlimited, and one purchase warrant of GR Unlimited. Each purchase warrant is exercisable at the option of the holder to purchase one common unit of GR Unlimited at a price of CAD$0.55 per common unit for a period of two years from the time GR Unlimited completes a transaction whereby all of the equity instruments of the issuer are acquired by a Reporting Issuer in exchange for common shares of the Reporting Issuer. During the year ended October 31, 2019, GR Unlimited received additional proceeds of CAD$735,620 ($554,000) in connection with the financing. During the year ended October 31, 2019, GR Unlimited issued the Subscription Receipts.
19. UNIT PURCHASE OPTIONS
| 19.1 | During the year ended October 31, 2018, GR Unlimited granted an option to purchase 2,727,250 common units of the Company for an aggregate amount of CAD$54,545 at any point prior to December 31, 2018. During the year ended October 31, 2019, GR Unlimited issued 727,250 common units in connection with the partial exercise of the option. The remaining portion of the option expired. |
The fair value of the option of $871,230 was expensed as a finance charge expense during the year ended October 31, 2018 and was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil% | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 5.5 months | |
| ○ | Expected volatility | 99%* |
* Based on the volatility of comparable publicly traded companies
| 19.2 | During the year ended October 31, 2018, GR Unlimited received proceeds of CAD$649,351 ($500,000) in exchange for an option to acquire 1,475,979 common units and warrants to purchase a further 1,675,979 common units. Each warrant shall be exercisable period of two years following the date of option exercise. During the year ended October 31, 2019, GR Unlimited issued the common and units and warrants pursuant to the exercise of the option. |
| 19.3 | During the year ended October 31, 2018, GR Unlimited granted an option to purchase 2,000,000 common units of GR Unlimited for an aggregate amount of CAD$40,000 at any point prior to December 31, 2018.During the year ended October 31, 2019, GR Unlimited issued 2,000,000 common units pursuant to the exercise of the option. |
The fair value of the option of $639,259 was expensed as a finance charge expense during the year ended October 31, 2018 and was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil% | |
| ○ | Risk-free interest rate | 1.690% | |
| ○ | Expected life | 2.0 months | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
-
Pg 43 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
20. STOCK OPTIONS
The following table summarizes the stock option movements for the years ended October 31, 2020 and October 31, 2019:
| Number | Exercise price (CAD$) | |||||||
| Balance - November 1, 2018 | — | — | ||||||
| Granted to service provider | 150,000 | 0.44 | ||||||
| Granted to service provider | 500,000 | 0.44 | ||||||
| Balance - October 31, 2019 | 650,000 | 0.44 | ||||||
| Granted to employees | 3,575,000 | 0.15 | ||||||
| Forfeitures by service provider | (150,000 | ) | 0.44 | |||||
| Forfeitures by employees | (355,000 | ) | 0.15 | |||||
| Balance - October 31, 2020 | 3,720,000 | $ | 0.19 | |||||
| 20.1 | During the year ended October 31, 2019, the Company granted options to purchase 150,000 common shares of the Company to two consultants. Each option allows the holder to purchase one common share of the Company at a price of CAD$0.44 at any point prior to November 30, 2021. |
The fair value of the options of $25,587 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil% | |
| ○ | Risk-free interest rate | 1.710% | |
| ○ | Expected life | 3.0 years | |
| ○ | Expected volatility | 100%* |
*Based on the volatility of comparable publicly traded companies
| 20.2 | During the year ended October 31, 2019, the Company granted options to purchase 500,000 common shares of the Company to two consultants. Each option allows the holder to purchase one common share of the Company at a price of CAD$0.44 at any point prior to January 1, 2022. |
The fair value of the options of $86,493 was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil% | |
| ○ | Risk-free interest rate | 1.710% | |
| ○ | Expected life | 3.0 years | |
| ○ | Expected volatility | 100%* |
* Based on the volatility of comparable publicly traded companies
-
Pg 44 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
| 20.3 | During the year ended October 31, 2020, the Company granted options to purchase 3,575,000 common shares of the Company to employees. Each option allows the holder to purchase one common share of the Company at a price of CAD$0.15 at any time until July 9, 2024. |
The fair value of the options granted was CAD$432,922. The value of the options of vested during the year ended October 31, 2020 was $240,079, which was estimated at the grant date based on the Black-Scholes pricing model, using the following assumptions:
| ○ | Expected dividend yield | Nil% | |
| ○ | Risk-free interest rate | 0.25% | |
| ○ | Expected life | 4.0 years | |
| ○ | Expected volatility | 131% |
The vesting terms of the granted options are set out in the table below:
| Number granted | Vesting terms | |
| 1,270,000 | Fully vested on grant date | |
| 1,500,000 | 1/3 on grant date, 1/3 three months from grant date, 1/3 ten months from grant date | |
| 220,000 | 1/2 on grant date, 1/4 on first anniversary of grant date, 1/4 on second anniversary of grant date | |
| 235,000 | 1/4 on grant date, 1/4 on first anniversary of grant date, 1/4 on second anniversary of grant date, 1/4 on third anniversary of grant date | |
| 250,000 | 1/4 on first anniversary of grant date, 1/4 on second anniversary of grant date, 1/4 on third anniversary of grant date, 1/4 on fourth anniversary of grant date | |
| 100,000 | One year from start date of employment | |
| 3,575,000 |
As at October 31, 2020 the following Stock Options were issued and outstanding (all prices are in Canadian Dollars unless otherwise noted):
| Exercise price | Options
outstanding | Number
exercisable | Remaining
Contractual Life (years) | Expiry date | ||||||||||||
| $ | 0.44 | 500,000 | 500,000 | 1.2 | January 01, 2022 | |||||||||||
| 0.15 | 3,120,000 | 2,112,500 | 3.7 | July 09, 2024 | ||||||||||||
| 0.15 | 100,000 | — | 3.7 | July 20, 2024 | ||||||||||||
| $ | 0.19 | 3,720,000 | 2,612,500 | 3.4 | ||||||||||||
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Pg 45 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
21. CHANGES IN NON-CASH WORKING CAPITAL
The changes to the Company's non-cash working capital for the year ended October 31, 2020 and 2019 are as follows:
| 2020 | 2019 | |||||||
| Accounts receivable | $ | (37,698 | ) | $ | 119,473 | |||
| Inventory | 2,144,178 | 1,174,678 | ||||||
| Prepaid expenses and other assets | 14,158 | 211,982 | ||||||
| Accounts payable and accrued liabilities | (133,516 | ) | (894,654 | ) | ||||
| Interest payable | (46,462 | ) | (135,265 | ) | ||||
| Unearned revenue | (35,000 | ) | 35,000 | |||||
| $ | 1,905,660 | $ | 511,214 | |||||
22. SUPPLEMENTAL CASH FLOW DISCLOSURE
| Years ended October 31, | ||||||||
| 2020 | 2019 | |||||||
| Interest paid | $ | 228,244 | $ | 310,217 | ||||
| Fair value of common shares and units issued for services | 240,340 | 255,360 | ||||||
| Fair value of common shares issued as settlement of debt | — | 121,587 | ||||||
| Property and equipment acquired through leases (Note 10) | 68,035 | 62,516 | ||||||
| Conversion of notes payable to common units | 112,863 | 1,342,400 | ||||||
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Pg 46 of 57
Grown
Rogue International Inc.
Notes to the consolidated financial
statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise
indicated
23. RELATED PARTY TRANSACTIONS
During the year ended October 31, 2020, the Company incurred the following related party transactions:
| 23.1 | Through its wholly owned subsidiary, GRU Properties, LLC, the Company leased a property located in Trail, Oregon owned by the Company's President and CEO. The lease expires on December 31, 2020. Rent of $77,000 was incurred for the years ended October 31, 2020 (2019 - $71,000). The Company had $45,000 (October 31, 2019 - $63,000) owing in accounts payable and accrued liabilities at October 31, 2020. |
| 23.2 | The Company incurred expenses of $59,500 (2019 - $36,000) for services provided by the spouse of the CEO. At October 31, 2020, accounts and accrued liabilities payable to this individual were $1,946 (October 31, 2019, $Nil). During the year ended October 31, 2020, this individual was granted 500,000 options which vested on the grant date. |
| 23.3 | The Company incurred fees related to marketing and promotion services of $Nil (2019 - $183,674) from two companies owned by the Company's former Chief Strategy Officer (“CSO”). At October 31, 2020, accounts payable and accrued liabilities were $Nil (October 31, 2019 - $6,000) payable to these companies. |
| 23.4 | Key management personnel consist of the President and CEO; the former CSO; the CFO of GR Unlimited; the Chief Market Officer; the Chief Accounting Officer; and the CFO of Grown Rogue International, Inc. The compensation paid or payable to key management for services for the years ended October 31, 2020 and 2019 was as follows: |
| 2020 | 2019 | |||||||
| Salaries and consulting fees | $ | 577,774 | $ | 425,412 | ||||
| Share-based compensation | 60,929 | 33,083 | ||||||
| Stock option expense | 144,639 | — | ||||||
| Total | $ | 783,342 | $ | 458,495 | ||||
Stock options granted to key management personnel and close family members of key management personnel include: 750,000 options to the CFO of GR Unlimited; 750,000 options to the Chief Market Officer; and 250,000 option to the Chief Accounting Officer.
Accounts payable and accrued liabilities due to key management at October 31, 2020 totaled $441,424 (October 31, 2019 - $392,152); these balances include the accrued liabilities described at Note 9.
During the year ended October, 31, 2020, the Company purchased vehicles and equipment from the CEO for an aggregate total purchase price of $21,050.
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Grown
Rogue International Inc.
Notes to the consolidated financial
statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise
indicated
| 23.5 | Debt balances and movements with related parties |
The following table sets out portions of debt described at Notes 12.1, 12.2, and 12.3 pertaining to related parties:
| CEO | CFO
of GR Unlimited LLC | Total | ||||||||||
| Balance - October 31, 2018 | $ | — | $ | — | $ | — | ||||||
| Principal borrowed | 50,000 | 50,000 | 100,000 | |||||||||
| Principal repaid | — | — | ||||||||||
| Interest accrued | 2,384 | 1,151 | 3,535 | |||||||||
| Interest paid | — | — | — | |||||||||
| Balance - October 31, 2019 | $ | 52,384 | $ | 51,151 | $ | 103,535 | ||||||
| Principal borrowed | 15,000 | — | 15,000 | |||||||||
| Principal repaid | (65,000 | ) | (50,000 | ) | (115,000 | |||||||
| Interest accrued | 10,890 | 9,041 | 19,931 | |||||||||
| Interest paid | (13,274 | ) | (10,192 | ) | (23,466 | |||||||
| Balance - October 31, 2020 | $ | — | $ | — | $ | — | ||||||
The following table sets out portions of debt described at Note 12.4 pertaining to related parties:
| CEO | CFO
of GR Unlimited LLC | Directors | Total | |||||||||||||
| Balance - October 31, 2019 and 2018 | $ | — | $ | — | $ | — | $ | — | ||||||||
| Borrowed | 50,000 | 100,000 | 150,000 | 300,000 | ||||||||||||
| Interest | 21,745 | 43,491 | 65,236 | 130,472 | ||||||||||||
| Payments | (10,252 | ) | (20,504 | ) | (30,756 | ) | (61,512 | ) | ||||||||
| Balance - October 31, 2020 | $ | 61,493 | $ | 122,987 | $ | 184,480 | $ | 368,960 | ||||||||
Pursuant to the loan 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 same financing (Note 12.4), such that GR Michigan has a 13% non-controlling interest (Note 30).
| 23.6 | Transactions with PBIC |
PBIC is a shareholder of 30,000,000 shares of the Company (approximately 28% of issued and outstanding common shares as at October 3, 2020). The Company is a shareholder of 2,362,204 (Note 7) PBIC shares. PBIC has appointed a director of GRIN, and the CFO of GRIN became the CFO of PBIC subsequent to October 31, 2020.
During the year ended October 31, 2020, the Company completed the following transactions with PBIC:
| ● | PBIC issued 2,362,204 shares to GRIN and GRIN issued PBIC 15,000,000 shares (Note 7); and |
| ● | PBIC subscribed to equity of the Company for $1,084,335; the equity included 15,000,000 common shares (Note 16.1) and 15,000,000 warrants to purchase one common share per warrant (Notes 17.1 and 17.2). |
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Pg 48 of 57
Grown
Rogue International Inc.
Notes to the consolidated financial
statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise
indicated
24. FINANCIAL INSTRUMENTS
| 24.1 | 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.
| 24.1.1 | Interest Rate Risk |
At October 31, 2020 and October 31, 2019, 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.
| 24.1.2 | Currency Risk |
As at October 31, 2020, the Company had accounts payable and accrued liabilities of CAD$504,314 and convertible debentures of CAD$2,850,000. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
| 24.2 | Credit Risk |
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
The carrying amount of cash, accounts receivable, and other receivables represents the Company's maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| Balance at | October 31, 2020 | October 31, 2019 | ||||||
| Cash | $ | 217,788 | $ | 74,926 | ||||
| Accounts receivable | 172,121 | 134,423 | ||||||
| Total | $ | 389,909 | $ | 209,349 | ||||
The allowance for doubtful accounts at October 31, 2020 is 7,425 (October 31, 2019 - $129,131).
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Grown
Rogue International Inc.
Notes to the consolidated financial
statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise
indicated
As at October 31, 2020 and October 31, 2019, the Company's trade accounts receivable and other receivable were aged as follows:
| October 31, 2020 | October 31, 2019 | |||||||
| Current | $ | 66,660 | $ | 51,672 | ||||
| 1 30 days | 49,204 | 500 | ||||||
| 31 days older | 63,682 | 211,382 | ||||||
| Allowance for doubtful accounts | (7,425 | ) | (129,131 | ) | ||||
| Total trade accounts receivable | $ | 172,121 | $ | 134,423 | ||||
The change in the provision for expected credit losses is as follows:
| Years ended | ||||||||
| October 31, 2020 | October 31, 2019 | |||||||
| Balance, beginning of period | $ | 129,131 | $ | 106,443 | ||||
| Additional allowance | 10,349 | 121,793 | ||||||
| Amounts collected | (6,757 | ) | (66,902 | ) | ||||
| Amounts used | (125,298 | ) | (32,203 | ) | ||||
| Balance, end of period | $ | 7,425 | $ | 129,131 | ||||
| 24.3 | 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, 2020, the Company’s working capital accounts were as follows:
| October 31, 2020 | October 31, 2019 | |||||||
| Cash | $ | 217,788 | $ | 74,926 | ||||
| Current assets excluding cash | 1,616,987 | 1,358,036 | ||||||
| Total current assets | 1,834,775 | 1,432,962 | ||||||
| Current liabilities | 1,799,104 | 4,142,489 | ||||||
| Working capital (deficit) | $ | 35,671 | $ | (2,709,527 | ) | |||
The contractual maturities of the Company's accounts payable and accrued liabilities, convertible promissory notes, long-term debt, and finance lease payable occurs over the next three years as follows:
| Year 1 | Years 2 3 | |||||||
| Accounts payable and accrued liabilities | $ | 1,059,971 | $ | 389,816 | ||||
| Debt and convertible debentures | 46,099 | 2,493,393 | ||||||
| Lease liabilities | 100,277 | 16,630 | ||||||
| Interest payable | 9,367 | — | ||||||
| Derivative liabilities | 583,390 | — | ||||||
| Deferred rent | — | 10,494 | ||||||
| Total | $ | 1,799,104 | $ | 2,910,333 | ||||
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Grown
Rogue International Inc.
Notes to the consolidated financial
statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise
indicated
| 24.4 | Fair Values |
The carrying amounts for the Company’s cash, accounts receivable, accounts payable and accrued liabilities, amounts due to employee/director, promissory notes and convertible promissory notes approximate their fair values because of the short-term nature of these items.
| 24.5 | 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, 2020 are summarized in the following table:
| Level in fair
value hierarchy | Amortized Cost | FVTPL | Total | |||||||||||
| Financial Assets | ||||||||||||||
| Cash | Level 1 | $ | 217,788 | — | $ | 217,788 | ||||||||
| Accounts receivable | Level 2 | 172,121 | — | 172,121 | ||||||||||
| Marketable securities | Level 1 | — | 585,035 | 585,035 | ||||||||||
| Financial Liabilities | ||||||||||||||
| Accounts payable and accrued liabilities | Level 2 | $ | 1,449,787 | $ | — | $ | 1,449,787 | |||||||
| Current portion of convertible debentures | Level 2 | 46,099 | — | 46,099 | ||||||||||
| Long term debt | Level 2 | 753,715 | — | 753,715 | ||||||||||
| Interest payable | Level 2 | 9,367 | — | 9,367 | ||||||||||
| Derivative liabilities | Level 2 | — | 583,390 | 583,390 | ||||||||||
| Convertible debentures | Level 2 | 1,739,678 | — | 1,739,678 | ||||||||||
During the year ended October 31, 2020 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, 2020
and 2019
Expressed in United States Dollars, unless otherwise
indicated
25. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended October 31, 2020 and 2019 are as follows:
| Years Ended | ||||||||
| October 31, | ||||||||
| 2020 | 2019 | |||||||
| Office, banking, travel, and overheads | 253,669 | 835,619 | ||||||
| Professional services | 794,154 | 1,887,034 | ||||||
| Salaries and benefits | 1,148,598 | 1,938,022 | ||||||
| Total | $ | 2,196,421 | $ | 4,660,675 | ||||
26. INCOME TAXES
| 26.1 | Income tax expense |
The following table reconciles income taxes calculated at combined United States federal/state tax rates with the income tax recovery in the consolidated financial statements:
| Year ended October 31, | 2020 | 2019 | ||||||
| Income (loss) before income taxes | (2,356,488 | ) | (9,476,934 | ) | ||||
| Effective income tax rate (%) | 27.25 | 27.25 | ||||||
| Expected income tax recovery | (642,143 | ) | (2,582,166 | ) | ||||
| Loss (income) related to entities taxed as partnerships | — | — | ||||||
| Temporary differences related to inventory valuation | (124,590 | ) | (142,025 | ) | ||||
| Temporary differences related to start-up costs | (196,978 | ) | 99,029 | |||||
| Temporary differences related to Transaction costs | (1,927,848 | ) | 320,709 | |||||
| Non-deductible expenses | (248,392 | ) | 1,059,283 | |||||
| Temporary differences related to cost of goods sold | — | 172,517 | ||||||
| Unrealized gain on biological assets | — | (134,720 | ) | |||||
| Share issuance costs | — | (13,457 | ) | |||||
| Losses and other deductions for which no benefit has been recognized | 3,139,951 | 1,220,830 | ||||||
| Income tax expense (recovery) | $ | — | $ | — | ||||
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Grown
Rogue International Inc.
Notes to the consolidated financial
statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise
indicated
| 26.2 | Deferred taxes |
The temporary differences that give rise to deferred income tax assets and deferred income tax liabilities are presented below:
| Deferred Tax Assets as at October 31, | 2020 | 2019 | ||||||
| Start up costs | $ | 196,978 | $ | 299,259 | ||||
| Inventory | 124,590 | 24,349 | ||||||
| Biological asset fair value adjustment | — | — | ||||||
| Net operating loss carry-forwards | 1,369,512 | 2,307,529 | ||||||
| Share issuance costs | — | 10,226 | ||||||
| IFRS Adjustments | 28,254 | — | ||||||
| Amortization/Accretion expenses | 351,345 | — | ||||||
| Transaction costs | 919,825 | 331,164 | ||||||
| Technology impairment | 429,122 | — | ||||||
| Debt restructure | 125,953 | — | ||||||
| Various derivative and unrealized gain/los | 73,350 | — | ||||||
| Allowance for doubtful accounts | ||||||||
| $ | 3,618,929 | $ | 2,972,527 | |||||
| Deferred taxes not recognized | (3,618,929 | ) | (2,972,527 | ) | ||||
| Net 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 accounting 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 sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under United States Internal Revenue Code Section 280E.
Federal and Oregon tax laws impose restrictions on net operating loss carryforwards in the event of a change in ownership of the Company, as defined by the United States Internal Revenue Code Section 382. The Company does not believe that a change in ownership, as defined by United States Internal Revenue Code Section 382, has occurred but a formal study has not been completed.
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Pg 53 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
27. 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 it, 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. 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.
28. ACQUISITION COSTS
During the year ended October 31, 2019, the Company entered into a binding letter of intent (the “LOI”) pursuant to which the Company was to acquire assets including real estate, intellectual property and other assets for aggregate consideration of $3,000,000, subject to certain adjustments. The Company decided to terminate the LOI and, in doing so, incurred acquisition costs of $49,188 which have been expensed in the statement of loss and comprehensive loss during the year ended October 31, 2019.
During the year ended October 31, 2019, the Company entered into a binding agreement for the option to acquire operational control of certain assets in Michigan. The Company decided not to move forward with this acquisition and, pursuant to a termination agreement, issued 2,148,177 warrants as disclosed in Note 17.12). The fair value of the vested warrants of $77,014 was expensed as an acquisition cost in the statement of loss and comprehensive loss during the year ended October 31, 2019.
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Pg 54 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
29. SEGMENT REPORTING
Geographical information relating to the Company's activities is as follows:
| Years
ended ended October 31, | ||||||||
| Revenue | 2020 | 2019 | ||||||
| United States | $ | 4,239,604 | $ | 3,924,983 | ||||
| Canada | — | — | ||||||
| Total | $ | 4,239,604 | $ | 3,924,983 | ||||
| Non-current assets as at: | October 31, 2020 | October 31, 2019 | ||||||
| United States (1) | 1,929,643 | 1,499,514 | ||||||
| Canada | — | — | ||||||
| Total | $ | 1,929,643 | $ | 1,499,514 | ||||
(1) Includes: plant and equipment
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, 2020, two major customers accounted for 37% of annual revenues (2019 – 1 customer accounted for 38% of annual revenues).
30. NON-CONTROLLING INTERESTS
The changes to the non-controlling interest for the years ended October 31, 2020 and October 31, 2019 are as follows:
| October 31, 2020 | October 31, 2019 | |||||||
| Balance, beginning of period | $ | 19,538 | $ | — | ||||
| Net assets contributed | — | 196,250 | ||||||
| ElImination of GRD Cali, LLC non-controlling interest | 22,128 | — | ||||||
| Non-controlling interest's 40% share of GRD Cali, LLC | (36,366 | ) | (153,762 | ) | ||||
| Non-controlling interest's 40% share of Idalia, LLC | (129 | ) | (22,950 | ) | ||||
| Non-controlling interest's 13% share of GR Michigan, LLC | (38,554 | ) | — | |||||
| Balance, end of period | $ | (33,383 | ) | $ | 19,538 | |||
The following is summarized financial information for GRD Cali, LLC:
| October 31, 2020 | October 31, 2019 | |||||||
| Current assets | $ | — | $ | 93,460 | ||||
| Long term assets | — | 41,642 | ||||||
| Current liabilities | — | 25,801 | ||||||
| Advances from parent | — | 73,705 | ||||||
| Net loss for the period | 90,914 | 384,404 |
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Pg 55 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
GRD Cali, LLC was sold in exchange for $85,000 during the year ended October 31, 2020.
The following is summarized financial information for Idalia, LLC:
| October 31, 2020 | October 31, 2019 | |||||||
| Long term assets | $ | 10,230 | $ | 13,248 | ||||
| Net loss for the period | 322 | 57,376 |
The following is summarized financial information for GR Michigan, LLC:
| October 31, 2020 | October 31, 2019 | |||||||
| Current assets | $ | 74,961 | $ | — | ||||
| Long term assets | 603,895 | — | ||||||
| Current liabilities | 489,266 | — | ||||||
| Advances from parent | 68,994 | — | ||||||
| Net loss for the period | 296,570 | — |
Nine percent (9%) of GR Michigan LLC is owned by officers and directors of the Company; this ownership is pursuant to an agreement that included their loans made to GR Michigan LLC (Note 23.5). The total non-controlling ownership, including ownership by officers and directors, is 13%.
31. SUBSEQUENT EVENTS
Subsequent to October 31, 2020, Grown Rogue Distribution LLC (“GR Distribution”) sold 11.875 equity units for US$40,000 per unit each for total proceeds of $475,000. The unit holders have the future right to convert their units in the subsidiary into common shares of the Company at the greater of CAD$0.20 or the maximum permitted discount under the policies of the Canadian Securities Exchange at the time of conversion.
Subsequent to October 31, 2020, GR Distribution issued unsecured promissory notes totaling $375,000. Terms of the note include 10% interest, payable monthly and a with three-year maturities. In addition, the subsidiary will make payments in months 39, 42, 45, and 48 that will cause total interest payments to equal the principal amount loaned.
On December 2, 2020, Grown Rogue Gardens LLC issued an unsecured promissory note in the amount of USD $150,000 to a key Company operations manager. Terms of the note include 10% interest per annum and 12-month maturity. The Company has the right to extend up to 50% of the principal for up to 6 months by paying a one-time extension fee of 10% of the amount extended.
On January 19, 2021, the Company completed the first tranche of a private placement of 2,031,784 shares for proceeds of $400,000. On February 5, 2021 the Company completed the second tranche of a private placement of 8,200,000 units at CAD$0.16 per unit for proceeds of CAD$1,323,000. Each unit was comprised of one common share and one warrant to purchase one common share. Each warrant has an exercise price of CAD$0.20 and a term of two years. The second tranche included subscriptions by the following related parties: the CEO subscribed to 1,600,000 units; the CFO of GR Unlimited subscribed to 2,000,000 units; a key Company operations manager subscribed to 1,000,000 units; and PBIC subscribed to 2,000,000 units.
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Pg 56 of 57
Grown Rogue International Inc.
Notes to the consolidated financial statements
For the years ended October 31, 2020 and 2019
Expressed in United States Dollars, unless otherwise indicated
Subsequent to October 31, 2020, the Company’s subsidiary, GR Michigan, LLC, terminated its Option to Acquire GH. Simultaneously with the termination, a new entity, Canopy Management, LLC (“Canopy”) signed an Option to Purchase GH under similar terms. Canopy has already been approved by the State of Michigan for licensing and this will allow the Company to accelerate its option exercise to obtain a 60% interest in GH. Canopy is majority owned by GRIN’s CEO, who has a fiduciary responsibility to the Company. 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 GR Michigan.
On February 5, 2021, the Company acquired substantially all of the assets of the growing and retail operations of High Street Capital Partners, LLC (“HSCP”) for $3,000,000. The Company also executed a Management Services Agreement (“MSA”) with HSCP. The Company will operate the growing facility under the MSA until the acquisition of the growing assets obtains regulatory approval.
Subsequent to October 31, 2020, the Company executed new lease agreements to maintain its outdoor growing locations. One outdoor lease is for a term of twelve months (January 2021 through December 2021) at $3,800 per month, for a total commitment of $45,600. The other lease (for which the lessor is the CEO of the Company) is for a term of five years (January 2021 through December 31, 2025), for $6,000 per month, for a total commitment of $360,000.
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Pg 57 of 57
Exhibit 10
GROWN ROGUE INTERNATIONAL INC.
FORM 51-102F1
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE YEAR ENDED OCTOBER 31, 2020
TABLE OF CONTENTS
| Management’s Responsibilities for Financial Reporting | 3 |
| Forward-Looking Statements | 4 |
| Description of Business | 4 |
| Selected Annual Information | 10 |
| Results of Operations | 10 |
| Capital Resources | 12 |
| Summary of Quarterly Results | 14 |
| Other Selected Financial Information | 15 |
| Liquidity and Capital Resources | 16 |
| Commitments | 17 |
| Off-Balance Sheet Arrangements | 17 |
| Outstanding Share Data | 18 |
| Transactions with Related Parties | 18 |
| Critical Accounting Judgments and Estimation Uncertainties | 20 |
| Newly Adopted Accounting Pronouncements | 21 |
| Financial Instruments and Other Risk Factors | 21 |
| Subsequent Events | 23 |
| Regulatory Disclosure | 24 |
| Internal Control over Financial Reporting and Disclosure Controls | 36 |
This Management Discussion and Analysis (MD&A”) made as of March 1, 2021, should be read in conjunction with the audited financial statements of Grown Rogue International Inc. (the “Company”, (“we”, “our”, or “us”) for the years ended October 31, 2020 and 2019 (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 Canada Corp. (“GRC”), Grown Rogue Unlimited, LLC (“GR Unlimited”) and GR Unlimited’s wholly-owned subsidiaries Grown Rogue Gardens, LLC (“GR Gardens”); Grown Rogue Distribution, LLC (“GR Distribution”); GRU Properties, LLC (“GRU Properties”); GRIP, LLC (“GRIP”); as well as GR Unlimited’s 60% interest in Idalia, LLC; GR Unlimited’s 60% interest in GRD Cali, LLC, which was disposed of during the year ended October 31, 2020; and GR Unlimited’s 87% interest in GR Michigan, LLC. The Company’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.
Forward-Looking Statements
This MD&A contains information and projections based on current expectations. Certain statements herein may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this Listing Statement, 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, among others, statements with respect to planned acquisitions, strategic partnerships or other transactions and expansions not yet concluded; plans to market, sell and distribute products; market competition; plans to retain and recruit personnel; the ability to secure funding; and the ability to obtain regulatory and other approvals are all forward-looking information. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements.
There can be no assurance that any intended or proposed activity or transaction will occur or that, if any such action or transaction is undertaken, it will be completed on terms currently intended by the Company. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law.
Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements herein speak only as of the date hereof. Actual results could differ materially from those anticipated due to a number of factors and risks including those described in this MD&A under “Risk Factors” and in section 17 of the Company’s Listing Statement dated November 15, 2018 which can be found under the Company’s profile on www.sedar.com.
Description of Business
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 their products based on “Mind, Body & Mood” effects that resonates with consumers from the 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. Grown Rogue is focused on high quality, low cost production of flower and flower-based products. Flower continues to be the leading product category in most every state as compared to other categories such as edible, vape cartridges, pre-rolls, or concentrates and frequently accounts for 50% of all cannabis sales. With its best-in-class production methods, low cost cultivation, award winning product and best in class sales team , Grown Rogue has become a leading flower producer in the cannabis sector.
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Oregon
Grown Rogue, through its wholly owned subsidiary, GR Gardens, operates four cultivation facilities, in Oregon comprising approximately 130,000 sq ft of cultivation area, that currently service the Oregon recreational marijuana market: “Manzanita Glen” (sungrown), “Trail’s End” (sungrown), and two state-of-the-art indoor facilities (“Warehouse 1” and “Warehouse 2”). Warehouse 2 is comprised of assets acquired after the Reporting Period and approximately doubles our indoor productive capacity. GR Gardens currently holds three producer licenses in Oregon from the Oregon Liquor Control Commission (“OLCC”), for the three properties described above, one wholesaler license, and one processor license. GR Gardens is currently not operating the processor license.
GR Gardens is responsible for production of recreational marijuana using outdoor and indoor production methodologies. “Manzanita Glen” and “Trails End” are both outdoor, sungrown farms, with 40,000 sq ft of flowering canopy, for a total of 80,000 sq ft, sitting on a combined land package of approximately 45 acres.
Grown Rogue’s Oregon business is head-quartered in the world-renowned Emerald Triangle, which is known world-wide for the quality of its cannabis. The Emerald Triangle includes the southern part of Oregon and northern part of California. The company is able to capitalize on an ideal outdoor growing environment where it can produce high-quality, low-cost cannabis flower. The two sungrown farms produce one crop per year, which is planted in June and harvested in October.
With its approximately 17,000 sq ft indoor Warehouse 1, Grown Rogue is additionally able to produce high-quality indoor flower through controlled atmosphere environment (“CAE”) operations. By carefully controlling temperature, humidity, carbon dioxide levels, and other criteria, Grown Rogue is able to provide year-round supply of high-quality cannabis flower with multiple harvests per month. Grown Rogue has been constructing the final two flower rooms in the facility with the facility expected to be fully constructed by the end of February 2021 with eight dedicated flower rooms.
Warehouse 2 added 30,000 square feet of indoor productive space to our assets, and we estimate annual production at 2,400 pounds from this facility. It is a short distance from Warehouse 1, which is a benefit to operating efficiency, and is equipped with state-of-the-art equipment which facilitates the implementation of best practices already developed at Warehouse 1.
The total annual production capacity for Grown Rogue’s Oregon operations, based on the current constructed capacity, ranges between 6,000 and 7,000 pounds based on sungrown seasonality and strain performance.
Michigan
In February 2020, Grown Rogue, through its subsidiary GR Michigan, LLC, signed an Option to Purchase Agreement (“Option”) to acquire a 60% ownership in Golden Harvests, LLC (“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 sq ft facility of which approximately 25,500 sq ft is operational. Through the date of this MD&A, the Company has paid $275,000 in cash and approximately $13,000 in shares towards Option consideration.
With the addition of Golden Harvests, Grown Rogue will be adding an additional 3,000 pounds of high-quality indoor flower production capacity in 2021 and an anticipated 5,500 pounds of production capacity in 2022. Grown Rogue will oversee this capacity under the terms of a management services agreement prior to exercising its purchase option once regulatory approval is received.
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Subsequent to October 31, 2020, the Company’s, majority controlled subsidiary GR Michigan, LLC, terminated its Option to Acquire Golden Harvests. Simultaneously with the termination, a new entity, Canopy Management, LLC (“Canopy”) signed an Option to Purchase Golden Harvests under similar terms. Canopy has already been approved by the State of Michigan for licensing and this will allow the Company to accelerate its option exercise to obtain a 60% interest in Golden Harvests. Canopy is majority owned by GRIN’s CEO, who has a fiduciary responsibility to the Company. The Company has an option to acquire 87% of Mr. Strickler’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 GR Michigan.
Product
Grown Rogue produces a range of cultivars for consumers to enjoy (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 also won 1st place for highest THC content, 1st place for highest terpene content, and 3rd place in the grower’s choice category 2018 and won 1st place for highest terpene content in 2019 . In addition, the company believes it achieved an outdoor production potency record in the state of Oregon, when its Monkey Train cultivar tested at a THC potency of 35.13%.
Genetics
We are committed to developing unique, proprietary genetics and have allocated R&D space to develop new strains, while also phenotype hunting to identify new and exciting strain options that will resonate with 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 its 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 ensure a steady flow of innovative flower and flower products.
Distribution and Sales
Grown Rogue distributes product directly to Oregon dispensaries to provide quality, consistency, and product variety year-round. Grown Rogue’s sales team works closely with dispensary owners and intake managers to provide consistent product, competitive prices, and service using sales techniques from other industries such as pharmaceutical and liquor.
By way of example, 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 all while maintaining brand consistency across the product suite.
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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, packaged and other items 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.
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. Still easy to understand, but much more informative. Grown Rogue is refining this branding effort and intends to launch this new and innovative approach to ensuring consumers select the right experience in 2021.
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 (mobile) interactive website. 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.
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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 will be defined by delivering fresh content and keeping interaction with followers/fans prompt and positive. Grown Rogue intends to attract 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 trademarks:
| 1. | Grown Rogue was filed on September 22, 2017 and registered on August 7, 2018 under Registration No. 5537240 |
| 2. | The Right Experience Every Time was filed on September 29, 2017 and registered on August 7, 2018 under Registration 5537260. |
| 3. | Sizzleberry was filed on September 29, 2017 and registered on August 7, 2018 under Registration 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 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 all of its operations. Grown Rogue maintains 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 all of its team members and is very involved in each of the communities where it operates.
When wildfires ravaged Oregon, particularly Jackson County, Grown Rogue quickly mobilized to support teammates and their families who lost homes or were adversely impacted, while also donating over $20,000 to community fire relief funds and organizing a Cannabis Coalition Fire Relief Fund with the United Way of Jackson County.
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Plans for Expansion & Economic Outlook
Grown Rogue continues to focus on taking its learnings and experience from Oregon into new markets across the US. During the last two years, Grown Rogue has established a platform that excels at licensing, compliance, understanding consumer purchasing preferences, and product innovation. This platform that 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 recently completed expansion into Warehouse 2 (described in the Oregon heading under Description of Business) represents a template for growth and execution against management’s strategy of being a high-quality, low-cost flower producer. As other growth opportunities arise under favorable financial terms, management can activate known and repeatable systems into new assets.
The future of the cannabis industry is in the branded products and the best brands are being created in the west coast, which is the area that has become synonymous with 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 very focused on establishing a larger number of licenses in fewer states to capitalize on the economies of scale necessary to maximize profits. Over the next 12 months, Grown Rogue is focused on furthering its footprint and market share in the Oregon market, continuing to add to the portfolio projects in Michigan and looking at strategic opportunities in new states.
With the recent shift in political landscape, Grown Rogue has also begun analyzing the potential for federal de-regulation and the subsequent ability to export cannabis products across state lines. Oregon and the west coast have become synonymous with high quality cannabis and long term we believe Oregon will be a large export state across the US and international. Being located in the Emerald Triangle also provides a unique product differentiator due to the ability to produce high quality low cost sungrown flower due to the environmental conditions that occur naturally in Southern Oregon. Our strategy for how to take advantage of what will surely be a multi-billion dollar export business is developing and we are excited to begin implementation of this business plan over the coming years.
Definitive Transaction Agreement and Reverse Take-over Transaction
On October 31, 2018, GR Unlimited, Novicius Corp. ("Novicius"), Grown Rogue Canada Inc. and Novicius Acquisition Corp. entered into a definitive transaction agreement which set out the terms for the reverse take-over of Novicius by GR Unlimited and the related transactions (the “Transaction”). The Transaction was completed on November 15, 2018 and the Company began trading its common shares through the facilities of the Canadian Securities Exchange under the symbol “GRIN” on November 26, 2018.
As part of the Transaction, the Company changed its name from “Novicius Corp.” to “Grown Rogue International Inc.” and consolidated its existing common shares on the basis of one common share for each 1.4 existing common shares. The unitholders of GR Unlimited exchanged their equity membership interests in GR Unlimited for common shares of the Company on a one-for-one basis. The Transaction resulted in the Company becoming the owner all of the equity membership interests in GR Unlimited. In connection with the Transaction, GR Unlimited, directly and through Grown Rogue Canada Inc., raised approximately CAD$6.5 million through brokered and non-brokered private placements.
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For further details regarding the Transaction and related financings, please refer to the Company’s Listing Statement filed on SEDAR on November 23, 2018.
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 creating positive cash flow from operations.
Selected Annual Information
The following selected financial data for each of the three completed financial years are derived from the audited annual financial statements of the Company.
| Year Ended October 31, | 2020 | 2019 | 2018 | 2017 (1) | ||||||||||||
| Total revenue | $ | 4,239,604 | $ | 3,924,983 | $ | 1,932,128 | $ | — | ||||||||
| Loss from operations | (1,574,679 | ) | (7,622,956 | ) | (4,967,609 | ) | (138,854 | ) | ||||||||
| Net loss | (2,356,488 | ) | (9,476,934 | ) | (7,509,986 | ) | (302,397 | ) | ||||||||
| Net loss per share, basic and diluted | (0.03 | ) | (0.13 | ) | (0.22 | ) | ||||||||||
| Comprehensive Loss | (2,490,605 | ) | (9,355,014 | ) | (7,509,986 | ) | (302,397 | ) | ||||||||
| Comprehensive loss per share, basic & diluted | (0.03 | ) | (0.13 | ) | (0.22 | ) | ||||||||||
| Total assets | 3,764,418 | 2,932,476 | 5,366,268 | 2,914,491 | ||||||||||||
| Total non-current liabilities | 2,910,333 | 217,633 | 2,292,634 | 1,069,139 | ||||||||||||
| Cash dividends | Nil | Nil | Nil | Nil | ||||||||||||
Results of Operations
Revenues
Revenues during the twelve months ended October 31, 2020, increased relative to the comparable period in 2019 due to the discontinuance of reselling low-margin third party products, offset by an increase in sales of product from operations (see Adjusted EBITDA for further margin analysis). Set out below is a table of revenues by revenue type:
| Year Ended October 31, | 2020 | 2019 | 2018 | |||||||||
| Revenue from third-party products | $ | 125,488 | $ | 1,800,816 | $ | 924,382 | ||||||
| Revenue from management services | 393,381 | — | — | |||||||||
| Revenue from Grown Rogue production | 3,720,735 | 2,124,167 | 1,007,746 | |||||||||
| Total revenue | $ | 4,239,604 | $ | 3,924,983 | $ | 1,932,128 | ||||||
Costs of finished cannabis inventory sold
Costs of finished cannabis inventory sold decreased by approximately $780,000 during the year ended October 31, 2020 relative to the comparable 2019 period; this reflects the discontinuance of selling third party products, as well as operational efficiencies for our product. The gross margin on our product has improved significantly, as described under Other Selected Financial Information.
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Net loss
Transaction costs
A material driver of the decrease in net loss during the twelve months ended October 31, 2020 relative to the comparable period in 2019, is the absence of transaction costs of $3,453,790 that occurred during the twelve months ended October 31, 2019.
Accounting for debt restructuring
In the year ended October 2020, we changed the terms of convertible debentures (see ‘Debt financing’ within ‘Capital Resources’, below). The impact to net loss from this accounting was the recognition of $765,707 in expense, as well as derecognition of a derivative liability which decreased net loss by $244,572; accordingly, the impact to the income statement as a result of the convertible debt restructuring was an increase to net loss of $521,135, with no such charges during the comparable 2019 period, other than derecognition of derivative liability for a decrease to net loss of $39,500.
Share-based compensation
During the year ended October 31, 2020, we issued 3,209,386 common shares as compensation to employees and service providers. In July 2020, as part of our performance management strategy, we issued 3,575,000 options to employees. The common shares issuances (measured at fair value) and stock options (measured at fair value using the Black-Scholes pricing model) resulted in total expense recognition of $337,162 during the year ended October 31, 2020, as compared to $113,227 during the comparable 2019 period.
General and administrative expenses
General and administrative expenses decreased by approximately $2,500,000 during the year ended October 31, 2020, compared to the prior fiscal year. The reduction in the general and administrative costs was a result of a larger allocation of overhead to inventory, biological assets and, in turn cost of sales. We also reduced salaries, legal and professional fees, travel, and general office and corporate overhead costs.
Interest expense
During the year ended October 31, 2019, the Company issued a second round of convertible debenture financing with aggregate principal of CAD$1,500,000; the first round was issued during the year ended October 31, 2018. This first round included aggregate principal of CAD$1,500,000. We had two leases for asset purchases with balances due at October 31, 2020 (2019 – three leases with balances due totaling $144,595). GR Michigan LLC also raised debt (see the Long-term debt section under Capital Resources, below). Total interest expense for the year ended October 31, 2020 was approximately $249,000, compared to approximately $246,000 for the year ended October 31, 2019. The convertible debentures also gave rise to accretion expense of approximately $393,000 during the year ended October 31, 2020, compared to approximately $148,000 for the year ended October 31, 2019. The increase in accretion expense is explained by 1) the inclusion in the year ended October 31, 2020 of approximately $260,000 attributed to the debt raised by GR Michigan LLC during the year ended October 31, 2020 (accordingly, no comparable accretion occurred during the year ended October 31, 2019); and 2) a full fiscal year of convertible debt interest accretion during the year ended October 31, 2020, compared to a partial year of accretion in the year ended October 31, 2019, because the convertible debt was issued midway through the year ended October 31, 2019.
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Capital Resources
Debt financing
Convertible debt
During the year ended October 31, 2019, the Company issued secured convertible debentures with aggregate principal of CAD$1,500,000 ($1,105,127) which bear interest at 2% per quarter payable on the last day of March, June, September and December. The debentures were to mature August 10, 2020 and were convertible into common shares of the Company at a conversion price of CAD$0.44 per share, subject to certain adjustments resulting from future events. As the Company did not complete a financing as contemplated in the debenture agreement, and issued other shares to employees, the conversion price decreased from the original price of $0.44 per share. The notes (including the CAD$1,500,000 principal amount of notes that were issued by the Company on November 15, 2018) were renegotiated in July 2020 with the following terms:
| ● | Principal loan amount of $2,169,135 (CAD$2,950,000), due on November 1, 2021 (this balance reflects the conversion of CAD$50,000 from originally issued principal of CAD$3,000,000); |
| o | CAD$2,850,000 at the date of this MD&A, following conversion of CAD$100,000 in August 2020); |
| ● | Interest payable at 8% per annum; |
| ● | Convertible at CAD$0.125 into shares of the Company; |
| ● | Conversion price will be adjusted to a lower price if the Company completes a private placement of equity for cash at a price lower than CAD$0.125 while the loan is outstanding; |
| ● | Convertible at CAD$0.05 if the Company defaults on debt service; |
| ● | Cancellation of 6,818,182 warrants issued pursuant to the convertible debenture agreements outstanding prior to the modification on July 10, 2020; |
| ● | Issuance of 6,818,182 new warrants with as exercise price of CAD$0.16 and an expiration date of November 1, 2021; and |
| ● | Issuance of 1,590,909 warrants as part of the consideration to the creditors for extending the maturity of the debt. |
We recognized a loss from restructuring convertible debentures of $765,707, including the following items:
| Composition of loss from debt restructuring | ||||
| Difference: carrying value of deemed prior debt and deemed reissued debt | $ | 337,997 | ||
| Replacement warrants - quantity 6,818,182 | 346,792 | |||
| Consideration warrants - quantity 1,590,909 | 80,918 | |||
| Total loss from deemed restructuring | $ | 765,707 | ||
The modification of terms also resulted in the derecognition of the Company’s previously outstanding derivative liability; a reduction to net loss of $244,572.
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Long-term debt
On March 20, 2020: Principal of $600,000 was received under a secured debt investment of $600,000 (the "Michigan Debt"). The Michigan Debt carries a two year term, with monthly payments of principal commencing June 15, 2020, and with payments calculated at 1% of cash sales receipts of Golden Harvests LLC (“Golden Harvests” – see section entitled ‘Option to Acquire Controlling Interest in Golden Harvests,’ below). Once the principal is repaid, each investor will receive a monthly royalty of 1% per $100,000 invested of cash receipts for sales by Golden Harvests (the "Royalty"). The Royalty commences on the date that repayments equal to principal have been made for a period of two years. The Royalty maximum is two times the amount of principal invested and the Royalty minimum is equal to the principal loaned. The Company has the right but not the obligation, to purchase the Royalty from any lender by paying an amount equal to the original principal invested by such lender. The debt is reported at the carrying value of the probability-weighted estimated future cash flows of all payments under the Michigan Debt agreement at amortized cost using the effective interest method. Interest accreted during the year ended October 31, 2020 was $260,943. During the year ended October 31, 2020, $75,126 was repaid against this debt.
Principal amounts of the Michigan Debt of $50,000 and $100,000 (a total of $150,000), were loaned by officers of the Company. Principal of $150,000, was loaned by a director of the Company.
We also had a $14,000 note payable due to another lender as at October 31, 2020; subsequently this note was settled in full.
Equity financing and investment
During the period ended October 31, 2020, the Company completed two agreements with Plant Based Investment Corp, which was previously named Cannabis Growth Opportunity Corporation (“PBIC”): 1) a private placement of equity (“PBIC Private Placement”) and 2) a share swap of our shares for PBIC’s shares (the “ PBIC Share Swap”).
PBIC Private Placement
In exchange for total proceeds of CAD$1,500,000, the Company issued, in two tranches, 15,000,000 common shares and 15,000,000 warrants to purchase an aggregate of 15,000,000 common share of the Company. Of the warrants issued, 5,000,000 have a strike price of CAD$0.125 and expire on February 10, 2022. Of the warrants issued, 10,000,000 have a strike price of CAD$0.13 and expire May 15, 2022.
PBIC Share Swap
In February 2020, we exchanged CAD$1,500,000 worth of our common shares for common shares of PBIC. We issued 15,000,000 common shares to PBIC in exchange for 2,362,204 common shares of PBIC issued to us. As part of the PBIC Share Swap, each of PBIC and Grown Rogue have signed a voting and resale agreement providing that each party will be required to vote the shares acquired under the PBIC Share Swap and are restricted from trading the shares for a period of 18 months from the PBIC Share Swap date.
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Option to Acquire Controlling Interest in Golden Harvests and capital investments in Golden Harvests
By agreement effective February 6, 2020, the Company entered into a purchase agreement to acquire an option to acquire a 60% controlling interest (the "Option") of a fully licensed Michigan based operator pending Municipal and State regulatory approval. In order to exercise the Option, the Company will pay $810,000 in cash and issue 800,000 common shares of the Company in four tranches. The four cash and common share tranches are summarized below:
| 1. | Payment of $150,000 within five days of signing the Option and the issuance of 200,000 common shares of the Company within 60 days after signing the Option (paid). |
| 2. | Payment of $200,000 and the issuance of 200,000 common shares of the Company on the sixth-month anniversary of signing the Option. The Company paid $25,000 and issued 25,000 shares subsequent to October 31, 2020 to extend this payment for six-months. Subsequent to October 31, 2020, cash payment of $100,000 was made and a note payable for $100,000 was issued to fulfilled the $200,000 payment. The note payable bears interest at $2,000 per month. |
| 3. | Payment of $260,000 and the issuance of 200,000 common shares of the Company on the twelve month anniversary of signing the Option. The Company can elect to extend the due date of this tranche of the purchase consideration for an additional six months by paying $25,000 and issuing 25,000 common shares of the Company. Subsequent to October 31, 2020, the extension term was modified to require issuance of 200,000 shares instead of the aforementioned cash and share payments. |
| 4. | Payment of $200,000 and the issuance of 200,000 common shares of the Company due upon exercise of the Option, pending Municipal and State regulatory approval. |
During the year ended October 31, 2020, the Company invested assets valued at $416,083 in order to grow and expand GH’s business. We agreed to invest a total of $1,200,000 in capital expenditures into GH without diluting GH’s owner, in order to accelerate the growth of GH and realize the value added to our shareholders upon our exercise of the Option.
Subsequent to October 31, 2020, we executed agreements which put Canopy Management LLC (“Canopy”) into the same position to acquire GH as previously envisaged to be done by GR Michigan LLC, as described in the Michigan subsection of the Description of Business section, above.
Summary of Quarterly Results
The following table sets out selected quarterly results of the Corporation for the eight quarters ended on or before October 31, 2020. The information contained herein is drawn from the interim financial statements of the Corporation for each of the aforementioned eight quarters.
| Fiscal Year | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Quarter | Oct | Jul | Apr | Jan | Oct | Jul | Apr | Jan | ||||||||||||||||||||||||
| Revenue ($) | 1,056,702 | 903,994 | 1,172,612 | 1,106,296 | 431,629 | 773,930 | 1,885,115 | 834,309 | ||||||||||||||||||||||||
| Net loss ($) | (122,401 | ) | (794,072 | ) | (1,206,828 | ) | (233,187 | ) | (2,098,742 | ) | (931,184 | ) | (1,648,446 | ) | (4,798,562 | ) | ||||||||||||||||
| Net loss, basic & diluted ($/share) | 0.00 | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.01 | ) | (0.02 | ) | (0.08 | ) | |||||||||||||||||
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Revenues reflect decreases in revenues from third party products of $1,800,816 in 2019, which were $125,460 in 2020. The decrease in third party product sales was offset by service revenues of $393,381 in 2020 (2019 – nil). Net loss is generally decreasing during 2020 as compared to 2019 due to operational efficiencies gained from experience & process improvement; a concentration of business strategy on Grown Rogue production & sales and ending sales of third party products, resulting in higher margins (see “Cash margin analysis,” below); and decreases in general and administrative costs. General and administrative costs decreased from $4,660,675 in 2019 to $2,196,422 in 2020.
Other Selected Financial Information
Adjusted EBITDA (non-IFRS measure)
The Company’s “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 Adjusted 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 and the effects of fair-value accounting for biological assets and inventory. The Company believes that this is a useful metric to evaluate its operating performance.
| Years ended | ||||||||
| October 31, | ||||||||
| Adjusted EBITDA Reconciliation | 2020 | 2019 | ||||||
| Net loss, as reported | $ | (2,356,488 | ) | $ | (9,476,934 | ) | ||
| Add back realized fair value amounts included in inventory sold | 1,482,725 | 622,804 | ||||||
| Less unrealized fair value gain (loss) on growth of biological assets | (1,515,492 | ) | (486,354 | ) | ||||
| Less amortization of property & equipment included in cost of sales | 518,999 | 191,094 | ||||||
| $ | (1,870,256 | ) | $ | (9,149,390 | ) | |||
| Add back accretion expense, as reported | 609,357 | 153,195 | ||||||
| Add back amortization of intangible assets, as reported | 26,600 | 31,373 | ||||||
| Add back amortization of property and equipment, as reported | 153,991 | 63,295 | ||||||
| Add back amortization of right-of-use assets, as reported | 96,845 | — | ||||||
| Add back share-based compensation expense, as reported | 337,162 | 113,227 | ||||||
| Add back interest expense, as reported | 249,296 | 245,549 | ||||||
| Add back transaction cost | — | 3,453,790 | ||||||
| Add back unrealized loss on marketable securities, as reported | 263,483 | — | ||||||
| Add back unrealized gain on derviative liability | (221,820 | ) | — | |||||
| Less gain on derecognition of derivative liability | (244,572 | ) | (39,500 | ) | ||||
| Add back loss on debt restructure | 765,707 | — | ||||||
| Adjusted EBITDA | $ | 165,793 | $ | (5,128,461 | ) | |||
Cash margin analysis (NON-IFRS MEASURE)
“Cash Margin” is a non-IFRS measure used by management that does not have any meaning under IFRS and may not be comparable to similar measures presented by other companies. To define Cash Margin, first we define “Cash Production Costs,” pertaining to revenue from our products and third party products, as the cost of finished cannabis inventory sold, as reported on the statement of comprehensive loss, less non-cash production costs, packaging and distribution costs, inventory write-offs and adjustments; costs for service revenues are as presented on the statement of comprehensive loss. Cash Margin is arrived at by subtracting Cash Production Costs from their corresponding revenue category, and dividing the result by revenue to arrive at a percentage of revenue. The Company believes that this is a useful metric to evaluate its operating performance.
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The following table presents a table of Cash Margin by revenue type.
| Year ended | ||||||||||||
| October 31, 2020 | ||||||||||||
| Cash Margin analysis | Revenue | Costs | Margin | |||||||||
| Grown Rogue products | $ | 3,720,735 | $ | 1,425,890 | 62 | % | ||||||
| Third party products | 125,460 | 115,522 | 8 | % | ||||||||
| Service revenues | 393,381 | 271,167 | 31 | % | ||||||||
| Asset depreciation included in COGS | — | 518,999 | — | |||||||||
| Cost of packaging & other included in COGS | — | 95,096 | — | |||||||||
| Total costs of finished cannabis inventory sold, as reported | $ | 4,239,576 | $ | 2,426,674 | 43 | % | ||||||
| Realized fair value amounts in inventory sold, as reported | — | 1,482,725 | — | |||||||||
| Unrealized fair value (gain) on growth of biological assets, as reported | — | (1,515,492 | ) | — | ||||||||
| Totals, as reported | $ | 4,239,576 | $ | 2,393,907 | 44 | % | ||||||
Liquidity and Capital Resources
The Company’s cash and cash equivalents position was $217,788 as at October 31, 2020 as compared to $74,926 on October 31, 2019. The Company had working capital of $35,671 as at October 31, 2020, compared to a working capital deficiency of $2,709,527 as at October 31, 2019. Working capital improvements are due in part to improving operational efficiencies and yield; and margin on Grown Rogue product sales as a result; see “Cash margin analysis,” presented below, for further information.
During the year ended October 31, 2020, Grown Rogue used cash of approximately $293,000 through its operating activities, compared to cash used on similar activities of approximately $3,427,000 for the year ended October 31, 2019. The Company invested approximately $558,000 in property and equipment during the year ended October 31, 2020 (year ended October 31, 2019 - $216,000). Net cash from financing activities of approximately $1,100,000 during the year ended October 31, 2020, was the result of:
| ● | Lease payments of approximately $372,000; |
| ● | Debt repayment of approximately $226,000; |
| ● | Debt proceeds of $615,000; and |
| ● | Private placement proceeds of approximately $1.1 million. |
Cash generated during the year ended October 31, 2019, from financing activities included (amounts rounded to nearest $5,000):
| ● | Outflow against subscription receivable of $720,000; |
| ● | Debt repayments of $250,000; |
| ● | Proceeds of subscription receipts of $3,235,000; |
| ● | Proceeds from convertible debenture issuances of $1,105,000; |
| ● | Net lease payments of $115,000; |
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| ● | Payments of $200,000 for costs of issuing debt & equity; |
| ● | Payments of $165,000 for Transaction costs; and |
Historically, the Company’s capital requirements to fund expansion and operations have been met primarily through the completion of private placements of equity and debt instruments, including debt with features to convert into equity.
Commitments
As at October 31, 2020 Grown Rogue has commitments under operating leases for its facilities and commitments under finance lease for equipment. The minimum lease payments due are as follows:
| Total future minimum lease patments | ||||
| Less than one year | $ | 114,010 | ||
| Between one and five years | 17,525 | |||
| Total | $ | 131,535 | ||
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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Outstanding Share Data
As of the date of the MD&A, the Company has 118,057,225 common shares outstanding, as set out in the table below for shares issued after October 31, 2020:
| Shares outstanding at October 31, 2020 | 107,782,397 | |||
| Shares issued as compensation for services & fees | 18,044 | |||
| Shares issued to extend Golden Harvests Option milestone payment | 25,000 | |||
| Shares issued pursuant to equity subscription agreements | 10,231,784 | |||
| Shares outstanding as at the date of this MD&A | 118,057,225 |
As of the date of this MD&A, the Company has the following warrants outstanding, exercisable into common shares:
| Exercise price | Warrants outstanding | Remaining contractual Life (years) | Expiry date | |||||||||
| $ | 0.16 | 8,409,091 | 0.6 | November 01, 2021 | ||||||||
| 0.13 | 5,000,000 | 0.9 | February 10, 2022 | |||||||||
| 0.13 | 10,000,000 | 1.1 | May 15, 2022 | |||||||||
| 0.20 | 8,200,000 | 1.9 | February 5, 2023 | |||||||||
| 0.44 | 2,148,117 | 2.2 | June 28, 2023 | |||||||||
| $ | 0.17 | 33,757,208 | 1.2 | |||||||||
As of the date of this MD&A, the Company has the following stock options outstanding, exercisable into common shares:
| Exercise price | Options outstanding | Remaining Contractual Life (years) | Expiry date | |||||||||
| $ | 0.44 | 500,000 | 0.8 | January 1, 2022 | ||||||||
| 0.15 | 3,050,000 | 3.3 | July 9, 2024 | |||||||||
| 0.15 | 100,000 | 3.3 | July 20, 2024 | |||||||||
| 0.15 | 500,000 | 3.7 | December 1, 2024 | |||||||||
| 0.15 | 200,000 | 3.6 | November 18, 2024 | |||||||||
| $ | 0.18 | 4,350,000 | 3.0 | |||||||||
Transactions with Related Parties
Transactions with managers and directors
Through its wholly owned subsidiary, GRU Properties, LLC, the Company leased a property located in Trail, Oregon owned by the Company's President and CEO. The lease expired on December 31, 2020. Rent of $77,000 was incurred for the year ended October 31, 2020 (2019 - $71,000). The Company had $45,000 (October 31, 2019 - $63,000) owing in accounts payable and accrued liabilities at October 31, 2020.
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The Company incurred expenses of $59,500 (2019 - $36,000) for services provided by the spouse of the CEO. At October 31, 2020, accounts and accrued liabilities payable to this individual were $1,946 (October 31, 2019, $Nil). During the year ended October 31, 2020, this individual was granted 500,000 options which vested on the grant date.
The Company incurred fees related to marketing and promotion services of $Nil (2019 - $138,674) from two companies owned by the Company's former Chief Strategy Officer ("CSO"). At October 31, 2020, accounts payable and accrued liabilities were $Nil (October 31, 2019 - $6,000) payable to these companies.
Key management personnel consist of the President and CEO; the former CSO; the CFO of GR Unlimited; the Chief Market Officer; the Chief Accounting Officer; and the CFO of Grown Rogue International, Inc. The compensation paid or payable to key management for services for the years ended October 31, 2020 and 2019 was as follows:
| 2020 | 2019 | |||||||
| Salaries and consulting fees | $ | 750,284 | $ | 425,412 | ||||
| Share-based compensation | 60,929 | 33,083 | ||||||
| Stock option expense | 144,639 | — | ||||||
| Total | $ | 955,852 | $ | 458,495 | ||||
Stock options granted to key management personnel and close family members of key management personnel include: 750,000 options to the CFO of GR Unlimited; 750,000 options to the Chief Market Officer; and 250,000 option to the Chief Accounting Officer.
Accounts payable and accrued liabilities due to key management at October 31, 2020 totaled $441,424 (October 31, 2019 - $392,152).
During the year ended October, 31, 2020, the Company purchased vehicles and equipment from the CEO for an aggregate total purchase price of $21,050.
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Debt balances and movements with related parties
| CFO of GR | |||||||||||||||||
| CEO | Unlimited LLC | Directors | Total | ||||||||||||||
| Balance - October 31, 2018 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Borrowed | 50,000 | 50,000 | — | 100,000 | |||||||||||||
| Interest | 2,384 | 1,151 | — | 3,535 | |||||||||||||
| Payments | — | — | — | — | |||||||||||||
| Balance - October 31, 2019 | $ | 52,384 | $ | 51,151 | $ | — | $ | 103,535 | |||||||||
| Borrowed | 65,000 | 100,000 | 150,000 | 315,000 | |||||||||||||
| Interest | 41,785 | 70,831 | 92,685 | 205,301 | |||||||||||||
| Payments | (88,526 | ) | (80,696 | ) | (30,756 | ) | (199,978 | ) | |||||||||
| Balance - October 31, 2020 | $ | 70,643 | $ | 141,286 | $ | 211,929 | $ | 423,858 | |||||||||
Pursuant to the Michigan Debt agreements transacted during the year ended October 31, 2020, the CEO, CFO of GR Unlimited LLC, and a director of GRIN obtained 5.5%; 1%; and 2.5% of GR Michigan LLC, respectively. Third party obtained 4% as part of the same financing (Note 12.4), such that GR Michigan has a 13% non-controlling interest.
Transactions with PBIC
PBIC is a shareholder of 30,000,000 shares of the Company (approximately 28% of issued and outstanding common shares as at October 31, 2020). The Company is a shareholder of 2,362,204 (Note 7) PBIC shares. PBIC has appointed a director of GRIN, and the CFO of GRIN became the CFO of PBIC subsequent to October 31, 2020.
During the year ended October 31, 2020, the Company completed the following transactions with PBIC:
| ● | PBIC issued 2,362,204 shares to GRIN and GRIN issued PBIC 15,000,000 shares; and |
| ● | PBIC subscribed to equity of the Company for $1,084,335; the equity included 15,000,000 common shares and 15,000,000 warrants to purchase one common share per warrant. Of the 15,000,000 warrants, 5,000,000 have an exercise price of CAD$0.125, exercisable until February 10, 2022; and 10,000,0000 of the warrants have an exercise price of CAD$0.12, exercisable until May 15, 2022. |
These related party transactions are in the normal course of operations and are measured at the exchange amounts being the amounts agreed to by the parties.
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 promissory notes, the inputs used in the estimate of the fair value of unit-based compensation and the inputs used in the estimate of the fair value of the unit purchase option and warrants issued.
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Newly Adopted Accounting Pronouncements
The Company adopted the following accounting policies as of November 1, 2019:
IFRS 16 Leases (“IFRS 16”) was issued in January 2016 and replaces IAS 17 Leases. Under IAS 17, lessees were required to make a distinction between a finance lease and an operating lease. If the lease was classified as a finance lease, a lease liability was included on the statement of financial position. In applying IFRS 16, for all leases, the Company:
| i. | Recognizes right-of-use assets and lease liabilities in the statement of financial position, initially measured at the present value of the future lease payments: |
| ii. | Recognizes depreciation of right-of-use assets and interest expense on lease liabilities in the statements of income and comprehensive income; |
| iii. | Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the statement of cash flows. |
On November 1, 2019, the Company adopted IFRS 16. As such, the Company reviewed all leases and assessed whether these contracts are or contains a lease. The Company has accounted for its leases upon adoption of IFRS 16 using a modified retrospective approach whereby it recognizes a lease liability and a right-of-use asset at the date of initial application, being November 1, 2019. The lease liability is measured at the present value of the remaining lease payments, discounted using the Company's incremental borrowing rate. The Company has measured the right-of-use asset at an amount equal to the lease liability.
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, 2020 and October 31, 2019, 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.
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Currency Risk
As at October 31, 2020, the Company had accounts payable and accrued liabilities of CAD$504,314 and convertible debentures of CAD$2,850,000. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar. It is management's opinion that this risk is not material.
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:
| Balance at | October 31, 2020 | October 31, 2019 | ||||||
| Cash | $ | 217,788 | $ | 74,926 | ||||
| Accounts receivable | 172,121 | 134,423 | ||||||
| Total | $ | 389,909 | $ | 209,349 | ||||
The allowance for doubtful accounts at October 31, 2020 was $7,425 (October 31, 2019 - $129,131).
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, 2020, the Company had current assets of $1,834,775 (October 31, 2019 - $1,432,962) and current liabilities of $1,799,105 (October 31, 2019 - $4,142,489), which resulted in working capital $35,671 (October 31, 2019 - working capital deficit of $2,709,527). As at October 31, 2020 the Company had cash and cash equivalents of $217,788 (2019 - $74,926).
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.
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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.
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 period ended October 31, 2020, 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.
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Subsequent Events
Subsequent to October 31, 2020, Grown Rogue Distribution LLC (“GR Distribution”), a subsidiary of the Company, sold 11.875 equity units for US$40,000 per unit each for total proceeds of $475,000. The unit holders have the future right to convert their units in the subsidiary into common shares of the Company at the greater of CAD$0.20 or the maximum permitted discount under the policies of the Canadian Securities Exchange at the time of conversion.
Subsequent to October 31, 2020, GR Distribution issued unsecured promissory notes totaling $375,000. Terms of the note include 10% interest, payable monthly and a with three-year maturities. In addition, the subsidiary will make payments in months 39, 42, 45, and 48 that will cause total interest payments to equal the principal amount loaned.
On December 2, 2020, Grown Rogue Gardens LLC, a subsidiary of the Company, issued an unsecured promissory note in the amount of USD $150,000 to a key Company operations manager. Terms of the note include 10% interest per annum and 12-month maturity. The Company has the right to extend up to 50% of the principal for up to 6 months by paying a one-time extension fee of 10% of the amount extended.
On January 19, 2021, the Company completed the first tranche of a private placement of 2,031,784 shares for proceeds of $400,000. On February 5, 2021, the Company completed the second tranche of a private placement of 8,200,000 units at CAD$0.16 per unit for proceeds of CAD$1,323,000. Each unit was comprised of one common share and one warrant to purchase one common share. Each warrant has an exercise price of CAD$0.20 and a term of two years. The second tranche included subscriptions by the following related parties: the CEO subscribed to 1,600,000 units; the CFO of GR Unlimited subscribed to 2,000,000 units; a key Company operations manager subscribed to 1,000,000 units; and PBIC subscribed to 2,000,000 units.
Subsequent to October 31, 2020, the Company’s subsidiary, GR Michigan, LLC, terminated its Option to Acquire GH. Simultaneously with the termination, a new entity, Canopy Management, LLC (“Canopy”) signed an Option to Purchase GH under similar terms. Canopy has already been approved by the State of Michigan for licensing and this will allow the Company to accelerate its option exercise to obtain a 60% interest in GH. Canopy is majority owned by GRIN’s CEO, who has a fiduciary responsibility to the Company. 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 GR Michigan.
On February 5, 2021, the Company acquired substantially all of the assets of the growing and retail operations of High Street Capital Partners, LLC (“HSCP”) for $3,000,000. The Company also executed a Management Services Agreement (“MSA”) with HSCP. The Company will operate the growing facility under the MSA until the acquisition of the growing assets obtains regulatory approval.
Subsequent to October 31, 2020, the Company executed new lease agreements to maintain its outdoor growing locations. One outdoor lease is for a term of twelve months (January 2021 through December 2021) at $3,800 per month, for a total commitment of $45,600. The other lease (for which the lessor is the CEO of the Company) is for a term of five years (January 2021 through December 31, 2025), for $6,000 per month, for a total commitment of $360,000.
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Regulatory Disclosure
Grown Rogue derives a substantial portion of its revenues from the cannabis industry in the United States, which industry is illegal under United States federal law. Grown Rogue is indirectly involved (through subsidiaries) in the cannabis industry in the United States where local state laws permit such activities. Currently, its subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon. Grown Rogue also intends to enter the Michigan market – we have an option to acquire a controlling interest in a Michigan operator (see subsection ‘Option to Acquire Controlling Interest In Golden Harvests,’ above).
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.
In March 2017, newly appointed Attorney General Jeff Sessions again noted limited federal resources and acknowledged that much of the Cole Memorandum had merit; however, he disagreed that it had been implemented effectively and, on January 4, 2018, Attorney General Jeff Sessions issued a memorandum (the “Sessions Memorandum”) that rescinded the Cole Memorandum. As a result of the Sessions Memorandum, federal prosecutors are no longer bound by the priorities in the Cole Memorandum relating to the prosecution of cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions.
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There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the Controlled Substances Act with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, Grown Rogue’s business, results of operations, financial condition and prospects would be materially adversely affected. Until Congress amends the federal law with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not limited to, a claim against investors for aiding and abetting another’s criminal activities.
In light of the uncertainty surrounding the treatment of United States cannabis-related activities, including the rescission of the Cole Memorandum, the Canadian Securities Administrators published a staff notice (Staff Notice 51-352 (Revised)) on February 8, 2018 setting out certain disclosure expectations for issuers with United States cannabis-related activities. Staff Notice 51-352 (Revised) includes additional disclosure expectations that apply to all issuers with United States cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services to third parties involved in the United States cannabis industry.
In accordance with the Canadian Securities Administrators Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities (“Staff Notice 51-352”), below is a table of concordance that is intended to assist readers in identifying the disclosure expectations outlined in Staff Notice 51-352.
In accordance with Staff Notice 51-352, this section provides a discussion of the federal and state-level U.S. regulatory regimes in the jurisdictions where Grown Rogue is currently directly involved through its subsidiaries or is planning to be directly involved in the future. Certain Grown Rogue subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon. Grown Rogue also intends to enter the Michigan market. 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.
| 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”
|
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| All Issuers with US Marijuana-Related Activities | Response |
| 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.
|
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| 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 requirements and the regulatory framework enacted by the applicable U.S. state. Promptly disclose any non-compliance, citations or notices of violation, of which the issuer is aware, that may have an impact on the investee's licence, business activities or operations. | N/A |
| US Marijuana Issuers with material ancillary involvement | Response |
| Provide reasonable assurance, through either positive or negative statements, that the applicable customer's or investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. | N/A |
U.S. Regulatory Matters
Grown Rogue (through its subsidiaries) has direct involvement in the cultivation and distribution of marijuana in the United States. Grown Rogue and its subsidiaries are primarily involved in the U.S. marijuana industry as a seed to retail company with operations currently in Oregon (a state that has legalized recreational marijuana). Currently Grown Rogue through its subsidiaries produces recreational marijuana and distributes it to dispensaries throughout Oregon.
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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.
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.
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On January 4, 2018, Billy J. Williams, the current United States Attorney for the District of Oregon and former Multnomah County (Oregon) Deputy District Attorney who handled major violent crimes and later served as a Chief of the Violent Crimes Unit and as the Indian Country AUSA/Tribal Liaison for the Department of Justice prior to being appointed as the federal prosecutor for Oregon, Mr. Williams provided the below statement on marijuana enforcement in the District of Oregon: “As noted by Attorney General Sessions, today’s memo on marijuana enforcement directs all U.S. Attorneys to use the reasoned exercise of discretion when pursuing prosecutions related to marijuana crimes. We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.”
In an editorial published on January 12, 2018, Mr. Williams wrote: “In sum, I have significant concerns about the state’s current regulatory framework and the resources allocated to policing marijuana in Oregon.”
At a meeting on February 2, 2018, Mr. Williams told Oregon’s top politicians and law enforcement officials that there’s more cannabis being produced in the state than can legally be consumed. “And make no mistake about it, we’re going to do something,” Williams told dozens of politicians, tribal leaders, sheriffs as well as representatives of the FBI and the U.S. Drug Enforcement Administration. “Here’s what I know, in terms of the landscape here in Oregon: We have an identifiable and formidable marijuana over-production and diversion problem,” Williams said. “That’s the fact. My responsibly is to work with our state partners to do something about it.”
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is illegal under U.S. federal law, investing in cannabis business could be found to violate the Federal CSA. As a result, individuals involved with cannabis business, including but not limited to investors and lenders, may be indicted under U.S. federal law. An investment in the Company may: (a) expose an investor personally to criminal liability under U.S. federal law, resulting in monetary fines and jail time; and (b) expose any real and personal property used in connection with Grown Rogue’s business to seizure and forfeiture to the U.S. federal government.
Active enforcement of the current federal law on cannabis may thus directly and adversely affect revenues and profits of Grown Rogue. The risk of strict enforcement of the Federal CSA remains uncertain.
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.
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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 administered through its Director of Compliance, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Oregon that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Oregon law.
Grown Rogue is in compliance with Oregon state law and its related licensing framework.
Michigan State Regulation
As part of its business plan, Grown Rogue intends to enter the Michigan state market. As described above (in the Michigan subsection of Description of Business), we plan on acquiring a 60% interest in an operating entity in Michigan.
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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.
Michigan License
State operating licenses for marijuana businesses have a 1 year term and are annually renewable if certain conditions are met: (a) the renewal application is submitted prior to the date the license expires, or within sixty (60) days of expiration if all other conditions are met and a late fee is paid, (b) the licensee pays the regulatory assessment fee set by LARA and (c) the licensee continues to meet the requirements to be a licensee under the Michigan Cannabis Regulations. Each renewal application is reviewed by LARA, but there is no guarantee of a timely renewal. There is no ultimate expiry after which no renewals are permitted.
Michigan Regulations
Michigan Marijuana Products may be purchased in a retail setting from a provisioning center by a registered qualified patient or registered primary caregivers connected to a registered qualifying patient (“Michigan Qualified Purchaser”); in each case, Michigan Qualified Purchasers must present a valid registry identification card issued by LARA (a “Michigan Registry ID”). For a Michigan Qualified Purchaser to receive Michigan Marijuana Products, provision centers must deploy an inventory control and tracking system that is capable of interfacing with the statewide monitoring system to determine (a) whether a Michigan Qualified Purchaser holds a Michigan Registry ID and (b) whether the sale or transfer will exceed the then-current daily and monthly purchasing limit for the holder of the Michigan Registry ID.
In order to receive a Michigan Registry ID, an applicant must provide: a completed application dated within one year of submission, a written certification from a physician with a bona-fide physician-patient relationship to the underlying patient, the application or renewal fee, contact information for the patient, caregiver (if applicable) and physician, as well as proof of Michigan residency.
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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. |
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| ● | An alarm system. Licensees will make all information related to the alarm system including monitoring and alarm activity available to LARA. |
| ● | A video surveillance system that, at a minimum, consists of digital or network video recorders, cameras, video monitors, digital archiving devices and a color printer capable of delivering still photos. |
| ● | 24-hour surveillance footage with fixed, mounted cameras, tamper/theft proof secured storage mediums and a notification system for interruption or failure of surveillance footage or storage of surveillance footage. All surveillance footage must be of sufficient resolution to identify individuals, have accurate time/date stamps and be stored for a minimum of 14 days unless state regulators notify that such recordings may be destroyed. |
| ● | State access to view and obtain copies of any surveillance footage through LARA or related investigators, agents, auditors and/or state police. A facility shall also provide copies of recordings to LARA upon request. |
| ● | Logs of the following: the identities of the employee or employees responsible for monitoring the video surveillance system, the identity of the employee who removed the recording from the video surveillance system storage device and the time and date removed and the identity of the employee who destroyed any recording. |
Maintain marijuana storage plan for provisioning centers that includes the following at a minimum:
| ● | A secured limited access area for inventories of Michigan Marijuana Products. |
| ● | Clearly labeled containers (a) marked, labeled or tagged, (b) enclosed on all sides and (c) latched or locked to keep all contents secured within. All such containers must be identified and tracked in accordance with the MTA. |
| ● | A locked area for chemical and solvents separate from Michigan Marijuana Products. |
| ● | Separation of marijuana-infused products from toxic or flammable materials. |
| ● | A sales or transfer counter or barrier separated from stock rooms to ensure registered qualifying patients or registered primary caregivers do not have direct access to Michigan Marijuana Products. |
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.
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The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately reflect the transactions of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated Financial Statements. Due to its inherent limitations, internal control over financial reporting and disclosure may not prevent or detect all misstatements.
The CEO and CFO have evaluated whether there were changes to the ICFR during the period ended October 31, 2020, 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, 2020, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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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, 2020. |
| 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: March 1, 2021
(signed) “J. Obie Strickler”
J. Obie Strickler
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, Michael Johnston, 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, 2020. |
| 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: March 1, 2021
| (signed) “Michael Johnston” | |
| Michael Johnston | |
| 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
Grown Rogue Reports Positive Adjusted EBITDA on $6.3M of Pro Forma Revenue for Fiscal Year 2020
Medford, Oregon, March 2, 2021 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a multi-state cannabis company with profitable operations and assets in Oregon and Michigan, has released its financial and operating results for the year ended October 31, 2020. The Company’s business strategy focuses on production efficiencies, driving higher margin product sales, and strategic acquisitions of distressed assets. Grown Rogue achieved positive Adjusted EBITDA1 for the year ending October 31, 2020, with Cash Margin for Grown Rogue products2 reaching 62%. Total Pro Forma revenue3 including results for our Michigan operation was $6.3M, with Pro Forma Adjusted EBITDA3 of $846K.
All amounts are expressed in United States Dollars unless otherwise indicated. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.
Financial and Business Highlights
| ● | Total reported revenue was $4.2M, of which $3.7M was Grown Rogue branded flower, more than doubling branded sales of $1.7M in 2019; Pro-forma revenue3 was $6.3M; a 161% increase over 2019 revenue |
| ● | Positive Adjusted EBITDA1 of $166k, an improvement of $5.3M when compared to the negative EBITDA of $5.1M in 2019; Pro-forma EBITDA3 was $846k |
| ● | Cash Margin2 increased from 36% to 62% for Oregon flower production |
| ● | Obtained a binding option to acquire a controlling interest in the 80,000 square foot Golden Harvests production facility in Michigan |
| ● | Continued to quicky monetize inventory despite restrictions placed on retailers due to COVID-19, achieving average inventory turns of 16 days in 2020 for Oregon indoor production which highlights the strong demand for Grown Rogue product |
| ● | Successful sale of the California distribution assets located in Eureka, CA to focus on the thriving Oregon and Michigan markets |
“Grown Rogue grew substantially in 2020 driven by expansions in Michigan and the acquisition of additional assets in Oregon in early 2021. The pandemic established cannabis as an essential business and we carefully navigated challenges, particularly at retail, to achieve record revenues and strong profits,” said Obie Strickler, CEO of Grown Rogue. “Our focus on building a world class team continues to drive improvements in all aspects of the business, especially cultivation and production,” continued Mr. Strickler. “Our proprietary SOPs and efficient execution by our team are what is allowing us to produce the highest quality cannabis as we continue to scale our profitable business.”
Major Milestones:
| 1) | Grown Rogue established a partnership with Golden Harvest in Michigan with an option to acquire a controlling interest of this high value growth assets in Michigan’s surging cannabis market |
| 2) | Grown Rogue achieved full year positive adjusted EBITDA solidifying our profitable business model that we are now scaling |
| 3) | Grown Rogue acquired an additional 30,000 square foot (subsequent to year end), turnkey cultivation facility in Oregon increasing our total square footage of indoor operations to 127,000 square feet |
Management Commentary
Grown Rogue’s focus on efficiency and profitability paid off in 2020, evidenced by significant revenue and adjusted EBITDA improvements versus prior years. The shift to “flower only” has allowed the Company’s world-class cultivation team to scale operations by implementing best practices and SOPs at each facility, driving industry-leading cash margins. Flower remains the largest product category by percentage in essentially every market; and in Grown Rogue’s two key markets (Michigan and Oregon), flower accounts for approximately 50% of all sales. Grown Rogue’s production results boast a best-in-class cost of production below $0.80/gram. Simultaneously, Grown Rogue has completed strategic partnership and acquisitions, including highly valuable and distressed assets. Combining our proprietary production formula and our ability to find, acquire, and scale strategic assets, has accelerated revenue and profits.
Highlights by State
Oregon Operations
| · | Record Oregon revenues with over $1.1B total state product sales in 2020, a 40% increase over 2019 |
| · | Grown Rogue indoor flower sold at an average price of $1,151/lb., versus $775/lb. in 2019, which was an increase of almost 50% |
| ● | Grown Rogue sungrown flower sold at an average price of $657/lb., nearly double the average $343/lb. in 2019 |
| ● | Strong customer demand resulted in indoor flower inventory turn times of 16 days |
| ● | Continued construction at the Rossanley facility to complete full build out resulting in 8 individual grow rooms with completion expected by March 2021 |
2
Michigan Operations (of our partner Golden Harvest)
| · | Record Michigan revenues with just under $1B total state product sales in the first full year of Adult-Use legalization |
| · | Golden Harvests (Grown Rogue partnership) operates an 80,000 sq. ft. indoor cultivation facility with ~25,000 sq. ft. producing and continued expansion underway |
| ● | Facility upgrades and expansion increased production by 270% from 2019 under Grown Rogue management |
| ● | Construction underway on additional 5,000 sq ft of flowering capacity with estimated production of 3,500 lbs in 2021 |
| ● | Added 2 additional cultivation licenses in 2020 bringing total plant count in the facility to 5,000 |
Selected Financial Information (Complete financial tables have been filed on www.sedar.com)
| (Dollars in $000s, share amounts in 000s) | ||||||||
| Years Ended October 31, | 2020 | 2019 | ||||||
| Reported Revenue | $ | 4,240 | 3,925 | |||||
| Gross profit, excluding fair value items, as reported | $ | 1,813 | 989 | |||||
| Proforma Revenue3 | $ | 6,326 | 3,925 | |||||
| Adjusted EBITDA1 (loss) | $ | 166 | (5,128 | ) | ||||
| Net loss per share | $ | (0.03 | ) | (0.13 | ) | |||
| Weighted Common Shares Outstanding | $ | 90,597 | 70,929 | |||||
Grown Rogue revenue increased from $3.9M in 2019 to $4.2M in 2020, an increase of 8%.
Adjusted EBITDA1 was positive $166k, as compared to negative 2019 EBITDA of $5.1M, driven by continued improvements in margin and ongoing focus on disciplined financial management.
Cash Margin2 for Grown Rogue products was $2.3M, as compared to 2019 at $764K, driven by operational efficiencies and stabilized pricing, and improving despite a larger allocation of overhead to inventory.
General and administrative expenses continued to decrease – 2020 was $2.2m as compared to 2019 of $4.7m, representing 52% of revenue versus 119% respectively. These improvements were the result of streamlined operations along with a larger allocation of overhead to inventory.
The Company used ($293k) of cash in operations, representing a $3.1M improvement versus $3.3M used by operations over the comparable prior year period. The use of cash for the period corresponded with an improvement in net working capital.
3
| Years ended | ||||||||
| October 31, | ||||||||
| Adjusted EBITDA Reconciliation | 2020 | 2019 | ||||||
| Net loss, as reported | $ | (2,356,488 | ) | $ | (9,476,934 | ) | ||
| Add back realized fair value amounts included in inventory sold | 1,482,725 | 622,804 | ||||||
| Less unrealized fair value gain (loss) on growth of biological assets | (1,515,492 | ) | (486,354 | ) | ||||
| Less amortization of property & equipment included in cost of sales | 518,999 | 191,094 | ||||||
| $ | (1,870,256 | ) | $ | (9,149,390 | ) | |||
| Add back accretion expense, as reported | 609,357 | 153,195 | ||||||
| Add back amortization of intangible assets, as reported | 26,600 | 31,373 | ||||||
| Add back amortization of property and equipment, as reported | 153,991 | 63,295 | ||||||
| Add back amortization of right-of-use assets, as reported | 96,845 | - | ||||||
| Add back share-based compensation expense, as reported | 337,162 | 113,227 | ||||||
| Add back interest expense, as reported | 249,296 | 245,549 | ||||||
| Add back transaction cost | - | 3,453,790 | ||||||
| Add back unrealized loss on marketable securities, as reported | 263,483 | - | ||||||
| Add back unrealized gain on derviative liability | (221,820 | ) | - | |||||
| Less gain on derecognition of derivative liability | (244,572 | ) | (39,500 | ) | ||||
| Add back loss on debt restructure | 765,707 | - | ||||||
| Adjusted EBITDA | $ | 165,793 | $ | (5,128,461 | ) | |||
| Year ended | ||||||||||||
| October 31, 2020 | ||||||||||||
| Cash Margin analysis | Revenue | Costs | Margin | |||||||||
| Grown Rogue products | $ | 3,720,735 | $ | 1,425,890 | 62 | % | ||||||
| Third party products | 125,460 | 115,552 | 8 | % | ||||||||
| Service revenues | 393,381 | 271,167 | 31 | % | ||||||||
| Asset depreciation included in COGS | - | 518,999 | - | |||||||||
| Cost of packing & other included in COGS | - | 95,096 | - | |||||||||
| Total costs of finished cannabis inventory sold, as reported | $ | 4,239,576 | $ | 2,426,674 | 43 | % | ||||||
| Realized fair value amounts inventory sold, as reported | - | 1,482,725 | - | |||||||||
| Unrealized fair value (gain) on growth of biological assets, as reported | - | (1,515,492 | ) | - | ||||||||
| Totals, as reported | $ | 4,239,576 | $ | 2,393,907 | 44 | % | ||||||
NOTES:
1.
The Company’s “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 Adjusted EBITDA as the Company’s net income (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 and the effects of fair-value accounting for biological assets and inventory. The Company believes that this is a useful metric to evaluate its operating performance. The following is a reconciliation of the Company’s net income (loss) to Adjusted EBITDA.
2.
The Company has provided Cash Margin Analysis to demonstrate the methodology for calculating its non-IFRS production cost and margin metrics. Cash production costs of Grown Rogue products is calculated by taking the cost of finished cannabis inventory sold and deducting non-cash production costs, packaging and distribution costs, inventory write-offs and adjustments, and cost of products purchased from other Licensed Producers that were sold. Cash cost of sales per gram of dried cannabis sold is calculated by taking cash production costs of Grown Rogue products by total grams of dried cannabis sold in the period. Management believes these measures provide useful information as they remove noncash amortization and packaging costs and provide a benchmark of the Company against its competitors.
4
3.
The Company has provided unaudited pro-forma revenue information, which assumes that closed and pending mergers and acquisitions in 2020 are included in the Company’s financial results as of the beginning of the quarterly and annual periods in 2020.
NON-IFRS FINANCIAL MEASURES
Cash production costs of Grown Rogue products, EBITDA and Adjusted EBITDA 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 2020 are included in the Company’s financial results as of the beginning of the quarterly and annual periods in 2020. 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 vertically-integrated, multi-state Cannabis family of brands on a mission to inspire consumers to “enhance experiences” through cannabis. We have combined an expert management team, award winning grow team, state of the art indoor and outdoor manufacturing facilities, and consumer insight based product categorization, to create innovative products thoughtfully curated from “seed to experience.” The Grown Rogue family of products include sungrown and indoor premium flower, along with nitro sealed indoor and sungrown pre-rolls and jars.
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 www.sedar.com.
5
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.
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 |
6
Exhibit 14
THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT INTENDED FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES.
GROWN ROGUE INTERNATIONAL ANNOUNCES CLOSING OF UPSIZED PRIVATE PLACEMENT OF SPECIAL WARRANTS FOR GROSS PROCEEDS OF $4.7 MILLION
MEDFORD, OREGON – March 5, 2021 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF) is pleased to announce that it has completed its previously announced upsized brokered private placement offering through the issuance of an aggregate of 21,056,890 special warrants (each a “Special Warrant”) at a price of $0.225 (the “Issue Price”) per Special Warrant for aggregate gross proceeds of $4,737,800.25 (the “Offering”). The Offering was led by Eight Capital (the “Agent”), as sole agent and bookrunner.
Each Special Warrant entitles 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 is comprised of one common share in the capital of the Company (each, a “Common Share”) and one Common Share purchase warrant (each, a “Warrant”). Each Warrant entitles the holder thereof to acquire one Common Share at an exercise price of $0.30 for a period of twenty-four (24) months following the closing date (the “Closing Date”) of the Offering, subject to adjustment in certain events set out in the indenture governing the Warrants.
The Special Warrants are exercisable by the holders thereof at any time for no additional consideration and all unexercised Special Warrants will be deemed to be exercised, without any further action or payment of additional consideration by the holder thereof, on the date that is the earlier of: (i) the date that is three (3) business days following the date on which the Company obtains a receipt from the applicable securities regulatory authorities (the “Securities Commissions”) for a (final) short form prospectus qualifying distribution of the Common Shares and Warrants underlying the Special Warrants (the “Qualifying Prospectus”), and (ii) July 6, 2021.
The Company has agreed to use its commercially reasonable efforts to obtain a receipt from the Securities Commissions for the Qualifying Prospectus before the date that is 30 days following the Closing Date (the “Qualification Date”), provided, however, that there is no assurance that a Qualifying Prospectus will be filed or that a receipt therefor will be issued by the Securities Commissions prior to the expiry of the statutory four month hold period.
If the Company has not received a receipt from the Securities Commissions for the Qualifying Prospectus on or before April 5, 2021, each unexercised Special Warrant will thereafter entitle the holder to receive upon the exercise or deemed exercise thereof, at no additional consideration, 1.10 Units (instead of one (1) Unit).
As consideration for the services rendered by the Agent in connection with the Offering, the Company paid to the Agent a cash commission of $253,745.63 and issued 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”). As consideration for certain advisory services provided in connection with the Offering, the Company paid to the Agent an advisory fee of $25,500 and issued the Agent an aggregate of 113,500 advisory warrants (the “Advisory Warrants”) exercisable to acquire 113,500 Compensation Options.
Each Compensation Option entitles the holder thereof to purchase one unit of the Company (a “Compensation Unit”) at the Issue Price for a period of twenty-four (24) months following the Closing Date, subject to adjustment in certain events. Each Compensation Unit shall be 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 (a “Compensation Warrant Share”) at a price of $0.30 at any time before 5:00 p.m. (Toronto time) on the day that is twenty-four (24) months following the Closing Date, subject to adjustment in certain events.
The net proceeds from the Offering will be used for working capital and general corporate purposes.
Prior to the filing of the Qualifying Prospectus and the deemed exercise of the Special Warrants, the securities issued under the Offering will be subject to a four month hold period from the date of closing of the Offering in addition to any other restrictions under applicable law.
The securities issued and sold pursuant to the Offering have not been, nor will they be, registered under the United States Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements. This news release will not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a multi-state Cannabis family of brands on a mission to inspire consumers to “enhance experiences” through cannabis. We have combined an expert management team, award winning grow team, state of the art indoor and outdoor manufacturing facilities, and consumer insight-based product categorization, to create innovative products thoughtfully curated from “seed to experience.” The Grown Rogue family of products include sungrown and indoor premium flower, along with patented nitro sealed indoor and sungrown pre-rolls and jars.
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
President & Chief Executive Officer
obie@grownrogue.com
Investor Relations Desk Inquiries
invest@grownrogue.com
(458) 226-2100
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, without limitation, information regarding: (i) the expecting timing to obtain a receipt for the Qualifying Prospectus; and (ii) the expected use of proceeds of the Offering. 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 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.
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.
Exhibit 15
NOTICE DECLARING INTENTION TO BE
QUALIFIED
UNDER NATIONAL INSTRUMENT 44-101
SHORT FORM PROSPECTUS DISTRIBUTIONS (“NI 44-101”)
March 8, 2021
| TO: | Ontario Securities Commission, as Notice Regulator |
| AND TO: | British Columbia Securities Commission |
Grown Rogue International Inc. (the “Issuer”) intends to be qualified to file a short form prospectus under NI 44-101. The Issuer acknowledges that it must satisfy all applicable qualification criteria prior to filing a preliminary short form prospectus. This notice does not evidence the Issuer’s intent to file a short form prospectus, to enter into any particular financing or transaction or to become a reporting issuer in any jurisdiction. This notice will remain in effect until withdrawn by the Issuer.
GROWN ROGUE INTERNATIONAL INC.
| Per: | “Obie Strickler” (Signed) | |
| Obie Strickler | ||
| President & CEO |
Exhibit 16
FORM 51-102F3
MATERIAL CHANGE REPORT
| 1. | Name and Address of Company |
Grown Rogue International Inc. (the “Company”)
340 Richmond Street West Toronto, ON M5V 1X2
| 2. | Date of Material Change March 5, 2021 |
| 3. | News Release |
The Company disseminated a press release on March 5, 2021 disclosing the material change, through the facilities of Newsfile Corp.
| 4. | Summary of Material Change |
On March 5, 2021, the Company announced that it had closed its previously announced upsized brokered private placement, led by Eight Capital (the “Agent”) as sole agent and bookrunner, pursuant to which the Company issued an aggregate of 21,056,890 special warrants of the Company (each a “Special Warrant”) at a price of $0.225 per Special Warrant for aggregate gross proceeds of $4,737,800.25 (the “Offering”).
| 5. | Full Description of Material Change |
The Offering was carried out in accordance with the terms of an agency agreement (the “Agency Agreement”) dated March 5, 2021 between the Company and the Agent.
Each Special Warrant issued in connection with the Offering entitles 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 is comprised of one common share in the capital of the Company (each, a “Common Share”) and one Common Share purchase warrant (each, a “Warrant”). Each Warrant entitles the holder thereof to acquire one Common Share at an exercise price of $0.30 for a period of twenty-four (24) months following the closing date (the “Closing Date”) of the Offering, subject to adjustment in certain events set out in the indenture governing the Warrants.
The Special Warrants are exercisable by the holders thereof at any time for no additional consideration and all unexercised Special Warrants will be deemed to be exercised, without any further action or payment of additional consideration by the holder thereof, on the date that is the earlier of: (i) the date that is three (3) business days following the date on which the Company obtains a receipt from the applicable securities regulatory authorities (the “Securities Commissions”) for a (final) short form prospectus qualifying distribution of the Common Shares and Warrants underlying the Special Warrants (the “Qualifying Prospectus”), and (ii) July 6, 2021.
The Company has agreed to use its commercially reasonable efforts to obtain a receipt from the Securities Commissions for the Qualifying Prospectus before the date that is 30 days following the Closing Date (the “Qualification Date”), provided, however, that there is no assurance that a Qualifying Prospectus will be filed or that a receipt therefor will be issued by the Securities Commissions prior to the expiry of the statutory four month hold period.
If the Company has not received a receipt from the Securities Commissions for the Qualifying Prospectus on or before April 5, 2021, each unexercised Special Warrant will thereafter entitle the holder to receive upon the exercise or deemed exercise thereof, at no additional consideration, 1.10 Units (instead of one (1) Unit).
As consideration for the services rendered by the Agent in connection with the Offering, the Company paid to the Agent a cash commission of $253,745.63 and issued 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”). As consideration for certain advisory services provided in connection with the Offering, the Company paid to the Agent an advisory fee of $25,500 and issued the Agent an aggregate of 113,500 advisory warrants (the “Advisory Warrants”) exercisable to acquire 113,500 Compensation Options.
Each Compensation Option entitles the holder thereof to purchase one unit of the Company (a “Compensation Unit”) at the Issue Price for a period of twenty-four (24) months following the Closing Date, subject to adjustment in certain events. Each Compensation Unit shall be 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 (a “Compensation Warrant Share”) at a price of $0.30 at any time before 5:00 p.m. (Toronto time) on the day that is twenty-four (24) months following the Closing Date, subject to adjustment in certain events.
The net proceeds from the Offering will be used for working capital and general corporate purposes.
Prior to the filing of the Qualifying Prospectus and the deemed exercise of the Special Warrants, the securities issued under the Offering will be subject to a four month hold period from the date of closing of the Offering in addition to any other restrictions under applicable law.
The securities issued and sold pursuant to the Offering have not been, nor will they be, registered under the United States Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements.
| 6. | Reliance on subsection 7.1(2) of National Instrument 51-102 |
The report is not being filed on a confidential basis.
| 7. | Omitted Information |
No significant facts have been omitted from this Material Change Report.
| 8. | Executive Officer. |
For further information, contact Obie Strickler, President and Chief Executive Officer of the Company at obie@grownrogue.com.
| 9. | Date of Report. |
This report is dated at Toronto, this 9th day of March, 2021.
Forward-Looking Information
This material change report contains certain “forward-looking information” within the meaning of applicable securities law. Forward looking information is frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “would”, “potential”, “proposed” and other similar words, or statements that certain events or conditions “may” or “will” occur. These statements are only predictions. Forward-looking information is based on the opinions and estimates of management at the date the information is provided and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. For a description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company’s Management’s Discussion and Analysis. The Company undertakes no obligation to update forward-looking information if circumstances or management’s estimates or opinions should change, unless required by law. The reader is cautioned not to place undue reliance on forward-looking information.
2