UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended~~September~~June 30, ~~2022~~2023

☐	☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-56348

~~TPCO Holding Corp.~~Gold Flora Corporation

(Exact name of registrant as specified in its charter)

~~Canada~~Delaware

~~98-1566338~~93-2261104

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~1550 Leigh~~3165 Red Hill Avenue, ~~San Jose,~~Costa Mesa, California		~~95125~~92626
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (669) 279-5390

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
NONE		NONE		NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 14, 2022,~~August 11, 2023, there were ~~107,443,515~~288,426,413 shares of common ~~shares~~stock of the registrant issued and outstanding.

Table of Contents

PART I-FINANCIAL INFORMATION			Page
Item 1.	Financial Statements		4
	Interim condensed consolidated ~~statements~~balance sheets as of ~~operations~~June 30, 2023 (Unaudited) and ~~comprehensive income (loss)~~December 31, 2022	7	F-2
	~~Interim~~Unaudited interim condensed consolidated statements of operations and comprehensive (loss) for the three and six months ended June 30, 2023 and 2022		F-3
	Unaudited interim condensed consolidated statements of changes in shareholders’ (deficit) equity for the three and six months ended June 30, 2023 and 2022	8	F-4
	~~TPCO Holding Corp. Interim~~Unaudited interim condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022	10	F-6
	Notes to the unaudited interim condensed consolidated financial statements		F-7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	33	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	52	30
Item 4.	Controls and Procedures.	52	31
PART II-OTHER INFORMATION			32
Item 1.	Legal Proceedings.	53	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	53	56
Item 3.	Defaults Upon Senior Securities.	53	56
Item 4.	Mine Safety Disclosures.	53	56
Item 5.	Other Information.	53	56
Item 6.	Exhibits.	54	57
Signatures		56	58

~~Table of Contents~~

On July 7, 2023, the parties consummated the previously announced business combination transaction resulting in the combination of the TPCO Holding Corp. and Gold Flora, LLC, a leading vertically-integrated California cannabis company, in an all-stock transaction (the “Business Combination”). Unless otherwise noted or the context indicates otherwise, in this quarterly report on Form 10-Q (this ~~“Quarterly Report”~~“Quarterly Report”), references to (i) the ~~“Company”~~“Company, ~~“The~~” “TPCO,” “The Parent ~~Company”~~Company, ~~“we”~~” “we, ~~“us”~~” “us” and ~~“our”~~“our” refer to TPCO Holding Corp. and its subsidiaries prior to the Business Combination, (ii) “Gold Flora” refer Gold Flora, LLC, which is now a wholly owned subsidiary of Gold Flora Corporation and ~~joint ventures~~(iii) “Gold Flora Corporation” refer to ~~which it is~~Gold Flora Corporation, the Delaware corporation resulting from the Business Combination.

As a ~~party.~~ result of the Business Combination, Gold Flora Corporation became the successor issuer to TPCO Holding Corp. pursuant to Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as a result, the common stock, par value of $0.01 per share (the “Gold Flora Common Stock”) of Gold Flora Corporation and the share purchase warrants exercisable for Gold Flora Common Stock at an exercise price of US$11.50 per share (the “Gold Flora Warrants”) are deemed registered under Section 12(g) of the Exchange Act as the common stock and warrants of the successor issuer.

References in this Quarterly Report Statement to “cannabis” mean all parts of the plant cannabis sativa L. containing more than 0.3 percent tetrahydrocannabinol (“~~THC”~~THC”), including all compounds, manufactures, salts, derivatives, mixtures, or preparations.

References in this Quarterly Report to the Company’s websites, social media pages or mobile application or third party websites or applications does not constitute incorporation by reference of the information contained at or available through the Company’s websites, social media pages or mobile application or third party websites or applications, and you should not consider such information to be a part of this Quarterly Report.

This Quarterly Report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies.

Table of Contents

P~~ART~~PART I-FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements.

Interim condensed consolidated financial statements

TPCO Holding Corp.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)

Table of Contents

Contents

~~Contents~~		Page
Interim condensed consolidated balance sheets as of June 30, 2023 (unaudited) and December 31, 2022		F- 2

	~~Page~~
~~Interim condensed consolidated balance sheets~~		6
~~Interim~~Unaudited interim condensed consolidated statements of operations and comprehensive ~~loss~~(loss) for the three and six months ended June 30, 2023 and 2022		7	F- 3

~~Interim~~Unaudited interim condensed consolidated statements of changes in shareholders’ (deficit) equity for the three and six months ended June 30, 2023 and 2022	8	F- 4

~~Interim~~Unaudited interim condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022	9	F- 6

Notes to the unaudited interim condensed consolidated financial statements	11	F- 7

5F-1

Table of Contents

TPCO Holding Corp.

Interim condensed consolidated balance sheets

(~~Unaudited, in~~In United States dollars)

As at

Note

September 30, 2022

December 31, 2021

Assets

Current

Cash

$ 107,111,075

$ 165,310,609

Restricted cash and restricted cash equivalents

2,639,732

9,581,689

Accounts receivable, net

27

2,155,444

4,705,563

Income tax receivable

-

1,322,340

Inventory

5

15,543,825

22,196,981

Notes and other receivables, net

6

389,816

4,732,617

Prepaid expenses and other current assets

4

9,869,406

11,940,043

Assets held for sale and discontinued operations

14

3,318,065

5,042,670

Total current assets

141,027,363

224,832,512

Investments

7

2,488,095

2,500,069

Security deposits

1,205,629

1,119,754

Prepaid expenses and other assets

800,755

756,968

Property and equipment

8

15,558,716

22,159,470

Right-of-use assets – operating

12

19,143,848

27,662,847

Right-of-use assets – finance

12

23,462,364

24,639,605

Intangible assets

9

118,908,000

212,587,865

Goodwill

9

-

44,051,645

Assets held for sale and discontinued operations

14

-

11,144,254

Total assets

$ 322,594,770

$ 571,454,989

Liabilities

Current

Accounts payable and accrued liabilities

11

$ 25,327,121

$ 41,625,317

Consideration payable – current portion

7,153,013

7,496,240

Operating lease liability – current portion

12

2,423,413

3,177,666

Finance lease liability – current portion

12

62,783

13,712

Cash settled share-based payments

16

3,632,574

5,166,666

Note payable

12

931,103

-

Contingent consideration

27

1,964

943,131

Liabilities held for sale and discontinued operations

14

2,149,220

264,044

Total current liabilities

41,681,191

58,686,776

Operating lease liabilities

12

22,920,265

27,142,326

Finance lease liabilities

12

36,730,577

36,774,714

Consideration payable

520,681

1,827,515

Deferred tax liabilities

21

25,527,230

43,847,866

Liabilities held for sale and discontinued operations

14

-

644,219

Total liabilities

127,379,944

168,923,416

Mezzanine equity

Redeemable non-controlling interest

15

35,010,200

41,456,387

Total mezzanine equity

35,010,200

41,456,387

Shareholders’ equity

Common shares, no par value, unlimited Common shares authorized, 104,914,328 issued and outstanding at September 30, 2022 and 97,065,092 at December 31, 2021

17

-

-

Additional paid in capital

965,032,335

954,102,859

Accumulated deficit

(804,827,709 )

(593,027,673 )
Total shareholders’ equity

160,204,626

361,075,186

Total liabilities, mezzanine equity and shareholders’ equity

$ 322,594,770

$ 571,454,989

As at

Note

June 30,
2023
(unaudited)

December 31,
2022

Assets

Current

Cash

$ 60,544,072

$ 93,697,529

Accounts receivable, net

24

1,114,729

1,205,700

Inventory

3

6,183,033

8,727,858

Notes and other receivables, net

4

121,057

108,957

Prepaid expenses and other current assets

5

7,910,331

8,368,495

Assets held for sale

6

5,698,193

6,102,764

Total current assets

81,571,415

118,211,303

Investments

8

1,312,846

1,478,204

Security deposits

1,307,509

1,181,078

Prepaid expenses and other assets

260,906

844,239

Notes and other receivables, net

4

5,333,598

518,846

Property and equipment

9

13,618,281

15,146,084

Right-of-use assets – operating

10

16,431,134

20,689,086

Right-of-use assets – finance

10

22,287,811

23,070,846

Intangible assets

11

95,735,035

99,378,098

Total assets

$ 237,858,535

$ 280,517,784

Liabilities

Current

Accounts payable and accrued liabilities

13

$ 26,109,146

24,560,359

Consideration payable – current portion

4,988,833

5,777,943

Operating lease liability – current portion

10

1,996,340

2,355,174

Finance lease liability – current portion

10

224,545

156,184

Note payable

-

931,103

Contingent consideration

24

3,534,774

1,611,843

Liabilities held for sale

6

1,104,425

1,309,077

Total current liabilities

37,958,063

36,701,683

Operating lease liabilities

10

21,264,943

24,803,815

Finance lease liabilities

10

36,472,977

36,618,530

Consideration payable

-

383,334

Deferred tax liabilities

14

19,868,631

20,972,629

Total liabilities

115,564,614

119,479,991

Shareholders’ equity

Common shares, no par value, unlimited Common shares authorized 120,158,606 issued and outstanding at June 30, 2023 and 107,516,333 at December 31, 2022

15

-

-

Additional paid in capital

998,775,061

996,697,299

Non-controlling interest

1

1

Accumulated deficit

(876,481,141 )

(835,659,507 )
Total shareholders’ equity

122,293,921

161,037,793

Total liabilities and shareholders’ equity

$ 237,858,535

280,517,784

Commitments and contingencies (Note ~~26)~~23)
Subsequent events (Note ~~32)~~27)

See accompanying notes to the interim condensed consolidated financial statements

6F-2
Table of Contents

TPCO Holding Corp.
Interim condensed consolidated statements of operations and comprehensive ~~loss~~(loss)
(Unaudited, in United States dollars)

Three months ended

Nine months ended

Note

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Sales, net of discounts

$ 19,560,190

$ 18,894,135

$ 63,674,204

$ 55,385,321

Cost of sales

12,942,068

13,893,643

44,316,034

43,774,625

Gross profit

6,618,122

5,000,492

19,358,170

11,610,696

Impairment loss

13

127,815,307

485,601,121

130,244,837

560,500,228

Operating expenses

22

36,838,444

30,936,988

108,036,813

128,763,201

Loss from operations

(158,035,629 )

(511,537,617 )

(218,923,480 )

(677,652,733 )

Other income (expense)

Interest expense

(1,183,968 )

(1,093,562 )

(3,694,798 )

(3,757,176 )
Gain on debt forgiveness

-

-

-

3,358,686

Loss on disposal of assets

-

(137,042 )

(317,787 )

(3,656,707 )
Change in fair value of investments at fair value through profit loss

28

(388,878 )

(768,030 )

(421,974 )

(418,818 )
Change in fair value of contingent consideration

28

3,558

38,178,321

642,153

220,997,087

Other income

524,230

1,521,164

1,633,525

4,198,444

(1,045,058 )

37,700,851

(2,158,881 )

220,721,516

Loss before income taxes

(159,080,687 )

(473,836,766 )

(221,082,361 )

(456,931,217 )

Income tax recovery (expense)

21

24,460,758

(3,935,160 )

24,418,531

6,541,380

Loss and comprehensive loss from continuing operations

(134,619,929 )

(477,771,926 )

(196,663,830 )

(450,389,837 )

Loss from discontinued operations, net of income tax

14

(2,327,414 )

(83,578,124 )

(4,302,730 )

(86,074,460 )
Loss from classification to discontinued operations, net of income tax

14

(11,082,725 )

-

(11,082,725 )

-

Net loss

$ (148,030,068 )

$ (561,350,050 )

$ (212,049,285 )

$ (536,464,297 )

Loss and comprehensive loss attributable to shareholders of the company

$ (147,985,084 )

$ (561,350,050 )

$ (211,800,036 )

$ (536,464,297 )
Loss and comprehensive loss attributable to redeemable non-controlling interest

15

(44,984 )

-

(249,249 )

-

Net loss

$ (148,030,068 )

$ (561,350,050 )

$ (212,049,285 )

$ (536,464,297 )

Per share – basic and diluted

Loss per share from continuing operations

20

$ (1.30 )

$ (4.85 )

$ (1.94 )

$ (4.80 )
Loss per share from discontinued operations

20

(0.13 )

(0.85 )

(0.15 )

(0.92 )
Loss per share

20

$ (1.43 )

$ (5.70 )

$ (2.09 )

$ (5.72 )
Weighted average number of common shares

20

103,489,965

98,421,935

101,154,772

93,802,606

Three months ended

Six months ended

Note

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Sales, net of discounts

$ 19,410,764

$ 21,673,714

$ 37,464,976

$ 44,114,014

Cost of sales

9,975,383

15,650,560

20,248,545

31,373,966

Gross profit

9,435,381

6,023,154

17,216,431

12,740,048

Impairment loss

12

403,271

2,429,530

403,271

2,429,530

Operating expenses

16

29,889,848

32,288,461

51,991,392

71,198,369

Loss from operations

(20,857,738 )

(28,694,837 )

(35,178,232 )

(60,887,851 )

Other income (expense)

Interest income

614,954

-

1,237,750

-

Interest expense

(1,208,949 )

(1,260,262 )

(2,472,877 )

(2,510,830 )
Loss on disposal of assets

-

(63,314 )

(93,944 )

(317,787 )
Change in fair value of investments

8

(170,358 )

(330,960 )

(170,358 )

(33,096 )
Change in fair value of contingent consideration

24

(1,177,730 )

249,973

(1,922,931 )

638,595

Other income

450,000

801,339

455,170

1,109,295

Loss before income taxes

(22,349,821 )

(29,298,061 )

(38,145,422 )

(62,001,674 )

Income tax recovery (expense)

(1,961,804 )

244,473

(2,676,212 )

(42,227 )
Loss and comprehensive loss from continuing operations

(24,311,625 )

(29,053,588 )

(40,821,634 )

(62,043,901 )

Loss from discontinued operations, net of income tax

7

-

(1,429,097 )

-

(1,975,316 )

Loss and comprehensive loss attributable to shareholders of the company

$ (24,311,625 )

$ (30,123,075 )

$ (40,821,634 )

$ (63,814,952 )
Loss and comprehensive loss attributable to redeemable non-controlling interest

-

(359,610 )

-

(204,265 )
Net loss

$ (24,311,625 )

$ (30,482,685 )

$ (40,821,634 )

$ (64,019,217 )

Per share – basic and diluted

Loss per share from continuing operations

$ (0.20 )

$ (0.29 )

$ (0.37 )

$ (0.62 )
Loss per share from discontinued operations

-

(0.01 )

-

(0.02 )
Loss per share

$ (0.20 )

$ (0.30 )

$ (0.37 )

$ (0.64 )
Weighted average number of common shares

120,070,367

101,102,391

111,208,235

99,967,824

See accompanying notes to the ~~interim condensed~~ consolidated financial statements

7F-3
Table of Contents

TPCO Holding Corp.
Interim condensed consolidated statements of changes in shareholders’ (deficit) equity
(Unaudited, in United States dollars)

Number of

Note

Shares

Warrants

Class B Shares

Common Shares to be Issued

Additional Paid in Capital

Accumulated Deficit

Total Stockholder's Deficit

Balance December 31, 2021

97,065,092

35,837,500

-

743,768

$ 954,102,859

$ (593,027,673 )

$ 361,075,186

Shares issued for long-term strategic contract

16

2,790,014

-

-

-

3,750,000

-

3,750,000

Shares issued to settle contingent consideration

17

569,939

-

-

(305,325 )

299,014

-

299,014

Shares issued for RSUs vested

17,19

459,118

-

-

-

-

-

-

Tax settlements associated with RSUs

-

-

-

-

(420,247 )

-

(420,247 )
Share-based compensation

19

-

-

-

-

3,703,170

-

3,703,170

Net loss

-

-

-

-

-

(63,814,952 )

(63,814,952 )
Balance June 30, 2022

100,884,163

35,837,500

-

438,443

$ 961,434,796

$ (656,842,625 )

$ 304,592,171

Shares issued for long-term strategic contract

16

2,136,151

-

-

-

1,095,546

-

1,095,546

Shares issued for RSUs vested

17,19

131,589

-

-

-

-

-

-

Shares issued to acquire NCI

15

1,762,425

-

-

-

1,500,000

-

1,500,000

Tax settlements associated with RSUs

-

-

-

-

(59,126 )

-

(59,126 )
Share-based compensation

19

-

-

-

-

1,061,119

-

1,061,119

Net loss

-

-

-

-

-

(147,985,084 )

(147,985,084 )
Balance September 30, 2022

104,914,328

35,837,500

-

438,443

$ 965,032,335

$ (804,827,709 )

$ 160,204,626

Note

Common Shares

Warrants

Common Shares to
be issued / returned

Additional Paid in Capital

Accumulated Deficit

Non-controlling interest

Total

Balance December 31, 2022

107,516,333

35,837,500

(6,673,222 )

$ 996,697,299

$ (835,659,507 )

$ 1

$ 161,037,793

Shares issued for RSUs vested

15

165,217

-

-

-

-

-

-

Tax settlements associated with RSUs

-

-

-

(16,799 )

-

-

(16,799 )
Share-based compensation

18

-

-

-

1,665,220

-

-

1,665,220

Shares returned to Treasury

15

(7,122,321 )

-

7,122,321

-

-

-

-

Shares issued in exchange for shares of subsidiary

15

18,268,094

-

-

-

-

-

-

Net loss

-

-

-

-

(16,510,009 )

-

(16,510,009 )
Balance March 31, 2023

118,827,323

35,837,500

449,099

$ 998,345,720

$ (852,169,516 )

$ 1

$ 146,176,205

Shares issued for RSUs vested

15

768,177

-

-

-

-

-

Tax settlements associated with RSUs

-

-

-

(69,142 )

-

-

(69,142 )
Share-based compensation

18

-

-

-

498,483

-

-

498,483

Shares returned to Treasury

15

(2,517 )

-

-

-

-

-

-

Shares issued in exchange for shares of subsidiary

15

452,989

-

-

-

-

-

-

Share issuance for previous acquisitions

15

112,634

-

(112,634 )

-

-

-

-

Net loss

-

-

-

-

(24,311,625 )

-

(24,311,625 )
Balance June 30, 2023

120,158,606

35,837,500

336,465

$ 998,775,061

$ (876,481,141 )

$ 1

$ 122,293,921

See accompanying notes to the consolidated financial statements

8F-4
Table of Contents

TPCO Holding Corp.
Interim condensed consolidated statements of changes in shareholders’ (deficit) equity ~~(continued)~~
(Unaudited, in United States dollars)

Number of

Note

Shares

Warrants

Class B Shares

Common Shares to be Issued

Additional Paid in Capital

Accumulated Deficit

Total Stockholder's Deficit

Balance December 31, 2020

-

35,837,500

15,218,750

-

$ (21,886,268 )

$ (6,463,606 )

$ (28,349,874 )
Conversion to Class B shares

14,655,547

-

(14,655,547 )

-

-

-

-

Founders’ shares forfeited

-

-

(563,203 )

-

(496,057 )

496,057

-

Shares issued in a private placement

6,313,500

-

-

-

63,135,000

-

63,135,000

Conversion of Class A restricted voting shares

31,407,336

-

-

-

318,303,338

-

318,303,338

Shares issued for long-term strategic contracts

2,376,425

-

-

-

25,000,000

-

25,000,000

Shares issued in a business acquisition

41,808,021

-

-

1,355,258

546,447,112

-

546,447,112

Shares issued to extinguish liabilities in a business acquisition

336,856

-

-

-

4,264,597

-

4,264,597

Contingent shares to be issued in a business acquisition

-

-

-

187,380

2,372,231

-

2,372,231

Replacement options issued in a business
acquisition

-

-

-

-

4,199,788

-

4,199,788

Release of shares to be issued

1,080,853

-

-

(1,080,853 )

-

-

-

Shares to be issued reclassified from contingent
consideration

-

-

-

333,868

1,957,045

-

1,957,045

Shares issued for options exercised

3,313

-

-

-

12,972

-

12,972

Share-based compensation

19

-

-

-

-

8,000,573

8,000,573

Net income

-

-

-

-

-

24,885,753

24,885,753

Balance June 30, 2021

97,981,851

35,837,500

-

795,653

$ 951,310,331

$ 18,918,204

$ 970,228,535

Release of shares to be issued

51,633

-

-

(51,633 )

-

-

-

Share repurchase obligation

-

-

-

-

(7,055,250 )

-

(7,055,250 )
Shares repurchased under share repurchase agreements

(1,037,500 )

-

-

-

-

-

-

Shares repurchased under NCIB

(157,600 )

-

-

-

(603,165 )

-

(603,165 )
Shares issued for RSUs vested

340,994

-

-

-

-

-

-

Tax settlements associated with RSUs

-

-

-

-

(972,741 )

-

(972,741 )
Modification of RSUs

-

-

-

-

3,451,365

-

3,451,365

Share-based compensation

19

-

-

-

-

2,974,957

-

2,974,957

Net loss

-

-

-

-

-

(561,350,050 )

(561,350,050 )
Balance September 30, 2021

97,179,378

35,837,500

-

744,020

$ 949,105,497

$ (542,431,846 )

$ 406,673,651

Note

Common Shares

Warrants

Common Shares to be issued / returned

Additional Paid in Capital

Accumulated Deficit

Total

Balance December 31, 2021

97,065,092

35,837,500

743,768

$ 954,102,859

$ (593,027,673 )

$ 361,075,186

Shares issued for long-term strategic contract

1,348,921

-

-

1,875,000

-

1,875,000

Shares issued to settle contingent consideration

14

569,939

-

(305,325 )

299,014

-

299,014

Shares issued for RSUs vested

201,380

-

-

-

-

-

Tax settlements associated with RSUs

-

-

-

(204,802 )

-

(204,802 )
Share-based compensation

18

-

-

-

2,242,077

-

2,242,077

Net loss

-

-

-

-

(33,691,877 )

(33,691,877 )
Balance March 31, 2022

99,185,332

35,837,500

438,443

$ 958,314,148

$ (626,719,550 )

$ 331,594,598

Shares issued for long-term strategic contract

1,441,093

-

-

$ 1,875,000

$ -

$ 1,875,000

Shares issued for RSUs vested

257,738

-

-

-

-

-

Tax settlements associated with RSUs

-

-

-

(215,445 )

-

(215,445 )
Share-based compensation

18

-

-

-

1,461,093

-

1,461,093

Net loss

-

-

-

-

(30,123,075 )

(30,123,075 )
Balance June 30, 2022

100,884,163

35,837,500

438,443

$ 961,434,796

$ (656,842,625 )

$ 304,592,171

See accompanying notes to the ~~interim condensed~~ consolidated financial statements

9F-5
Table of Contents

TPCO Holding Corp.
Interim condensed consolidated statements of cash flows
(Unaudited, in United States dollars)

Nine months ended

Note

September 30, 2022

September 30, 2021

Cash provided by (used in)

Operating activities

Net loss from continuing operations

$ (196,663,830 )

$ (450,389,837 )
Adjustments for items not involving cash

Impairment loss

13

130,244,837

560,500,228

Interest expense

3,694,798

3,739,340

Interest income

(75,758 )

(993,639 )
Loss on disposal of assets

317,787

3,656,707

Loss on lease termination

12

(114,458 )

Allowance for accounts receivable and notes receivable

3,438,664

796,403

Gain on debt forgiveness

-

(3,358,686 )
Fair value change of investments

7

421,974

418,818

Depreciation and amortization

22

23,755,099

14,174,789

Shares issued for long-term strategic contracts

-

25,000,000

Share-based compensation expense, net of withholding tax settlement

4,284,916

16,765,238

Non-cash marketing expense

16

3,311,454

3,803,030

Non-cash operating lease expense

12

5,402,936

3,029,654

Fair value change of contingent consideration

27

(642,153 )

(220,997,087 )
Deferred income tax recovery

21

(27,771,859 )

(13,714,716 )
Repayment of operating lease liabilities

(5,276,778 )

(3,403,629 )
Net changes in non-cash working capital items

23

(2,659,682 )

(39,995,798 )

Net cash used in continued operating activities

(58,332,053 )

(100,969,185 )

Net cash used in discontinued operating activities

(2,565,934 )

(5,528,420 )

Total operating activities

(60,897,987 )

(106,497,605 )

Financing activities

Receipt of payments on notes receivable

1,759,318

-

Repayment of notes payable

(4,680,000 )

-

Repayment of consideration payable

(1,150,000 )

(872,021 )
Repayment of finance lease liabilities

(3,342,761 )

(3,429,846 )
Proceeds from private placement

-

51,635,000

Redemption of Class A restricted voting shares

-

(264,318,686 )
Proceeds from exercise of options

-

12,972

Repurchase of shares

-

(4,454,571 )
Repayment of line of credit

-

(1,000,000 )
Total financing activities

(7,413,443 )

(222,427,152 )

Investing activities

Net cash paid in the Qualifying Transaction

-

(28,143,886 )
Net cash paid in business combinations

10

-

(1,402,337 )
Purchases of property and equipment

(2,733,218 )

(8,725,860 )
Advances for note receivable

-

(5,650,000 )
Acquisition of investments

7

(350,000 )

(1,000,000 )
Proceeds from notes receivable

-

187,954

Proceeds from sale of property and equipment, net of selling costs

6,253,157

11,068,537

Total investing activities

3,169,939

(33,665,592 )

Net change in cash during the period

(65,141,491 )

(362,590,349 )

Cash, restricted cash and restricted cash equivalents

Beginning of period

$ 174,892,298

$ 582,622,025

End of period

$ 109,750,807

$ 220,031,676

Cash

107,111,075

206,677,145

Restricted cash and restricted cash equivalents

2,639,732

13,354,531

Cash, restricted cash and restricted cash equivalents

$ 109,750,807

$ 220,031,676

(Unaudited, in United States dollars)

Six months ended

Note

June 30,
2023

June 30,
2022

Cash provided by (used in)

Operating activities

Net loss from continuing operations

$ (40,821,634 )

$ (62,043,901 )
Adjustments for items not involving cash

Impairment

403,271

2,429,530

Interest expense

2,472,877

2,510,830

Non- cash Interest income

(153,755 )

(48,417 )
Loss on disposal of assets

93,944

317,787

Loss on lease termination

-

41,074

Allowance for accounts receivable and notes receivable

429,338

2,478,142

Fair value change of investments

8

170,358

33,096

Depreciation and amortization

16

5,436,989

12,195,210

Share-based compensation expense, net of withholding tax settlement

2,077,762

3,282,923

Non-cash marketing expense

565,000

2,727,272

Non-cash operating lease expense

10

2,515,095

3,704,397

Fair value change of contingent consideration

24

1,922,931

(638,595 )
Deferred income tax recovery

(1,103,998 )

(1,550,509 )
Repayment of operating lease liabilities

(3,572,578 )

(4,611,772 )
Net changes in non-cash working capital items

19

4,113,961

(1,473,083 )
Net cash used in continued operating activities

(25,450,439 )

(40,646,016 )
Net cash used in discontinued operating activities

-

(3,824,924 )
Total operating activities

(25,450,439 )

(44,470,940 )

Financing activities

Receipt of payments on notes receivables

-

1,572,712

Repayments of consideration payable

(766,667 )

(766,666 )
Repayments of finance lease liabilities

(2,295,363 )

(2,228,507 )
Total financing activities

(3,062,030 )

(1,422,461 )

Investing activities

Purchases of property and equipment

(69,928 )

(2,314,113 )
Proceeds from sale of property and equipment, net of selling costs

328,940

6,176,473

Advances for notes receivables

(5,000,000 )

-

Payments received on notes receivable

100,000

-

Acquisition of investments

-

(150,000 )
Total investing activities

(4,640,988 )

3,712,360

Net change in cash during the period

(33,153,457 )

(42,181,041 )

Cash, restricted cash and restricted cash equivalents

Beginning of period

$ 93,697,529

$ 174,892,298

End of period

$ 60,544,072

$ 132,711,257

Cash

60,544,072

125,993,248

Restricted cash and restricted cash equivalents

-

6,718,009

Cash, restricted cash and restricted cash equivalents

$ 60,544,072

$ 132,711,257

Supplemental cash-flow information (Note ~~23)~~19)

See accompanying notes to the ~~interim condensed~~ consolidated financial statements

10F-6
Table of Contents

~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
TPCO Holding Corp.
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023

1. Nature of operations

TPCO Holding Corp. (“TPCO” or the “Company”) was a special purpose acquisition corporation incorporated on June 17, 2019 under the laws of the Province of British Columbia for the purpose of effecting, directly or indirectly, an acquisition of one or more businesses or assets, by way of merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combinations involving the Company (a “Qualifying Transaction”). As more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, ~~(the “10-K”),~~ the Company completed the Qualifying Transaction on January 15, 2021 and at which time the Company changed its name to TPCO Holding Corp.

The Company’s registered office is located at 595 Burrard Street, Suite 2600, P.O. Box 49314, Vancouver, BC, V7X 1L3, Canada, and the Company’s head office is located at 1550 Leigh Avenue, San Jose, California, 95125, United States of America. Commencing on the date of the Qualifying Transaction, the Company became integrated as a cultivator, retailer, manufacturer and distributor of adult use cannabis products through the sale to omni-channel retail and wholesale customers under the “Medical Marijuana Programs Act” and the proposition 64 “The Adult Use of Marijuana Act”.

~~The common shares of~~On July 7, 2023 the Company ~~are listed on the Aequitas NEO Exchange (“NEO”) and the OTCQX Best Market tier of the electronic over-the-counter marketplace operated~~was acquired via an all stock merger by ~~OTC Markets Groups Inc. (“OTCQX”) under the trading symbols “GRAM.U” and “GRAMF”, respectively.~~Gold Flora LLC. The ~~warrants of the Company are listed on the NEO under the trading symbol “GRAM.WT.U”.~~merged entity operates as Gold Flora Corporation. Refer to Note 27.

2. Basis of presentation

These ~~accompanying~~ interim condensed consolidated financial statements reflect the accounts of the Company ~~have been~~and were prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States (“GAAP”) ~~for interim financial information~~ and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ~~(the “SEC”~~(“SEC”). for financial information.

These interim condensed consolidated financial statements are presented in U.S. dollars, which is also the Company’s and
its subsidiaries’ functional currency.

These interim condensed consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with GAAP. The results reported in these interim condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year.

These interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.

The Company is currently meeting its current operational obligations as they become due from its current working capital. However, the Company has sustained losses since inception and may require additional capital in the future. As at June 30, 2023, the Company had a total accumulated deficit of $876,364,989. For the three and six months’ ended June 30, 2023, the Company had a net loss of $24,311,625 and $40,821,634, respectively and net cash used in operating activities for the six months ended June 30, 2023 was $25,450,439. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
As described in Note 27, the Company consummated a business combination with Gold Flora LLC on July 7, 2023, forming Gold Flora Corporation (“GFC”). GFC anticipates realizing synergies from this acquisition, as well as plans to reduce operating expenses through various strategic initiatives and aggressive cost-cutting measures which the Company believes alleviates substantial doubt over going concern. In addition, GFC plans to raise additional financing if needed to help fund operations. However, there can be no assurance that the Company will be successful in achieving its objectives. These condensed consolidated interim financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to substantial doubt about the Company’s ability to continue as a going concern.
Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with GAAP have been omitted or condensed. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) and have been prepared on a basis consistent with the accounting policies as described in the 2022 Form 10-K.
F-7
Table of Contents
TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
2. Basis of presentation (continued)

i) Basis of consolidation

These interim condensed consolidated financial statements include the accounts of the Company and all subsidiaries. Subsidiaries are entities in which the Company has a controlling voting interest or is the primary beneficiary of a variable interest entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are de-consolidated from the date control ceases. All intercompany accounts and transactions have been eliminated on consolidation. The interim condensed consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating intercompany balances and transactions.

ii)Use of estimates

The preparation of these interim condensed consolidated financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.
11
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~2. Basis of presentation~~ ~~(continued)~~

iii) Emerging growth company

The Company is an “Emerging Growth Company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it has taken advantage of certain exemptions from various reporting requirements that are not applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange ~~Act of 1934 as amended)~~Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a Company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

~~3. Significant accounting policies~~
~~(i) Sale lease back~~
From time to time, the Company may enter into sale-leaseback transactions pursuant to which the Company sells a property to a third party and agrees to lease the property back for a certain period of time. To determine whether the transfer of the property should be accounted for as a sale, the Company evaluates whether it has transferred control to the third party in accordance with the revenue recognition guidance set forth in ASC 606 - ~~Revenue~~.
If the transfer of the asset is deemed to be a sale at market terms, the Company recognizes the transaction price for the sale based on the proceeds, derecognizes the carrying amount of the underlying asset and recognizes a gain or loss in the consolidated statements of operations and comprehensive loss for any difference between the carrying value of the asset and the transaction price. The Company then accounts for the leaseback in accordance with its lease accounting policy.
If the transfer of the asset is determined not to be a sale at market terms, the Company accounts for the transaction as a financing arrangement, and accordingly no sale is recognized. The Company retains the historical costs of the property and the related accumulated depreciation on its books and continues to depreciate the property over the lesser of its remaining useful life or its initial lease term. The asset is presented within property and equipment, net on the consolidated balance sheets. All proceeds from these transactions are accounted for as finance obligations and presented as non-current obligation on the consolidated balance sheets. A portion of the lease payments is recognized as a reduction of the financing obligation and a portion is recognized as interest expense based on an imputed interest rate.
~~(ii) Discontinued operations~~
The Company accounts for discontinued operations when there is a disposal of a component group or a group of components that represents a strategic shift that will have a major effect on the Company’s operations and financial results. The Company aggregates the results of operations for discontinued operations into a single line item in the interim condensed consolidated statements of operations and comprehensive loss for all periods presented. General corporate overhead is not allocated to discontinued operations. See Note 14 for additional information.
12
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~3. Significant accounting policies~~iv) ~~(continued)~~
~~(iii)~~ Accounting standards adopted

~~Debt with conversion options and other options~~Allowance for credit losses
In ~~August 2020,~~September 2016, the FASB issued ASU ~~2020-06, Debt – Debt with Conversion~~2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance was subsequently amended by ASU 2018-19, Codification Improvements, ASU 2019- 04, Codification Improvements, ASU 2019-05, Targeted Transition Relief, ASU 2019-10, Effective Dates, and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.2019-11, Codification Improvements. The Company adopted this ASU ~~2020-06~~ effective ~~January~~Jan 1, ~~2022, and such~~2023. The adoption did not have a material effect on its interim condensed consolidated financial statements.
~~Government Assistance~~
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) (“ASU 2021-10”). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The Company adopted ASU 2021-10 effective January 1, 2022, and as the Company did not have any government assistance outstanding, such adoption did not have an effect on its interim condensed consolidated financial statements.
~~4. Prepaid expenses and other current assets~~

September 30, 2022

December 31, 2021

Prepaid expenses

$ 51,456

$ 109,929

Prepaid insurance

1,434,394

1,560,840

Prepaid inventory

379,159

2,188,881

Prepaid rent

177,740

650,000

Other prepaid assets

1,782,502

1,386,238

Indemnification assets

6,044,155

6,044,155

$ 9,869,406

$ 11,940,043

~~5. Inventory~~

September 30, 2022

December 31, 2021

Packaging supplies

$ 2,943,653

$ 2,784,846

Biological assets

1,523

1,371,749

Raw materials

465,204

2,009,754

Work in progress

1,406,179

1,969,696

Finished goods

10,727,266

14,060,936

$ 15,543,825

$ 22,196,981

~~During the three and nine months ended September 30, 2022, the Company recorded write-downs of $1,239,545 and $3,545,232, respectively, on inventory which is included in cost of sales.~~
~~6. Notes and other receivables, net~~

September 30, 2022

December 31, 2021

Upfront payment

$ 5,650,000

$ 5,650,000

Promissory note receivable

389,816

543,560

Other receivable

-

1,200,000

Total notes receivable

6,039,816

7,393,560

Less allowance for credit losses

(5,650,000 )

(2,660,943 )
Note receivable

$ 389,816

$ 4,732,617

13F-8
Table of Contents

TPCO Holding Corp.
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023

~~7. Investments~~3. Inventory

June 30,
2023

December 31,
2022

Packaging supplies

$ 1,127,601

$ 2,109,465

Biological assets

26,633

22,844

Raw materials

271,863

48,936

Work in progress

54,031

227,936

Finished goods

4,702,905

6,318,677

$ 6,183,033

$ 8,727,858

4. Notes and other receivables, net

June 30,
2023

December 31,
2022

Upfront payment

$ 5,650,000

$ 5,650,000

Prepayment

1,490,000

1,490,000

Promissory note receivables (i)

5,454,655

627,803

Total notes receivable

12,594,655

7,767,803

Less allowance for credit losses

(7,140,000 )

(7,140,000 )
Total notes receivable

5,454,655

627,803

Note receivable – current portion

121,057

108,957

Note receivable- non-current

$ 5,333,598

$ 518,846

(i) During the six-months ended June 30, 2023, the Company entered into an arrangement to provide funding to Gold Flora, LLC (“Gold Flora”) with principal amounts of up to $5,000,000. During the six-months ended, the Company advanced $5,000,000 of the committed funding. The note is secured by certain assets of Gold Flora, bears interest at 10% per annum and following the close of the transaction described in Note 27, has no set terms of repayment. The balance as at June 30, 2023 related to this promissory note, including accrued interest, is $5,125,114.
5. Prepaid expenses and other current assets

Marketable securities

Non-marketable securities

Available
for sale securities

Other

Total

Balance, December 31, 2021

$ 860,496

$ 591,545

$ 1,048,028

$ -

$ 2,500,069

Acquired in the period

-

-

200,000

150,000

350,000

Interest income

-

-

60,000

-

60,000

Change in fair value

(421,974 )

-

-

-

(421,974 )
Balance, September 30, 2022

$ 438,522

$ 591,545

$ 1,308,028

$ 150,000

$ 2,488,095

June 30,
2023

December 31,
2022

Prepaid expenses

$ -

$ 51,456

Prepaid insurance

180,325

771,752

Prepaid inventory

402,141

89,386

Prepaid rent

-

54,160

Other prepaid assets

1,283,710

1,357,586

Indemnification assets

6,044,155

6,044,155

$ 7,910,331

$ 8,368,495

~~8. Property and equipment~~6. Assets held for sale

September 30, 2022

December 31, 2021

Gross carrying amounts

Leasehold improvements

$ 16,412,209

$ 13,726,734

Production equipment

2,232,687

2,500,473

Furniture and fixtures

814,631

858,859

Vehicles

333,325

425,886

Office equipment

1,007,055

1,030,216

Building

-

6,549,489

20,799,907

25,091,657

Accumulated depreciation

Leasehold improvements

(3,343,755 )

(1,724,692 )
Production equipment

(1,064,412 )

(671,688 )
Furniture and fixtures

(319,085 )

(196,124 )
Vehicles

(87,152 )

(51,573 )
Office equipment

(426,787 )

(206,244 )
Building

-

(81,866 )

(5,241,191 )

(2,932,187 )

Property and equipment, net

$ 15,558,716

$ 22,159,470

The following table outlines the carrying amounts of major classes of assets and liabilities classified as held for sale:

June 30,
2023

December 31,
2022

Current assets classified as held for sale

Right-of-use assets - operating

$ 1,146,661

$ 1,240,211

Intangible assets

9,822,809

11,443,681

Total carrying value of current assets

10,969,470

12,683,892

Impairment recognized on classification as held for sale

(5,271,277 )

(6,581,128 )
Total assets classified as held for sale

$ 5,698,193

$ 6,102,764

Current liabilities classified as held for sale

Operating lease liability – current portion

$ 1,104,425

$ 1,309,077

Total liabilities classified as held for sale

$ 1,104,425

$ 1,309,077

During the year ended December 31, 2022, the Company ~~recorded depreciation expense~~became committed to plans to sell four licenses and transfer certain right of use asset and lease liabilities related to ~~continuing operations of $747,765 and $2,510,132 for~~ the ~~three and nine~~licenses. During the six months ended ~~September~~June 30, ~~2022 ($841,959~~2023, the Company sold an asset previously classified as held for sale and ~~$2,011,802 for the three and nine months ended September 30, 2021, respectively).~~did not commit to plans to sell any additional assets.

14F-9
Table of Contents

TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
7. Discontinued operations
On October 31, 2022, the Company sold its wholly owned subsidiary, SISU Extractions LLC (“SISU”). The disposition of the operations represented a major strategic shift in the business and met the criteria of discontinued operations. The Company has re-presented the interim condensed consolidated ~~financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three~~statement of operations and ~~nine months ended September 30, 2022 and 2021~~
~~9. Goodwill and intangible assets~~

September 30, 2022

December 31, 2021

Total goodwill

$ -

$ 44,051,645

Intangible assets gross carrying amounts

License

83,410,737

112,161,292

Brand

69,751,919

116,700,360

Customer relations

2,920,000

2,920,000

156,082,656

231,781,652

Intangible assets accumulated amortization

License

(26,357,126 )

(13,620,757 )
Brand

(10,265,773 )

(5,264,606 )
Customer relations

(551,757 )

(308,424 )

(37,174,656 )

(19,193,787 )

Intangible assets, net

$ 118,908,000

$ 212,587,865

~~The Company recorded amortization expense related to continuing operations of $10,420,607 and $20,772,458~~comprehensive loss for the three and ~~nine months ended September 30, 2022 ($3,271,209 and $11,806,979 for the three and nine months ended September 30, 2021, respectively).~~
During the three months ended September 30, 2022, the Company recognized an increase in intangible assets of $31,673,000 and decrease in goodwill of $22,633,099 as a result of measurement period adjustments related to business combinations. Refer to Note 10 for further details.
~~The following table outlines the estimated future annual amortization expense as of September 30, 2022:~~

Estimated Amortization

Remainder of 2022

$ 2,070,460

2023

8,253,599

2024

7,896,572

2025

7,801,531

2026

7,801,531

Thereafter

85,084,307

$ 118,908,000

~~10. Business combinations~~
~~(i)~~ ~~Coastal~~
On October 1, 2021, the Company executed a Unit Purchase Agreement (the “Purchase Agreement”) to acquire 100% equity interest in Coastal Holding Company, LLC (“Coastal Holding”). The closing of the transaction is subject to multiple conditions, including the receipt of municipal approval to transfer licenses at seven (7) locations.
At the same time, the Company advanced $20,700,000 of cash to Coastal Holding, as well as entered into Management Service Agreements (“MSA’s”) with Coastal Holding and certain of its subsidiaries (collectively “Coastal”). As part of the arrangement, the Company received 9.5% direct interest in Varda Inc., an operating dispensary, as well as an agreement to acquire the remaining 90.5% for $4,500,000 when approval for the transfer of that entity’s license is received.
The Purchase Agreement and the MSA’s grant the Company the power to manage and make decisions that affect the operations of Coastal and Varda Inc., including the management and development of dispensary operations. Pursuant to the Purchase Agreement and MSA’s with Coastal, the Company is entitled to a management fee equal to 100% of the revenues generated and is responsible for 100% of the costs and expenses of Coastal. With respect to Varda Inc., the Company is entitled to 100% of the revenues generated and is responsible for 100% of the costs and expenses, while the non-controlling interest (“NCI”) holder is entitled to 45.25% of any profit distributions.
~~As a result, the Company has determined that Coastal and Varda Inc. are VIEs and the Company is the primary beneficiary by reference to the power and benefits criterion under ASC 810,~~ ~~Consolidation~~. The transaction has been accounted for as a business combination under ASC 805 with 100% of the equity interest in Coastal and 90.5% of the equity interest in Varda Inc., being presented as redeemable NCI. During the three monthssix-months ended June 30, ~~2022, approval for the transfer~~2022.
Summarized results of the ~~Varda Inc. license was received and the associated redeemable NCI was redeemed. Refer to Note 15.~~discontinued operations were as follows:

Three months ended
June 30, 2022

Six months ended
June 30, 2022

Sales, net of discounts

$ 5,704,716

$ 16,495,607

Cost of sales

5,177,831

14,501,234

Gross profit

526,885

1,994,373

Operating expenses

(1,830,658 )

(3,536,193 )
Loss from operations

(1,303,773 )

(1,541,820 )

Other expense

(12,130 )

(12,130 )
Income tax expense

(113,194 )

(421,366 )

Loss from discontinued operations, net of income tax

$ (1,429,097 )

$ (1,975,316 )
8. Investments

Marketable
securities

Non-marketable
securities

Available
for sale securities

Other

Total

Balance, December 31, 2021

$ 860,496

$ 591,545

$ 1,048,028

$ -

$ 2,500,069

Acquired

-

-

-

150,000

150,000

Interest income

-

-

40,000

-

40,000

Change in fair value

(33,096 )

-

-

-

(33,096 )
Balance, June 30, 2022

$ 827,400

$ 591,545

$ 1,088,028

$ 150,000

$ 2,656,973

Balance, December 31, 2022

$ -

$ 591,545

$ 736,659

$ 150,000

$ 1,478,204

Interest income

-

-

5,000

-

5,000

Change in fair value

-

-

(170,358 )

-

(170,358 )
Balance, June 30, 2023

$ -

$ 591,545

$ 571,301

$ 150,000

$ 1,312,846

15F-10
Table of Contents

~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~10. Business combinations~~ ~~(continued)~~
Upon closing of the transaction, the funds advanced to Coastal Holding will be forgiven and the NCI will be redeemed by issuing shares of the Company’s subsidiary, Coast L Acquisition Corp, which are exchangeable into shares of the Company on a one-for-one basis. The number of shares to be issued is based on an initial value of $39,880,000, with adjustments for various holdbacks and claw-backs. The claw-backs relate to certain liabilities of Coastal Holding that are to be extinguished by the current equity owners with the $20,700,000 of cash advanced by the Company.
The number of shares to be issued becomes fixed at various points during the closing period as milestones, which are primarily receipt of approval for licenses to transfer, are met. During the nine months ended September 30, 2022, approval was received for the transfer of the licenses required in order for the transaction to close, although the Company is waiting for Coastal shareholders to perform certain obligations in order to facilitate a closing of the transaction. Although the NCI is not redeemable in cash, it has been presented as mezzanine equity as there is no limit in the arrangement on the number of shares to be issued.
During the three months ended September 30, 2022, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The Company adjusted the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of the acquisition date.
~~During the three months ended September 30, 2022 the following adjustments were made to the provisional amounts:~~
TPCO Holding Corp.
·
~~An adjustment was made to increase intangible assets by $25,618,000, due to new information regarding the fair value as at October 1, 2021. This resulted in a increase~~Notes to the ~~deferred tax liability on initial recognition of $7,644,411~~interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and ~~a net decrease to goodwill.~~
~~During the three months ended September~~six months ended June 30, 2022 ~~as a result of the adjustments to the provisional amounts discussed above, $3,515,864 of additional amortization has been recognized relating to prior periods.~~
~~(ii)~~ ~~Calma Weho, LLC (“Calma”)~~
~~On October 1, 2021, the Company acquired 85% of the equity interest of Calma, an operating dispensary located in West Hollywood, California.~~
Total consideration comprised $8,500,000 in cash and $1,468,474 in equity of the Company. In addition, the Company was committed to acquiring the remaining 15% when local regulations permit, for $1,500,000 in common shares of the Company. During the three months ended September 30, 2022, the Company acquired the remaining 15% in exchange for 1,762,495 common shares of the Company.
During the three months ended September 30, 2022, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The Company adjusted the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of the acquisition date.
~~During the three months ended September 30, 2022 the following adjustments were made to the provisional amounts:~~
·
~~An adjustment was made to increase intangible assets by $6,055,000~~ and increase right-of-use assets by $411,322, due to new information regarding the fair value as at October 1, 2021. This resulted in an increase to the deferred tax liability on initial recognition of $1,806,812 and a net decrease to goodwill.
2023
During the three months ended September 30, 2022, as a result of the adjustments to the provisional amounts discussed above, $365,677 of additional amortization of intangible assets and $35,700 of amortization of right of use assets has been recognized relating to prior periods.
16
~~Table of Contents~~

~~TPCO Holding Corp.~~9. Property and equipment
~~Notes to the interim condensed consolidated financial statements~~

June 30,
2023

December 31,
2022

Gross carrying amounts

Leasehold improvements

$ 15,883,857

$ 16,444,132

Production equipment

2,299,446

2,261,005

Furniture and fixtures

871,689

871,689

Vehicles

333,325

333,325

Office equipment

933,634

933,634

20,321,951

20,843,785

Accumulated depreciation

Leasehold improvements

(4,189,557 )

(3,646,995 )
Production equipment

(1,401,868 )

(1,176,720 )
Furniture and fixtures

(460,194 )

(373,634 )
Vehicles

(134,735 )

(103,069 )
Office equipment

(517,316 )

(397,283 )

(6,703,670 )

(5,697,701 )

Property and equipment, net

$ 13,618,281

$ 15,146,084

~~(Unaudited, in United States dollars)~~
~~For~~Depreciation expense for the three and ~~nine~~six months ended ~~September~~June 30, 2023 was $499,110 and $1,010,892, respectively (three and six months ended June 30, 2022 related to continuing operations - $801,667 and ~~2021~~$1,762,367, respectively).
10. ~~Business combinations~~ ~~(continued)~~
~~(iii)~~ ~~Kase’s Journey~~
On August 2, 2021, the Company, through its wholly owned subsidiary Caliva CARECE1 LLC, acquired all of the issued and outstanding equity interests of Kase’s Journey Inc., an operating retail dispensary located in Ceres, California, from the existing shareholders for $1,300,000 cash, subject to adjustments, and $1,221,902 of consideration payable. During the nine months ended September 30, 2022, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method.
~~(iv)~~ ~~Martian Delivery~~
On August 16, 2021, the Company, through its wholly owned subsidiary TPCO US Holding LLC, acquired all of the issued and outstanding membership interests of Martian Delivery LLC, an operating retail dispensary located in the City of Sacramento, California, from the existing shareholders for $237,500 cash and $237,500 in promissory notes payable. During the nine months ended September 30, 2022, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method.
~~11. Accounts payable and accrued liabilities~~

September 30, 2022

December 31, 2021

Trade payables

$ 4,943,448

$ 8,390,991

Other accrued expenses

6,670,646

7,288,466

Accrued payroll expenses

1,847,317

1,326,493

Accrued severance expenses

953,830

1,331,365

Accrued income and other taxes

6,229,451

19,062,306

Goods received but not yet invoiced

4,682,429

4,225,696

$ 25,327,121

$ 41,625,317

~~12.~~ Leases

The Company leases real estate used for dispensaries, production plants, and corporate offices. Lease terms for real estate generally range from 10.17 to ~~15.25~~14.25 years. Most leases include options to renew for varying terms at the Company’s sole discretion. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities, or insurance and maintenance. Rent expense for leases with escalation clauses is accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides the components of lease cost:

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Operating lease costs

$ 1,698,539

$ 1,000,749

$ 5,402,936

$ 3,029,654

Short term lease expense

242,011

35,152

404,511

136,149

Lease expense

1,940,550

1,035,901

5,807,447

3,165,803

Finance lease cost:

Amortization of lease assets

391,517

558,424

1,177,241

1,618,135

Interest on lease liabilities

1,129,382

1,120,925

3,350,698

3,385,978

Finance lease cost

1,520,899

1,679,349

4,527,939

5,004,113

Total lease costs

$ 3,461,449

$ 2,715,250

$ 10,335,386

$ 8,169,916

17
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~12. Leases~~ ~~(continued)~~

Three months ended

Six months ended

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Operating lease costs

$ 1,255,780

$ 1,947,607

$ 2,515,095

$ 3,704,397

Short term lease expense

-

162,500

54,166

162,500

Lease expense

1,255,780

2,110,107

2,569,261

3,866,897

Finance lease cost:

Amortization of lease assets

391,517

392,190

783,035

785,724

Interest on lease liabilities

1,114,626

1,116,715

2,218,172

2,221,316

Finance lease cost

1,506,143

1,508,905

3,001,207

3,007,040

Total lease costs

$ 2,761,923

$ 3,619,012

$ 5,570,468

$ 6,873,937

The maturity of the contractual undiscounted lease liabilities as of ~~September~~June 30, ~~2022:~~2023:

Operating Lease

Finance Lease

Operating Lease

Finance Lease

Remainder of 2022

$ 1,441,432

$ 1,147,681

2023

4,826,896

4,625,156

Remainder of 2023

$ 2,294,365

$ 2,329,793

2024

4,552,956

4,763,910

4,302,015

4,763,910

2025

4,518,781

4,906,828

4,417,481

4,906,828

2026

4,370,472

5,054,033

4,544,592

5,054,033

2027

4,009,473

5,205,654

Thereafter

22,192,154

64,884,898

18,295,465

59,679,244

Total undiscounted lease liabilities

41,902,691

85,382,506

37,863,391

81,939,462

Interest on lease liabilities

16,559,013

48,589,146

14,602,108

45,241,940

Total present value of minimum lease payments

25,343,678

36,793,360

23,261,283

36,697,522

Lease liability – current portion

2,423,413

62,783

1,996,340

224,545

Lease liability

$ 22,920,265

$ 36,730,577

$ 21,264,943

$ 36,472,977

F-11
Table of Contents
TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
10. Leases (continued)

Additional information on the right-of-use assets is as follows:

Operating lease

Finance lease

Gross carrying amount

Balance, December 31, 2021

$ 30,099,933

$ 26,258,698

Measurement period adjustment (Note 10)

411,322

-

Additions (i)

2,163,935

-

Lease termination (ii)

(1,882,008 )

-

Impairment (Note 13)

(4,840,390 )

-

Transfer to assets held for sale (Note 14)

(1,406,339 )

-

Balance, September 30, 2022

$ 24,546,453

$ 26,258,698

Depreciation

Balance, December 31, 2021

$ 2,437,086

$ 1,619,093

Additions

2,965,519

1,177,241

Balance, September 30, 2022

$ 5,402,605

$ 2,796,334

Carrying amount December 31, 2021

$ 27,662,847

$ 24,639,605

Carrying amount September 30, 2022

$ 19,143,848

$ 23,462,364

Operating lease

Finance lease

Gross carrying amount

Balance, December 31, 2022

$ 25,119,489

$ 26,258,698

Lease modification (i)

(2,709,129 )

-

Impairment (Note 12)

(403,271 )

-

Balance, June 30, 2023

$ 22,007,089

$ 26,258,698

Depreciation

Balance, December 31, 2022

$ 4,430,402

$ 3,187,852

Additions

1,145,553

783,035

Balance, June 30, 2023

$ 5,575,955

$ 3,970,887

Carrying amount June 30, 2023

$ 16,431,134

$ 22,287,811

Carrying amount December 31, 2022

$ 20,689,086

$ 23,070,846

(i)
During the six months ended June 30, 2023, the Company decreased the square footage and extended the lease term for one of its leases. As a result, the Company recognized a reduction in its right-of-use asset and the associated liability.

The Company capitalized ~~$nil and $704,732~~$Nil of ~~depreciation~~amortization to inventory for the three and ~~nine~~six months ended ~~September~~June 30, 2023 ($352,367 and $704,732 during the three and six months ended June 30, 2022 ~~respectively (three and nine months ended September 30, 2021 - $491,273 and $1,262,130,~~related to continuing operations, respectively).

~~(i) During the nine months ended September 30, 2022, the Company entered into a sale-leaseback arrangement whereby it sold its building for $6,500,000 less closing costs~~11. Goodwill and entered into a lease with the buyer for a non-cancellable period of five years with the option to extend the lease for three additional five year periods. The Company received $6,000,000 upfront and received a promissory note for $500,000 which is payable over five years. The fair value of the promissory note on initial recognition was $389,816. The Company recorded a loss on sale which was calculated as follows:
Sale price

$ 6,389,816

Selling costs

(230,960 )
Carrying value of building

(6,413,329 )
Loss on disposal of asset

$ (254,473 )
(ii) During the nine months ended September 30, 2022, the Company terminated one of its leases early by agreeing to pay the lessor $200,000 upon termination and issuing a promissory note for $950,000 due January 2, 2023. The fair value of the promissory note on initial recognition was $931,103. The Company recorded a loss on termination of $41,074 which is included in other income on the interim condensed consolidated statement of operations and comprehensive loss.
During the three months ended September 30, 2022, the Company terminated one of its leases early with no termination penalty. The Company recorded a gain on termination of $155,532 which is included in other income on the interim condensed consolidated statement of operations and comprehensive loss.intangible assets

18
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~13. Impairment~~

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Right-of-use assets (i)

$ 2,694,999

$ 72,529

$ 3,985,590

$ 820,616

Impairment (ii)

119,443,343

485,528,592

119,443,343

485,528,592

Non-THC business (iii)

-

-

-

58,030,387

Assets held for sale (Note 14 (b))

5,676,965

-

6,815,904

16,120,633

$ 127,815,307

$ 485,601,121

$ 130,244,837

$ 560,500,228

~~(i)~~ ~~Right of use assets –~~ During the three and nine months ended September 30, 2022, the Company recorded impairment of $2,694,999 and $3,985,590, respectively related to properties which are no longer being used by the Company.
~~(ii)~~~~Impairment of long-lived assets –~~
At each reporting period end, the Company considers if there have been any triggers that indicate that its long-lived assets are not recoverable. Based on the softening of the California cannabis market and cost pressures due to higher US inflation during the three months ended September 30, 2022, the Company determined that an impairment test was appropriate.
~~The following table outlines the impairment of long-lived assets by class of asset, recognized during the three and nine months ended September 30, 2022 as a result of impairment testing:~~
Asset

Carrying value before impairment

Carrying value after impairment

Total impairment loss

Right of use assets

$ 1,680,224

$ 825,424

$ 854,800

License

52,304,385

9,699,829

42,604,556

Brand

78,189,441

23,624,000

54,565,441

Goodwill

21,418,546

-

21,418,546

$ 153,592,596

$ 34,149,253

$ 119,443,343

The impairment test for long-lived assets is a two-step test, whereby management first determines the recoverable amount (undiscounted cash flows) of each asset group. If the recoverable amount is lower than the carrying value, impairment is indicated. For those asset groups where impairment is indicated, the Company then determines the fair value of each of those asset groups and allocates the impairment to the long-lived assets within that asset group. The assets are not written down below their individual fair value.
The fair value of each asset group was determined using a combination of a market and income approach. For the purposes of allocation of impairment, the fair value of the specific assets that were impaired was determined using a market approach. The key assumptions used are as follows:
Asset

Approach

Discount Rate

Forecasted Sales Growth Rate

Terminal Value Growth Rate
Right of use assets

Market

N/A

N/A

N/A
License

Market

N/A

N/A

N/A
Brand

Income

11.75%
Average of 4%

3%
~~Impairment of goodwill~~
The Company conducts goodwill impairment testing annually during the third quarter, or more often if events, changes or circumstances indicated that it is more likely than not that the fair value of a reporting unit is lower than its carrying amount. At the time of the annual impairment test, the Company determined that the existence of impairment on certain long-lived assets, together with the softening of the California cannabis market, cost pressures due to higher US inflation and changes in market expectations of cash flows since the Company acquired the goodwill, indicated the fair value of its reporting unit might be lower than the carrying value.
~~As at September 30, 2022, the Company identified one reporting unit and allocated the carrying value of goodwill to the reporting unit:~~
~~Direct-to-consumer (“DTC”)~~
$ ~~21,418,546~~
~~(iii)~~ ~~Non-THC business –~~ In February 2021, the Company became committed to a plan to sell its non-THC business, which was acquired as part of the Caliva and OGE and LCV acquisitions on January 15, 2021. As a result of the decision to sell, the assets were tested for impairment and an impairment loss of $58,030,387 was recognized.
19
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~13. Impairment~~ ~~(continued)~~
The Company determined the fair value of the reporting unit and compared it to the carrying value. The fair value of the reporting unit was determined using a discounted cash flow technique based on the following key assumptions:
Reporting unit

Discount Rate

Forecasted Sales Growth Rate

Terminal Value Growth Rate
DTC

10.75%
Average of 4%

3%
~~As a result of the impairment test, goodwill impairment of $21,418,546 has been recognized during the three and nine months ended September 30, 2022.~~
~~14. Assets held for sale and discontinued operations~~
~~The following table outlines the carrying amounts of major classes of assets and liabilities included in disposal groups:~~

Discontinued operations (a)

September 30, 2022
Other assets held for sale (b)

Total

December 31, 2021
Discontinued operations (a)

Current assets of disposal groups classified as held for sale

Inventory
$
2,889,897
$
-
$
2,889,897
$
5,042,670
Right-of-use assets - operating

546,731

1,406,339

1,953,070

-
Property and equipment

442,871

-

442,871

-
Intangible assets

8,520,446

7,410,410

15,930,856

-
Total carrying value of current assets

12,399,945

8,816,749

21,216,694

5,042,670
Loss recognized on classification
   as held for sale

(11,082,725)

(6,815,904)

(17,898,629)

-
Total current assets
$
1,317,220
$
2,000,845
$
3,318,065
$
5,042,670

Non-current assets of disposal groups classified as held for sale

Right-of-use asset
$
-
$
-
$
-
$
701,439
Property and equipment

-

-

-

887,795
Intangible assets

   -

-

-

9,555,020
Total non-current assets
$
-
$
-
$
-
$
11,144,254

Total assets of disposal groups
$
1,317,220
$
2,000,845
$
3,318,065
$
16,186,924

Current liabilities of disposal groups classified as held for sale

Operating lease liability – current portion
$
719,620
$
1,429,600
$
2,149,220
$
264,044
Total current liabilities
$
719,620
$
1,429,600
$
2,149,220
$
264,044

Non-current liabilities of disposal groups classified as held for sale

Operating lease liability
$
-
$
-
$
-
$
644,219
Total non-current liabilities
$
-
$
-
$
-
$
644,219

Total liabilities of disposal groups
$
719,620
$
1,429,600
$
2,149,220
$
908,263
20
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~14. Discontinued operations~~ ~~(continued)~~
~~(a) Discontinued operations~~
As at September 30 2022, the Company determined that its wholly owned subsidiary, SISU Extractions LLC (“SISU”), met the criteria as held for sale. The disposition of the operations represented a major strategic shift in the business and met the criteria of discontinued operations. The Company has classified the assets and liabilities of SISU as held for sale as of September 30, 2022. The Company has also re-presented the December 31, 2021 interim condensed consolidated balance sheet and three and nine months ended September 30, 2021 interim condensed consolidated statement of operations. SISU was subsequently sold on October 31, 2022. Refer to Note 32.
~~Summarized results of the discontinued operations were as follows:~~

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Sales, net of discounts

$ 3,047,008

$ 20,770,924

$ 19,542,615

$ 78,400,283

Cost of sales

4,001,322

19,683,583

18,502,556

72,099,002

Gross profit

(954,314 )

1,087,341

1,040,059

6,301,281

Impairment loss

-

(84,698,926 )

-

(84,698,926 )
Operating expenses

(1,628,692 )

(657,218 )

(5,164,885 )

(8,818,925 )
Loss from operations

(2,583,006 )

(84,268,803 )

(4,124,826 )

(87,216,570 )

Other income (expense)

63,407

(398,858 )

51,277

(334,583 )
Income tax recovery (expense)

192,185

1,089,537

(229,181 )

1,476,693

Loss from discontinued operations, net of income tax

$ (2,327,414 )

$ (83,578,124 )

$ (4,302,730 )

$ (86,074,460 )

Loss from classification to discontinued operations, net of income tax

$ (11,082,725 )

$ -

$ (11,082,725 )

$ -

~~(b) Other assets held for sale~~
During the nine months ended September 30, 2022, the Company became committed to a plan to sell three licenses and transfer the related right of use asset and lease liability. Prior to reclassification to assets held for sale, the assets were tested for impairment. As a result, the cost bases of the asset groups were written down to $571,245 resulting in an impairment loss of $6,815,904 on intangible assets included in net loss from continuing operations.
21
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~15. Redeemable non-controlling interest~~
~~The following table summarizes the redeemable NCI as at September 30, 2022:~~

Coastal Holding (a)

Varda Inc. (b)

Calma (c)

Total

Balance, December 31, 2021

$ 35,307,459

$ 4,648,928

$ 1,500,000

$ 41,456,387

Net (loss) income attributable to redeemable non-controlling interest

(297,259 )

48,010

-

(249,249 )
Reclassification to liability

-

(4,696,938 )

-

(4,696,938 )
Reclassification to equity

-

-

(1,500,000 )

(1,500,000 )
Balance, September 30, 2022

$ 35,010,200

$ -

$ -

$ 35,010,200

a)
The Company is obligated to acquire 100% of the equity in Coastal Holding when the transaction closes, which is contingent upon various conditions. As at September 30, 2022, the number of shares that would be required to redeem the NCI is approximately 24,350,000. Refer to Note 10.
b)
The Company was obligated to acquire the remaining 90.5% of Varda Inc. when regulatory approval was received for the license to transfer. On June 20, 2022, regulatory approval was received and as a result the associated redeemable NCI has been reclassified to a liability and subsequently redeemed. Refer to Note 10.
c)
The Company was obligated to acquire the Class A shares of Calma when regulatory approval was received for the license to transfer. During the three months ended September 30, 2022, the Company issued 1,762,425 shares to redeem the Calma NCI.
~~16. Long term strategic contracts~~
~~Marketing Agreement (“MA”)~~
The Company has engaged a third-party for strategic and promotional services. During the three months ended March 31, 2021 and nine months ended September 30, 2021, the Company issued 2,376,425 common shares in settlement of the initial $25,000,000. As the shares vested immediately, the full amount of the $25,000,000 was recognized as an expense in operating expenses during the nine months ended September 30, 2021.
The Company is obligated to issue shares to the value of $1,875,000 quarterly over the second and third year of the contract. During the nine months ended September 30, 2022, the Company issued 4,926,165 common shares to settle the first, second and third quarterly payments.
The Company recognized an expense of $584,181 and $3,311,454 during the three and nine months ended September 30, 2022, respectively (three and nine months ended September 30, 2021 - $1,363,636 and $3,803,030) in operating expenses as a sales and marketing expense. As at September 30, 2022, the cash-settled liability is $3,632,574 (December 31, 2021 - $5,166,666).
The arrangement can be terminated by the counterparty in certain circumstances, one of which is any change of control of the Company. In that case, the Company is required to settle the agreement in a lump sum payment that consists of all unpaid amounts. As at September 30, 2022, the amount that the Company would be liable for if the contract is terminated is $9,375,000.
~~Brand Strategy Agreement (“BSA”)~~
The Company is party to the BSA, whereby the Company receives the services of Shawn C. Carter p/k/a JAY-Z’s related promotion and advertising for the remaining non-cancellable period of 5 years. The Company is committed to settle $21,500,000 in either cash or common shares at the option of the counterparty over the remaining non-cancellable period. The Company is recognizing the cost associated with the arrangement over the same period it is receiving services.
During the three and nine months ended September 30, 2022, the Company recognized an expense of $1,104,167 and $3,312,500 respectively (three and nine months ended September 30, 2021 - $1,104,167 and $3,079,399, respectively) in operating expenses related to this arrangement and $2,496,065 accounts payable and accrued liabilities as at September 30, 2022 (December 31, 2021 - $2,183,565). During the nine months ended September 30, 2022, the Company made a cash payment of $3,000,000 (September 30, 2021 - $nil).
The agreement can be terminated by the counterparty in certain circumstances, including a change in control of the Company or an involuntary de-listing. In these circumstances, the Company will be obligated to pay damages equal to $18,500,000 less the amount already paid under the arrangement. As at September 30, 2022, the amount of damages that the Company would be liable for if the contract is terminated was $13,500,000.
22
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~17. Shareholders’ equity~~
~~Common shares~~
~~a) Authorized~~
~~The Company is authorized to issue an unlimited number of common shares with no par value.~~
b) ~~Common shares issued~~

~~Number of common shares~~June 30,
~~Balance December 31, 2021~~2023

~~97,065,092~~December 31,
2022

~~(i) Shares issued to settle contingent consideration~~Opening gross goodwill

~~305,325~~584,745,143
607,413,242

~~(ii) Shares issued to settle contingent consideration~~Measurement period adjustment

~~264,614~~-
(22,633,099 )
Disposals
(24,351,801 )
(35,000 )
560,393,342
584,745,143

~~Shares issued for Marketing Arrangement (Note 16)~~Opening accumulated impairment

~~4,926,165~~(584,745,143 )

(563,361,597 )
~~Shares issued for vested RSUs and PSUs (Note 19)~~Impairment

~~590,707~~-

(21,418,546 )
~~Shares issued for acquisition of Calma (Note 10)~~Disposals

~~1,762,425~~24,351,801

~~Balance, September 30, 2022~~

~~104,914,328~~35,000

~~(I)~~
During the nine months ended September 30, 2022, the Company issued 305,325 common shares related to contingent consideration in the acquisition of Caliva. The common shares were included in shares to be issued as at December 31, 2021.

(560,393,342 )
(584,745,143 )

~~(ii)~~
During the nine months ended September 30, 2022, the Company issued 264,614 common shares related to contingent consideration in the acquisition of LCV. The common shares were issued as the related contingency was resolved.
Goodwill, net
$ -
$ -

On January 28, 2022, the Company announced a voluntary extension of the lock-up agreements with certain members of the Company’s leadership team and the entire board of directors, covering over approximately 34,000,000 issued and outstanding common shares. Pursuant to the lock-up agreements, each counterparty has agreed that, subject to certain exceptions, they will not, without the written consent of the Company, among other things, assign or dispose of any of their locked-up shares until January 28, 2023.
~~18. Warrants~~
~~The following table reflects the continuity of warrants:~~

Number of Warrants

Weighted Average Exercise Price

Balance, December 31, 2021 and September 30, 2022

35,837,500

$ 11.50

The warrants expire on January 14, 2026. The Company has the right to accelerate expiry of the warrants (excluding the warrants held by the Subversive Capital Sponsor LLC in certain circumstances), if for any 20 trading days in a 30-day trading period the closing price of the share is $18.00 or greater.
~~19. Share-based compensation~~
Effective January 2021, the Company established the Equity Incentive Plan (the “Plan”), which provides for the granting of incentive share options, nonqualified share options, share appreciation rights (“SARs”), restricted share units (“RSUs”), deferred share units (“DSUs”) and performance share units (“PSUs”), herein collectively referred to as “Awards”.
~~(a) Share options~~
The Company grants options to purchase its common shares, generally at fair value as at the date of grant. The maximum number of common shares that may be issued under the Plan is fixed by the Board to be 15% of the common shares outstanding, from time to time, subject to adjustments in accordance with the plan.
Options generally vest over a four-year period, specifically at a rate of 25% upon the first anniversary of the issuance date and 1/36th per month thereafter and expire after 10 years from the date of grant.
~~The Company’s options outstanding relate to replacement options issued in a business combination that occurred in 2021.~~

June 30,
2023

December 31,
2022

Intangible assets gross carrying amounts (i)

License

82,563,527

82,563,527

Brand

50,400,559

50,400,559

Customer relations

2,920,000

2,920,000

135,884,086

135,884,086

Intangible assets accumulated amortization

License

(28,864,369 )

(26,654,299 )
Brand

(10,489,592 )

(9,218,821 )
Customer relations

(795,090 )

(632,868 )

(40,149,051 )

(36,505,988 )

Intangible assets, net

$ 95,735,035

$ 99,378,098

23F-12
Table of Contents

TPCO Holding Corp.
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023

~~19. Share-based compensation~~11. Goodwill and intangible assets (continued)

The ~~following table reflects~~Company recorded amortization expense related to the ~~continuity of the share options during the nine~~three and six months ended ~~September~~June 30, ~~2022:~~

September 30, 2022

Number of
options

Weighted average exercise price $

Weighted average remaining contractual term

Aggregate intrinsic value

Outstanding, beginning of period

756,703

7.85

Expired

(125,627 )

7.94

Forfeited

(114,990 )

7.93

Outstanding, end of period

516,086

7.56

3.85

-

Vested and expected to vest in the future

519,569

7.56

4.70

-

Exercisable

412,586

7.50

3.85

-

~~As at September~~2023 of $1,821,532 and $3,643,063, respectively (three and six months ended June 30, 2022 ~~there was $299,767 of total unrecognized compensation cost~~ related to ~~non-vested replacement options. That cost is expected to be recognized over a weighted average period of 0.86 years.~~
continuing operations - $5,107,255 and $10,136,910, respectively).
~~(b) Equity-settled RSUs and PSUs~~
The following table ~~reflects~~outlines the ~~continuity~~estimated future annual amortization expense as of ~~RSUs and PSUs granted during the nine months ended September~~June 30, ~~2022:~~2023:

September 30, 2022

Number of RSUs

Weighted average grant date fair value $

Number of PSUs

Weighted average grant date fair value $

Outstanding, beginning of period

3,160,020

7.21

150,000

7.01

Granted

2,290,050

0.99

2,510,000

1.04

Vested

(1,017,430 )

7.57

(86,250 )

7.01

Forfeited

(738,248 )

6.57

(125,000 )

1.04

Outstanding, end of period

3,694,392

3.39

2,448,750

1.19

Estimated
Amortization

Remainder of 2023

$ (3,614,820 )
2024

(7,191,983 )
2025

(7,191,983 )
2026

(7,191,983 )
2027

(7,174,094 )
Thereafter

(63,370,172 )

$ (95,735,035 )
12. Impairment

Three months ended

Six months ended

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Right-of-use assets (i)

$ 403,271

$ 1,290,591

$ 403,271

$ 1,290,591

Assets held for sale (ii)

-

1,138,939

-

1,138,939

$ 403,271

$ 2,429,530

$ 403,271

$ 2,429,530

As at September 30, 2022, there was $5,820,703 of total unrecognized compensation cost related to non-vested RSUs and $2,611,920 of total unrecognized compensation cost related to non-vested PSUs. That cost is expected to be recognized over a weighted average period of 2.14 years and 0.94 years respectively. The total fair value of RSUs and PSUs vested during the nine months ended September 30, 2022, was $1,148,076 and $37,913, respectively.
~~Of the 1,103,680 RSUs and PSUs that vested, 590,707 were settled in shares, 484,023 were settled in cash to cover withholding taxes on behalf of the employees and 28,950 were not yet settled.~~
~~The range of grant date fair values related to RSUs and PSUs granted during the nine months ended September 30, 2022 was $0.65 - $1.41.~~
The Company estimates forfeitures based on historical forfeiture trends. If actual forfeiture rates are not consistent with the Company's estimates, the Company may be required to increase or decrease compensation expenses in future periods.
~~During the three and nine months ended September 30, 2022 and 2021, the Company recognized the following total compensation expense, net of estimated forfeitures:~~

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Replacement options

$ 38,011

$ 518,725

$ 317,518

$ 1,815,332

Equity-settled RSUs and PSUs

1,023,108

2,900,036

4,446,771

4,810,532

Cash-settled RSUs

-

(72,588 )

-

5,765,003

Rights to contingent consideration

-

266,483

-

5,059,953

$ 1,061,119

$ 3,612,656

$ 4,764,289

$ 17,450,820

(i)
During the three and six months ended June 30, 2023, the Company recorded impairment of $403,271 related to one of its properties which is no longer being used by the Company and has been listed for sublease at an amount less than current rental payments. During the six months ended June 30, 2022, the Company recorded impairment of $1,290,591 related to two of its properties which are no longer being used by the Company and were subleased or listed for sublease at an amount less than current rental payments.
(ii)
In June 2022, the Company became committed to a plan to sell two licenses and transfer the related right of use asset and lease liability. Prior to reclassification to assets held for sale, the assets were tested for impairment, resulting in an impairment loss of $1,138,939 on intangible assets.

~~20. Loss per share~~13. Accounts payable and accrued liabilities

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021
Loss from continuing operations available to common shareholders
$
(134,574,945)
$
(477,771,926)
$
(196,414,581)
$
(450,389,837)
Loss from discontinued operations available to common shareholders

(13,410,139)

(83,578,124)

(15,385,455)

(86,074,460)
Loss available to common shareholders
$
(147,985,084)
$
(561,350,050)
$
(211,800,036)
$
(536,464,297)

Weighted average number of shares, basic and diluted

103,489,965

98,421,935

101,154,772

93,802,606

Basic and diluted loss per share from continuing operations
$
(1.30)
$
(4.85)
$
(1.94)
$
(4.80)
Basic and diluted loss per share from discontinued operations

(0.13)
$
(0.85)

(0.15)

(0.92)
Basic and diluted loss per share
$
(1.43)
$
(5.70)
$
(2.09)
$
(5.72)

June 30,
2023

December 31,
2022

Trade payables

$ 5,982,108

$ 4,249,794

Other accrued expenses

3,215,710

4,872,988

Accrued payroll expenses

640,942

2,666,974

Accrued severance expenses

982,217

692,220

Accrued income and other taxes

14,395,993

9,974,817

Goods received but not yet invoiced

892,176

2,103,566

$ 26,109,146

$ 24,560,359

~~Approximately 77,571,531 of potentially dilutive securities as at September 30, 2022 were excluded in the calculation of diluted loss per share as their impact would have been anti-dilutive.~~

24F-13
Table of Contents

TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
~~21.~~14. Income taxes

The following table summarizes the Company’s income tax expense and effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Loss and comprehensive loss from continuing operations before income taxes

$ (159,080,687 )

$ (473,836,766 )

$ (221,082,361 )

$ (456,931,217 )
Income tax recovery (expense)

$ 24,460,758

$ (3,935,160 )

$ 24,418,531

$ 6,541,380

Three months ended

Six months ended

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Loss before income taxes

$ (22,349,821 )

$ (29,298,061 )

$ (38,145,422 )

$ (62,001,674 )
Income tax (expense) recovery

$ (1,961,804 )

$ 244,473

$ (2,676,212 )

$ (42,227 )
Effective tax rate

8.78 %

(0.83
%)

7.02 %

0.07 %

The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the industry within which the Company operates.

Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) 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 IRC Section 280E.

The effective tax rate for the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 varies ~~widely~~ from the ~~nine~~three and six months ended ~~September~~June 30, ~~2021,~~2022, primarily due to the ~~reduction~~increase in non-deductible expenses as a proportion of total expenses in the current year. The Company incurs expenses that are not deductible due to IRC Section 280E limitations which results in significant income tax expense.

The Company operates in a number of tax jurisdictions and are subject to examination of its income tax returns by tax authorities in those jurisdictions who may challenge any item on those returns. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the provision for income taxes.

The Company’s unrecognized tax assets were approximately ~~$61,907,748~~$67,718,372 and ~~$42,459,208~~$66,459,411 as at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.
25
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~21. Income taxes~~ ~~(continued)~~

The federal statute of ~~limitation~~limitations remains open for the 2019 tax year to the present. The state income tax returns generally remain open for the 2018 tax year through the present. Net operating losses arising prior to these years are also open to examination if and when utilized.
~~22. Operating expenses~~

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

General and administrative

$ 9,717,296

$ 10,713,535

$ 31,554,670

$ 29,251,275

Allowance for accounts receivable and notes receivable

722,456

460,358

3,303,791

546,975

Sales and marketing

2,687,884

2,478,499

9,812,259

37,901,914

Salaries and benefits

9,149,250

8,455,719

29,039,258

26,271,625

Share-based compensation (Note 19)

1,061,119

3,612,656

4,764,289

17,450,820

Lease expense (Note 12)

1,940,550

1,035,901

5,807,447

3,165,803

Depreciation of property and equipment
   and amortization of right-of-use assets

1,139,282

909,111

2,982,641

2,367,810

Amortization of intangible assets (Note 9)

10,420,607

3,271,209

20,772,458

11,806,979

$ 36,838,444

$ 30,936,988

$ 108,036,813

$ 128,763,201

~~23. Supplemental cash flow information~~

Nine months ended

Change in working capital

September 30, 2022

September 30, 2021

Accounts receivable

$ 564,381

$ (566,648 )
Income tax receivable

1,322,340

-

Notes and other receivables, net

-

(1,700,000 )
Inventory

7,357,888

(834,094 )
Prepaid expenses and other current assets

2,070,637

(5,308,936 )
Security deposits

(85,875 )

6,181

Prepaid expenses and other assets

(43,787 )

37,849

Cash settled share-based payments

-

(1,682,898 )
Accounts payable and accrued liabilities

(13,845,266 )

(29,947,252 )

$ (2,659,682 )

$ (39,995,798 )

Nine months ended

Cash paid

September 30, 2022

September 30, 2021

Income taxes paid

$ 6,000,000

$ 1,700,000

26F-14
Table of Contents

TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
15. Shareholders’ equity
Common shares
a) Authorized
The Company is authorized to issue an unlimited number of common shares with no par value.
b) Common shares issued
Number of common
shares
Balance December 31, 2022
107,516,333
Shares issued for Coast L exchange (i)
18,721,083
Shares issued for vested RSUs and PSUs
933,394
Shares issued previously classified as shares to be issued (ii)
112,634
Shares returned to Treasury (iii)
(7,124,838 )
Balance, June 30, 2023
120,158,606
(i)
On November 14, 2022, Coast L Acquisition Corp (“Coast L”) a wholly owned subsidiary of the Company issued 24,796,902 common shares of Coast L as part of the legal closing of the Company’s acquisition of Coastal Holding Company, LLC. During the six months ended June 30, 2023, an additional 106,290 shares of Coast L were issued. Each Coast L share is exchangeable at any time on a one-for-one basis into common shares of the Company. During the six months ended June 30, 2023, 18,721,083 Coast L shares were exchanged for 18,721,083 common shares of the Company. As at June 30, 2023, 6,182,109 exchangeable shares of Coast L are outstanding.
(ii)
During the six months ended June 30, 2023, 112,634 shares were issued in relation to a previous business combination which were sitting in “to be issued” at March 31, 2023 and December 31, 2022.
(iii)
Of the 7,124,838 shares returned to treasury during the six months ended June 30, 2023, 7,122,321 were sitting in “to be returned” at December 31, 2022. Of those shares, 7,121,239 related to the modification agreements that were entered into between the Company, a third-party, and Shawn C. Carter p/k/a JAY-Z.
16. Operating expenses

Three months ended

Six months ended

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

General and administrative

$ 13,542,776

$ 8,751,232

$ 21,496,719

$ 21,837,374

Allowance for accounts receivable and notes receivable

641,984

168,704

683,854

2,581,335

Sales and marketing

3,400,113

3,718,017

4,771,414

7,124,375

Salaries and benefits

7,838,554

9,874,452

14,869,452

19,890,008

Share-based compensation (Note 18)

498,483

1,461,093

2,163,703

3,703,170

Lease expense (Note 10)

1,255,780

2,110,107

2,569,261

3,866,897

Depreciation of property and equipment and amortization of right-of-use assets under finance leases

890,628

882,659

1,793,928

1,843,359

Amortization of intangible assets (Note 11)

1,821,530

5,322,197

3,643,061

10,351,851

$ 29,889,848

$ 32,288,461

$ 51,991,392

$ 71,198,369

F-15
Table of Contents
TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
17. Loss per share

Three months ended

Six months ended

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Loss from continuing operations available to common shareholders

$ (24,311,625 )

$ (28,693,978 )

$ (40,821,634 )

$ (61,839,636 )
Loss from discontinued operations available   to common shareholders

-

(1,429,097 )

-

(1,975,316 )
Loss available to common shareholders

$ (24,311,625 )

$ (30,123,075 )

$ (40,821,634 )

$ (63,814,952 )

Weighted average number of shares, basic and diluted

120,070,367

101,102,391

111,208,235

99,967,824

Basic and diluted loss per share from    continuing operations

$ (0.20 )

$ (0.29 )

$ (0.37 )

$ (0.62 )
Basic and diluted loss per share from discontinued operations

-

(0.01 )

-

(0.02 )
Basic and diluted loss per share

$ (0.20 )

$ (0.30 )

$ (0.37 )

$ (0.64 )
Approximately 66,912,067 of potentially dilutive securities as at June 30, 2023 were excluded in the calculation of diluted loss per share as their impact would have been anti-dilutive.
18. Share-based compensation
Effective January 2021, the Company established the Equity Incentive Plan (the “Plan”), which provides for the granting of incentive share options, nonqualified share options, share appreciation rights (“SARs”), restricted share units (“RSUs”), deferred share units (“DSUs”) and performance share units (“PSUs”), herein collectively referred to as “Awards”.
(a) Share options
The Company’s options outstanding relate to replacement options issued in a business combination that occurred in 2021.

Six months ended June 30, 2023

Number of
options

Weighted
average
exercise price $

Weighted
average
remaining
contractual term

Aggregate
intrinsic
value

Outstanding, beginning of period

376,385

7.67

Expired

(148,698 )

7.52

Forfeited

(1,747 )

7.10

Outstanding, end of period

225,940

7.79

4.43

-

Vested and expected to vest in the future

225,940

7.79

-

Exercisable

200,948

7.81

4.43

-

As at June 30, 2023, there was $Nil of total unrecognized compensation cost related to non-vested replacement options.
F-16
Table of Contents
TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
18. Share-based compensation (continued)
(b) Equity-settled RSUs and PSUs
The following table reflects the continuity of RSUs and PSUs granted during the six months ended June 30, 2023:

June 30, 2023

Number of RSUs

Weighted
average grant
date fair value $

Number of PSUs

Weighted average
grant date fair
value $

Outstanding, beginning of period

3,093,992

2.71

2,325,000

1.16

Vested

(1,299,917 )

2.55

(586,250 )

1.12

Forfeited

(434,449 )

2.03

(923,750 )

1.04

Modification (i)

187,515

0.16

100,000

0.16

Outstanding, end of period

1,547,141

2.55

915,000

1.14

(i)
During the three months ended June 30, 2023, the Company terminated certain individuals in anticipation of the upcoming acquisition that is discussed in Note 27. As part of the terminations, the Company modified some previously granted RSUs and PSUs such that they would continue to vest on change in control, irrespective of the termination.
As at June 30, 2023, there was $1,417,881 of total unrecognized compensation cost related to non-vested RSUs and $825,494 of total unrecognized compensation cost related to non-vested PSUs. That cost is expected to be recognized over a weighted average period of 1.63 years and 0.03 years respectively. The total fair value of RSUs and PSUs vested during the six months ended June 30, 2023 was $155,414 and $120,111, respectively.
Of the 1,886,167 RSUs and PSUs that vested, 899,328 were settled in shares, 715,504 were settled in cash to cover withholding taxes on behalf of the employees, and 271,335 were not yet settled.
During the three and ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021~~2023, the Company recognized the following total compensation expense, net of estimated forfeitures:

Three months ended

Six months ended

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Replacement options

$ -

$ 48,013

$ -

$ 279,507

Equity-settled RSUs and PSUs

498,483

1,413,080

2,163,703

3,423,663

$ 498,483

$ 1,461,093

$ 2,163,703

$ 3,703,170

19. Supplemental cash flow information

Six months ended

Change in working capital

June 30, 2023

June 30, 2022

Accounts receivable

$ (128,788 )

$ 420,992

Income tax receivable

-

1,322,340

Inventory

2,544,825

6,746,295

Prepaid expenses and other current assets

427,380

725,974

Security deposits

(126,431 )

(111,875 )
Prepaid expenses and other assets

583,333

(86,969 )
Accounts payable and accrued liabilities

813,642

(10,489,840 )

$ 4,113,961

$ (1,473,083 )
F-17
Table of Contents
TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
20. Warrants
The following table reflects the continuity of warrants:

Number of Warrants

Weighted Average Exercise Price

Balance, December 31, 2022 and June 30, 2023

35,837,500

$ 11.50

The warrants expire on January 14, 2026. The Company has the right to accelerate expiry of the warrants (excluding the warrants held by the Subversive Capital Sponsor LLC in certain circumstances), if for any 20 trading days in a 30-day trading period the closing price of the share is $18.00 or greater.

~~24.~~21. Related party transactions and balances

A director of the Company is a close family member to an owner of R&C Brown Associates, LP (“R&C”). The ~~following table outlines the amounts paid~~Company has 2 operating leases and 1 finance lease with R&C.
The Company made lease payments including interest and principal to a related ~~party:~~party of $1,389,384 and $2,777,367 for the three and six months ended June 30, 2023, respectively ($1,356,286 and $2,213,325 for the three and six months ended June 30, 2022, respectively).

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Lease payments – interest and principal (i)

$ 1,347,197

$ 1,307,015

$ 4,040,392

$ 2,213,325

Administrative fees and other costs

-

-

-

5,000

$ 1,347,197

$ 1,307,015

$ 4,040,392

$ 2,218,325

~~(I)~~
A director of the Company is a close family member to an owner of R&C Brown Associates, LP (“R&C”). The Company has 2 operating leases and 1 finance lease with R&C. Included in lease liabilities and right-of-use assets as at September 30, 2022 is $40,733,065 (December 31, 2021 - $41,053,363) and $25,117,364 (December 31, 2021 - $28,035,112)Included in lease liabilities and right-of-use assets as at June 30, 2023 is $38,255,126 (December 31, 2022 - $40,594,490) and $23,415,701 (December 31, 2022 - $24,324,186), respectively, with respect to leases with R&C.

~~In addition to the items described above, the Company entered into the following transaction with a related party:~~
~~(i)~~
The counterparty to the Marketing Agreement described in Note 16 (the “Counterparty”) became a related party in May 2021, when its Chief Executive Officer joined the Company’s Board of Directors. On April 27, 2022, the individual resigned from the Company’s Board of Directors and at that time the Counterparty ceased to be a related party. During the three and nine months ended September 30, 2022, the Company expensed $nil and $1,772,725, respectively related to the Marketing Agreement up to April 27, 2022.
~~25.~~22. Segment information

The Company’s operations comprise a single operating segment engaged in the cultivation, manufacturing, distribution and sale of cannabis within the State of California. All revenues were generated in the State of California for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~June 30, 2022 and all property and equipment, right-of-use assets and intangible assets were located in the State of California.

~~26.~~23. Commitments and contingencies

a) California operating licenses

The ~~Company's~~Company’s primary activity is engaging in state-legal commercial cannabis business, including the cultivation, manufacture, distribution, and sale of cannabis and cannabis products pursuant to California law. However, this activity is not in compliance with the United States Controlled Substances Act (the ~~CSA)~~“CSA”). The ~~Company's~~Company’s assets are potentially subject to seizure or confiscation by Federal governmental agencies, and the Company could face criminal and civil penalties for noncompliance with the CSA, although such events would be without relevant precedent. Management of the Company believes the Company is in compliance with all California and local jurisdiction laws and monitor the regulatory environment on an ongoing basis along with counsel to ensure the continued compliance with all applicable laws and licensing agreements.

The ~~Company's~~Company’s operation is sanctioned by the State of California and local jurisdictions. There have been no instances of federal interference with those who adhere to ~~those   guidelines.~~California laws and regulations governing cannabis. Due to the uncertainty surrounding the ~~Company's~~Company’s noncompliance with the CSA, the potential liability from any noncompliance cannot be reasonably estimated and the Company may be subject to regulatory fines, penalties or restrictions in the future.

Effective January 1, 2018, the State of California allowed for adult use cannabis sales. Beginning on January 1, 2018, the State began issuing temporary licenses that expired 120 days after issuance for retail, distribution, manufacturing and cultivation permits. Temporary licenses could be extended in 90-day increments by the State upon submission of an annual license application. All temporary licenses had been granted extensions by the State during 2018.
F-18
Table of Contents
TPCO Holding Corp.
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023
23. Commitments and contingencies(continued)

In September 2019, Senate Bill 1459 (SB 1459) was enacted which enabled state licensing authorities to issue provisional licenses through 2021. A provisional license could be issued if an applicant submitted a completed annual license application to the Bureau of Cannabis Control. A completed application for purposes of obtaining a provisional license is not the same as a sufficient application to obtain an annual license. The provisional cannabis license, which is valid for 12 months from
27
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~26. Commitments and contingencies~~ ~~(continued)~~
the date issued, is said to be in between a temporary license and an annual license and allows a cannabis business to operate as they would under local and state regulations.

Licensees issued a provisional license are expected to be diligently working toward completing all annual license requirements in order to maintain a provisional license. The Company obtained its provisional licenses in 2019 and continues to work with the State to obtain annual licensing.

The ~~Company's~~Company’s prior licenses obtained from the local jurisdictions it operated in have been continued by such jurisdictions and are necessary to obtain State licensing.

The Company has received annual licenses from each local jurisdiction in which it actively operates. Although the Company believes it will continue to receive the necessary licenses from the State and applicable local jurisdictions to conduct its business in a timely fashion, there is no guarantee its clients will be able to do so and any failure to do so may have a negative effect on its business and results of operations.

b) Other legal matters

From time to time in the normal course of business, the Company may be subject to legal matters such as threatened or pending claims or proceedings. The Company is not currently a party to any material legal proceedings or claims, nor are we aware of any pending or threatened litigation or claims that ~~could~~would be reasonably likely to have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation or claim be resolved unfavorably.

c) Social equity fund

The Company formed Social Equity Ventures LLC (“SEV”) in 2021 as its social equity investment ~~vehicle. The Company intends to fund SEV~~vehicle with a planned $10,000,000 investment and ~~contribute~~a planned annual contribution of at least 2% of its net income ~~to allow SEV to make further social equity investments.~~from the Company. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, SEV made ~~two~~ social equity investments totalling ~~$350,000 (Nine months~~$Nil (year ended ~~September 30, 2021 -–~~December 31, 2022 - SEV made ~~two~~ social equity investments totalling ~~$1,000,000)~~$350,000).

~~27.~~24. Financial instruments

a) Contingent consideration

Financial instruments recorded at fair value in the interim condensed consolidated balance sheet are classified using a fair value hierarchy that reflects the observability of significant inputs used in making the measurements. The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified based on the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

~~All~~As at June 30, 2023, all contingent consideration is classified as level 31 in the fair value hierarchy (as at December 31, 2022, all contingent consideration was classified as ~~volatility is~~ a ~~key input into the valuation models and volatility is an unobservable input.~~level 3).

The following provides a breakdown of contingent consideration as at ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

Contingent consideration

Trading price
consideration (i)

Other (ii)

Total

Balance December 31, 2020

$ -

$ -

$ -

Additions

232,719,246

-

232,719,246

Change in fair value

(222,954,132 )

1,957,045

(220,997,087 )
Transferred to equity

-

(1,957,045 )

(1,957,045 )
Balance September 30, 2021

$ 9,765,114

-

9,765,114

Balance, December 31, 2021

$ 574,687

$ 368,444

$ 943,131

Change in fair value

(572,723 )

(69,430 )

(642,153 )
Transferred to equity

-

(299,014 )

(299,014 )
Balance, September 30, 2022

$ 1,964

$ -

$ 1,964

Contingent consideration

Trading price
consideration (i)

Other (ii)

Total

Balance December 31, 2021

$ 574,687

$ 368,444

$ 943,131

Change in fair value

(569,165 )

(69,430 )

(638,595 )
Transferred to equity

-

(299,014 )

(299,014 )
Balance June 30, 2022

$ 5,522

$ -

$ 5,522

Balance December 31, 2022

$ 1,611,843

$ -

$ 1,611,843

Change in fair value

1,922,931

-

1,922,931

Balance, June 30, 2023

$ 3,534,774

$ -

$ 3,534,774

28F-19
Table of Contents

TPCO Holding Corp.
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023

~~27.~~24. Financial instruments (continued)

(i) Trading price consideration – As part of the acquisition of Caliva and OGE and LCV ~~during the three months ended March 31,~~in 2021, the former shareholders received a contingent right for up to 18,356,299 and 3,856,955 additional common shares, respectively, in the event the 20-day volume weighted average trading price (“VWAP”) of the common shares reaches $13.00,
~~$17.00~~ $17.00 and $21.00 within three years of closing, with one-third issuable upon the achievement of each price threshold, respectively.
In addition, the contingent consideration becomes issuable upon a change in control event. The ~~fair value of the~~ trading price consideration ~~was determined using~~has been valued assuming a ~~Monte Carlo simulation methodology that included simulating the share price using~~100% likelihood of a ~~risk-neutral Geometric Brownian Motion-based pricing model over 500,000 iterations.~~change in control. Refer to Note 27.

The methodology recorded the likelihood of the share price achieving the price hurdle associated with the payout and calculated the discounted value of the payout based on the share price on the date the price hurdle was met and the corresponding 20-day volume-weighted average price.
Key Inputs

September 30, 2022

December 31, 2021

September 30, 2021

June 30,
2023

December 31,
2022

June 30,
2022

Key unobservable inputs

Expected volatility

70 %

65 %

62 %

-

100 %

65 %

Key observable inputs

Share price

$ 0.59

$ 1.39

$ 3.19

$ 0.16

$ 0.15

$ 0.65

Risk-free interest rate

4.06 %

0.79 %

0.35 %

-

4.66 %

2.87 %
Dividend yield

0 %

0 %

0 %

-

0 %

0 %
Number of shares

22,001,711

21,850,404

21,836,190

22,092,339

22,080,037

21,969,238

A 15% change in the volatility assumption will have the following impact on the fair value of the contingent consideration:

Change in volatility

September 30, 2022

December 31, 2021

September 30, 2021

+15%

$ 33,522

$ 1,597,743

9,237,376

-15%

$ (1,822 )

$ (528,968 )

(6,975,068 )
Change in volatility

June 30, 2023

December 31, 2022

June 30, 2022

+15
%

$ -

$ 595

$ 17,527,095

-15
%

$ -

$ -

$ (20,712,326 )
(ii) Other – As part of the acquisition of LCV that occurred on January 15, 2021, the Company could be required to issue shares to former shareholders based on certain liabilities, the final settlement of which is contingent on the outcome of certain events. During the three months ended March 31, 2022, the remaining contingency was resolved and as a result, the number of shares to be issued related to that portion became fixed. The contingent consideration was remeasured to $299,014 based on the fixed number of shares to be issued to the former LCV shareholders and reclassified as equity. The remeasurement is included in the change in fair value of contingent consideration in the interim condensed consolidated statement of operations and comprehensive loss.

~~Interest risk~~b)
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to minimal interest rate risk.
Credit risk

Credit risk arises from deposits with banks, security deposits, trade receivables, notes receivable and other receivables.

Gross

Allowance

Net

Cash

$ 107,111,075

$ -

$ 107,111,075

Restricted cash and restricted cash equivalents

2,639,732

-

2,639,732

Accounts receivable (i)

4,621,242

(2,465,798 )

2,155,444

Security deposits

1,205,629

-

1,205,629

Notes receivables (ii)

6,039,816

(5,650,000 )

389,816

$ 121,617,494

$ (8,115,798 )

$ 113,501,696

As at June, 2023, the balances were as follows:

Gross

Allowance

Net

Cash

$ 60,544,072

$ -

$ 60,544,072

Accounts receivable

2,844,503

(1,729,774 )

1,114,729

Security deposits

1,307,509

-

1,307,509

Notes receivables

12,594,655

(7,140,000 )

5,454,655

$ 77,290,739

$ (8,869,774 )

$ 68,420,965

~~(i) For trade~~The Company’s aging of receivables ~~the Company does not hold any collateral~~was as security but mitigates this risk by dealing with counterparts that management has determined to be financially sound. The Company determines the allowance for doubtful accounts by firstly allowing for specific receivables that are at-risk of non-collection, and then applying a standard percentage by bucket of aging to the remainder. The gross accounts receivable by aging are laid out below.follows:

June 30,
2023

0 - 30 days

$ 1,125,750

31 - 60 days

28,567

61 - 90 days

3,785

91 – 120 days

7,769

Over 120 days

1,678,632

Gross receivables

2,844,503

Less allowance for doubtful accounts

(1,729,774 )

$ 1,114,729

29F-20
Table of Contents

TPCO Holding Corp.
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
Notes to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
For the three and six months ended June 30, 2022 and 2023

~~27. Financial instruments~~ ~~(continued)~~
~~As at September 30, 2022 the Company’s aging of receivables was as follows:~~

September 30, 2022

0 - 30 days

$ 1,424,901

31 - 60 days

139,410

61 - 90 days

188,883

91 – 120 days

73,711

Over 120 days

2,794,337

Gross receivables

4,621,242

Less allowance for doubtful accounts

(2,465,798 )

$ 2,155,444

(ii) For notes and other receivables, the Company determines the allowance for doubtful accounts by considering, for each debtor, if there has been any indication that a loss has been incurred. In making that determination, the Company considers the credit rating of the debtor as well as any collateral that underlies the receivable. Refer to Note 6 for additional information.
~~28.~~25. Fair value measurement
Recurring fair value measurements

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as at ~~September~~June 30, ~~2022 and the associated gains (losses) for the nine months ended September 30, 2022:~~

Carrying amount

Fair value

Level 1

Level 3

Gains (losses)

Equity securities

$ 438,522

$ 438,522

$ 438,522

$ -

$ (421,974 )
Debt securities

1,308,028

1,308,028

-

1,308,028

-

Total investments

$ 1,746,550

$ 1,746,550

$ 438,522

$ 1,308,028

$ (421,974 )

Contingent consideration – trading price consideration

$ 1,964

$ 1,964

$ -

$ 1,964

$ 572,723

Contingent consideration - other

-

-

-

-

69,430

Total contingent consideration (Note 27)

$ 1,964

$ 1,964

$ -

$ 1,964

$ 642,153

~~Non-recurring fair value measurements~~
Certain assets are measured at fair value on a non-recurring basis and therefore are not included in the tables above. These assets were adjusted to fair value as a result of impairment recognized in the nine months ended September 30, 2022 (Note 13). The following table presents the level within the fair value hierarchy for these fair value measurements as at their respective measurement dates, along with their carrying value at September 30, 2022:

Carrying amount

Fair value

Level 3

Licenses

$ 9,699,829

$ 9,699,829

$ 9,699,829

Brands

$ 23,624,000

$ 23,624,000

$ 23,624,000

Right of use assets - operating

$ 2,458,703

$ 2,476,399

$ 2,476,399

30
~~Table of Contents~~
2023:
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~

Carrying amount

Level 1

Level 3

Fair value change

Debt securities and total investments

$ 571,301

$

$ 571,301

$ 170,358

Total contingent consideration – trading price consideration (Note 24)

$ 3,534,774

$ 3,534,774

$ -

$ 1,922,931

~~29. VIE arrangements~~
As discussed in Note 10, the Company has determined it is the primary beneficiary of VIEs and as such, the Company has consolidated the financial position, results of operations and cash flows of these VIEs. All intercompany balances and transactions between the Company and these VIEs are eliminated in the interim condensed consolidated financial statements.
The aggregate carrying values of the VIEs’ assets and liabilities, after elimination of any intercompany transactions and balances, in the interim condensed consolidated balance sheets were as follows:

September 30, 2022

December 31, 2021

Assets

Current assets

Cash

$ 3,851,443

$ 1,754,929

Restricted cash

996,452

6,443,076

Accounts receivable, net

149,245

91,004

Income tax receivable

-

162,073

Inventory

2,142,122

1,199,662

Prepaid expenses and other current assets

1,405,873

1,401,117

Total current assets

8,545,135

11,051,861

Property and equipment, net

5,874,961

5,110,894

Goodwill

-

36,253,294

Intangible assets

31,596,969

25,471,611

Right-of-use assets - operating

8,751,513

12,199,466

Total assets

$ 54,768,578

$ 90,087,126

Liabilities

Current liabilities

Accounts payable and accrued liabilities

$ 5,177,495

$ 6,724,680

Consideration payable – current portion

1,649,783

1,331,724

Operating lease liability- current portion

545,028

935,346

Total current liabilities

7,372,306

8,991,750

Operating lease liabilities

11,399,056

11,681,587

Deferred tax liabilities

8,765,597

7,563,419

Consideration payable

520,681

1,827,515

Total liabilities

$ 28,057,640

$ 30,064,271

The assets and liabilities in the table above include the carrying value of the goodwill, intangible assets and fair value adjustments recognized as a result of the business combination. Included in restricted cash is $996,452 (December 31, 2021 - $6,443,076) that is only available to settle certain VIE obligations, and the creditors of $2,667,968 (December 31, 2021 - $7,953,367) of the liabilities have no recourse against the Company.
31
~~Table of Contents~~
~~TPCO Holding Corp.~~
~~Notes to the interim condensed consolidated financial statements~~
~~(Unaudited, in United States dollars)~~
~~For the three and nine months ended September 30, 2022 and 2021~~
~~30. Comparative figures~~
~~Certain comparative figures have been restated where necessary to conform with current period presentation.~~
~~31.~~26. COVID-19

In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. COVID‑19 continues to impact the U.S. and other countries across the world, and the duration and severity of its effects remain unknown. The Company continues to implement and evaluate actions to maintain its financial position and support the continuity of its business and operations in the face of this pandemic and other events.

The Company’s priorities during the COVID-19 pandemic continue to be protecting the health and safety of its employees and its customers, following the recommended actions of government and health authorities. In the future, the pandemic may cause reduced demand for the Company’s products and services if, for example, the pandemic results in a recessionary economic environment or potential new restrictions on business operations or the movement of individuals.

The COVID-19 outbreak in the United States has caused business disruption both to the Company and throughout its customer base and supply chain through mandated and voluntary closings of many businesses. While this disruption is expected to negatively impact The Company’s operating results, the related financial impact and duration cannot be reasonably estimated at this time. The Company has taken and continues to take, important steps to protect its employees, customers and business operations since the beginning of the pandemic.

The Company has incurred incremental costs to implement proactive measures to prevent the spread of COVID-19. Additionally, the Company closely monitors its supply chain and third-party product availability in light of the pandemic. To date, the business has not experienced negative consequences due to interruptions in its supply chain. However, the Company continues to undertake preemptive measures to ensure alternate supply sources as needed.
~~32.~~27. Subsequent events

~~Shares issued~~
~~Subsequent to September 30, 2022, the Company issued 99,899 shares for RSUs and PSUs vested.~~
~~Disposal~~Closing of ~~SISU~~transaction with Gold Flora LLC

On ~~October 31, 2022,~~July 7, 2023, the Company finalized the sale of SISU for $317,000 cash. In addition, the purchaser has agreed to enter into a multi-strategic supply agreement providing the Company the right, but not the obligation, to purchase cannabis oil and ~~flower brokerage services for a period of 24 months on preferred terms.~~
~~Closing of Coastal Acquisition~~
~~On November 14, 2022, the Company completed~~Gold Flora, LLC consummated an all-stock business combination transaction resulting in the acquisition of ~~100%~~the Company (the “Business Combination”). A newly formed British Columbia corporation (the “Resulting Issuer”), created to manage and hold the combined business of the ~~equity of Coastal Holding~~ Company ~~LLC ("Coastal") by issuing 25,000,000 shares of Coast L Acquisition Corp., a wholly owned subsidiary~~and Gold Flora, acquired all of the ~~Company. The shares of Coast L Acquisition Corp. are exchangeable on a one-for-one basis into shares~~issued and outstanding Common Shares and all of the ~~Company. The Company also paid an additional $3.1 million upon closing~~issued and ~~assumed approximately $1.9 million~~outstanding membership units in the capital of ~~debt.~~Gold Flora. As part of the Business Combination, the Resulting Issuer redomiciled to the State of Delaware pursuant to Section 388 of the Delaware General Corporation Law under the name “Gold Flora Corporation”.
Gold Flora Corporation is a reporting issuer in Canada and the United States. Gold Flora Corporation’s common stock is listed on the NEO Exchange Inc. under the ticker symbol “GRAM”, and Gold Flora Corporation’s share purchase warrants are listed on the NEO Exchange Inc. under the ticker symbol "GRAM.WT.U".
.
Gold Flora’s registered office and head office is located at 3165 Red Hill Avenue, Costa Mesa, California, 92626, United States of America.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD~~&A”~~&A”) should be read together with other information, including our unaudited interim condensed consolidated financial statements and the related notes to those statements included in Part I, Item 1 of this Quarterly Report (the ~~“Interim~~“Interim Financial ~~Statements”~~Statements”). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report contains certain information that may constitute forward-looking information and forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the ~~Securities~~ Exchange Act ~~of 1934,~~ and under Canadian securities laws (collectively, ~~“Forward-Looking Statements”~~“Forward-Looking Statements”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. Such statements can be identified by the use of forward-looking terminology such as ~~“expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”,~~“expect,” “likely,” “may,” “will,” “should,” “intend,” “anticipate,” “potential,” “proposed,” “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. Forward-Looking Statements in this Quarterly Report include, but are not limited to, statements with respect to:

·
the performance of the Company’s business and operations;
·
~~the Company’s expectations regarding revenues, expenses, liquidity and anticipated cash needs, including~~
the Company’s ability to grow revenue and reach ~~long-term~~long- term profitability;
·
~~the Company’s ability to reduce its operating expenses and cash burn rate, including the expected cost savings from actions taken to date;~~
·
~~the Company’s ability to complete future strategic alliances and the expected impact thereof;~~
·
~~expected future sources of financing;~~
·
the expected ~~future business strategy, competitive strengths, goals, expansion and growth~~benefits of the ~~Company’s business, including operations and plans, new revenue streams and cultivation and licensing assets;~~Business Combination
·
Expected future sources of financing;
·
the implementation and effectiveness of the Company’s ~~distribution platform, including;~~
cost-cutting initiatives;
·
~~the expected impact of the Company’s agreement to transition its wholesale distribution to Nabis;~~
·
expectations with respect to future production costs;
·
the expected methods to be used by the Company to distribute cannabis;
·
the competitive conditions of the industry;
·
laws and regulations and any amendments thereto applicable to the business and the impact thereof;
·
the competitive advantages and business strategies of the Company;
·
the application for additional licenses and the grant of licenses or renewals of existing licenses that have been applied for;
·
the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis;
·
the Company’s future product offerings;
·
the anticipated future gross margins of the Company’s operations;
·
~~the Company’s ability to source and operate facilities in the United States;~~
·
~~the Company’s ability to source select investment opportunities and complete future targeted acquisitions, the ability to finance any such acquisitions, and the expected impact thereof;~~
·
~~expansion into additional U.S. and international markets;~~
·
expectations of market size and growth in the United States and the states in which the Company operates or contemplates future operations;
·
expectations for regulatory and/or competitive factors related to the cannabis industry generally; and
·
general economic trends.
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Certain of the Forward-Looking Statements contained herein concerning the cannabis industry and the general expectations of the Company concerning the cannabis industry are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of the cannabis industry which the Company believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While the Company is not aware of any misstatement regarding any industry or government data presented herein or information presented herein which is based on such data, the cannabis industry involves risks and uncertainties that are subject to change based on various factors, which factors are described further below.

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Forward-Looking Statements contained in this Quarterly Report reflect management’s current beliefs, expectations and assumptions and are based on information currently available to management, management’s historical experience, perception of trends and current business conditions, expected future developments and other factors which management considers appropriate. With respect to the Forward-Looking Statements contained in this Quarterly Report, the Company has made assumptions regarding, among other ~~things~~things: (i) its ability to generate cash flows from operations and obtain ~~any~~ necessary financing on acceptable terms; (ii) general economic, financial market, regulatory and political conditions in which the Company operates; (iii) the output from the Company’s operations; (iv) consumer interest in the Company’s products; (v) competition; (vi) anticipated and unanticipated costs; (vii) government regulation of the Company’s activities and products and in the areas of taxation and environmental protection;
(viii) the timely receipt of any required regulatory approvals; (ix) the Company’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (x) the Company’s ability to conduct operations in a safe, efficient and effective manner; (xi) the Company’s ability to meet its future objectives and priorities; (xii) the Company’s access to adequate capital to fund its future projects and plans; (xiii) the Company’s ability to execute on its future projects and plans as anticipated; (xiv) industry growth rates; and (xv) currency exchange and interest rates.

Readers are cautioned that the above list of cautionary statements is not exhaustive. Known and unknown risks, many of which are beyond the control of the Company, could cause actual results to differ materially from the Forward-Looking Statements in this Quarterly Report. Such lists include, without limitation, those discussed under the heading ~~“Risk Factors”~~“Risk Factors” in Item 1A of Part II of this Quarterly Report ~~in Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022 (our “2021 Form 10-K”)~~ and in the Company’s periodic reports subsequently filed with the SEC and in the Company’s filings on SEDAR at www.sedar.com. The purpose of Forward-Looking Statements is to provide the reader with a description of management’s expectations, and such Forward-Looking Statements may not be appropriate for any other purpose. You should not place undue reliance on ~~Forward- Looking~~Forward-Looking Statements contained in this Quarterly Report. Although the Company believes that the expectations reflected in such Forward-Looking Statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Forward-Looking Statements contained herein are made as of the date of this Quarterly Report and are based on the beliefs, estimates, expectations and opinions of management on the date such Forward-Looking Statements are made. The Company undertakes no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements, except as required by applicable law. The Forward-Looking Statements contained in this Quarterly Report are expressly qualified in their entirety by this cautionary statement.

~~Results for First nine Months of 2021 Do Not Reflect Complete Period~~
Our financial results for the nine month period ended September 30, 2021 did not include operating results from January 1, 2021 to January 15,2021 due to the fact that our qualifying transaction, pursuant to which the Company’s business operations began, closed on January 15, 2021 (the “Qualifying Transaction”). Accordingly, our results of operations are not necessarily comparable between the nine months ended September 30, 2022 and the nine months ended September 30, 2021.
Part 1—Business Overview

The following business overview reflects our business as it existed through the end of the quarter ended June 30, 2023. As discussed below, we completed the Business Combination with Gold Flora on July 7, 2023. For information about Gold Flora’s operations, please see “—Gold Flora and The Parent Company isTransformational Merger” below. We are a consumer-focused cannabis company based in the United States focused on the recreational and wellness markets. ~~The Company’s~~Our operations in California are focused on building winning brands supported by ~~its~~our omni-channel ecosystem. ~~The Company’s~~Our platform was designed to create ~~one of~~ the most socially responsible and culturally impactful ~~companies~~cannabis company in the United States, producing consistent, well-priced products and culturally relevant brands that are distributed to third-party retailers as well as direct-to-consumer via ~~the Company’s~~our delivery service and strategically located storefront retail locations across California. A full portfolio of products and brands that appeal to a broad range of user groups, need-states and occasions, offered at many price points, and with various brand value propositions, are produced at ~~thigh~~a high caliber of ~~quality through integrated cultivation and manufacturing. The Company believes its~~quality. We believe our delivery and storefront retail outlets will allow itus to achieve high gross-margins on many of ~~its~~our products, forge one-on-one relationships between ~~its~~our brands and consumers and collect proprietary consumer data and insights.

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~~The Company’s~~Our operational footprint spans ~~cultivation,~~production and manufacturing, brands, retail and delivery. ~~The~~Our management team and directors ~~of the Company~~ bring ~~together~~ deep expertise in cannabis, consumer packaged goods, investing and finance, from start-ups to publicly traded companies. ~~The Company aims~~We aim to leverage the collective industry experience of ~~its~~our management and directors.

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~~As at September 30, 2022,~~
Following our exit from the ~~Company views its~~bulk wholesale business, we view our business as having one sales ~~channel –~~channel: omni-channel ~~retail:~~retail, comprised of brick and mortar retail, e-commerce pick up & delivery, as well as the sale of various branded wholesale products. ~~The Company currently operates twelve~~As of June 30, 2023, we operated eleven omni-channel retail locations and one stand-alone delivery depot. We operate four ~~consumer delivery hubs.~~store brands, Caliva, Deli by Caliva, Coastal and Calma.

Our continuing operations revenue for the three and six months ended June 30, 2023 was $19,410,764 and $37,464,976, as compared to $21,673,714 and $44,114,014 in the three and six months ended June 30, 2022, representing decreases of 10.4% and 15.1% respectively. The decreases are due to the change in strategy and to focus on higher margin business. The Company ~~made the strategic decision to exit~~also closed its ~~low margin bulk wholesale business~~Ceres location during the ~~third~~second quarter of ~~2022~~2023.The Company’s realized gross margin was 48.6% and 46.0% in the three and six months ended June 30, 2023, compared to 27.8% and 28.9% in the three and six months ended June 30, 2022.
As we continue to scale and integrate our business, we are incurring operating losses. Our operating losses for the three and six months ended June 30, 2023 totaled $20,857,738 and $35,178,232, compared to a loss of $28,694,837 and $60,887,851 in the three and six months ended June 30, 2022. We continue to actively evaluate additional cost reductions and business optimization to reduce complexity, prioritize higher-margin activities and conserve cash. Ultimately, the Company was successful in disposing of its bulk wholesale business on October 31, 2022. As such, this bulk wholesale business has been presented as discontinued operations commencingour cash burn in the ~~third quarter of 2022 in~~near term, accelerate market share growth, improve our financial statements. All comparative information has been restated to remove the bulk wholesale discontinued operations results. The bulk wholesale business generated revenue from the sale of bulk flowergross margin profile and ~~oil produced in-house.~~work toward generating sustained free cash flow.

Through a combination of (i) professional leadership, (ii) omni-channel operations, (iii) technology and data driven practices, (iv) brand and product expertise, and (v) social justice and equity advocacy, ~~the Company intends~~we intend to set the example globally as a best-in-class cannabis operation.
Gold Flora and The Parent Company ~~is actively evaluating cost reductions and~~Transformational Merger
On July 7, 2023, the parties consummated the previously announced business ~~optimization to reduce its cash burn~~combination transaction resulting in the ~~near term.~~combination of the TPCO Holding Corp. and Gold Flora, LLC, a leading vertically-integrated California cannabis company, in an all-stock transaction (the “Business Combination”). The entity resulting from the Business Combination, which now operates as Gold Flora Corporation, creates a leading portfolio encompassing cultivation, distribution, product brands, and retail and delivery footprint – enabling the business to operate at scale across California and control every aspect of the rapidly evolving supply chain.

~~Beginning~~Gold Flora Corporation is a female-led, vertically-integrated cannabis leader that owns and operates a robust portfolio of 9 cannabis brands, 16 retail dispensaries, and a number of companies, including Stately Distribution, throughout California. Its retail brands include Airfield Supply Company, Caliva, Coastal, Calma, King’s Crew, Varda, and Higher Level.
Gold Flora Corporation operates an indoor cultivation canopy of approximately 72,000 square feet across three campuses, with the opportunity to expand to a further approximately 240,000 square feet. Its 200,000 square-foot cannabis campus located in ~~2022,~~Desert Hot Springs, California – that has the ability to scale to 620,000 square feet – also houses the company’s manufacturing, and extraction facilities, as well as Stately Distribution.
Gold Flora Farms is located within the BlackStar Industrial Properties, a 620,000 sq. ft. indoor cannabis campus at full build-out, located in Desert Hot Springs, CA. This state-of-the-art cannabis campus is fully licensed and houses some of the world’s leading cannabis brands and companies across all sectors.
With hubs throughout the state, Gold Flora Corporation sells and distributes for many prominent brands, including its own premium lines of Gold Flora, Monogram, Caliva, Mirayo by Santana, Cruisers, Roll Bleezy, Sword & Stoned, Aviation Cannabis, and Jetfuel Cannabis.
Transaction Summary
On July 7, 2023, the Company ~~changed its mergers~~and Gold Flora, LLC consummated the Business Combination. As part of the Business Combination, a newly formed British Columbia corporation (the “Resulting Issuer”), created to manage and hold the combined business of the Company and Gold Flora, acquired all of the issued and outstanding common shares of TPCO (the “Common Shares”) and all of the issued and outstanding membership units in the capital of Gold Flora (“Gold Flora Units”). As part of the Business Combination, the Resulting Issuer redomiciled to the State of Delaware pursuant to Section 388 of the Delaware General Corporation Law under the name “Gold Flora Corporation”.
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Holders of the Common Shares received one share of common stock of the Resulting Issuer (such shares, the “Resulting Issuer Shares”) for each Common Share held and holders of Gold Flora Units received 1.5233 Resulting Issuer Shares for each Gold Flora Unit held.
Gold Flora Corporation is a reporting issuer in Canada and the United States. Gold Flora Common Stock (the “Gold Flora Common Stock”) is listed on the NEO Exchange Inc. under the ticker symbol "GRAM", and Gold Flora Corporation’s share purchase warrants are listed on the NEO Exchange Inc. under the ticker symbol "GRAM.WT.U".
The Resulting Issuer’s registered office and head office is located at 3165 Red Hill Avenue, Costa Mesa, California, 92626, United States of America.
Under the terms of the Business Combination, Laurie Holcomb, the Founder and Chief Executive Officer of Gold Flora, has been named Chief Executive Officer of Gold Flora Corporation and Troy Datcher, the former Chief Executive Officer of TPCO and Chairman of the TPCO board of directors, serves as Chairman of the board of directors of Gold Flora Corporation. Gold Flora Corporation’s board of directors is comprised of seven directors, four of whom were nominated by Gold Flora, being Laurie Holcomb, Michael W. Lau, Heather Molloy and Jeffery Sears, and three of whom were nominated by TPCO, being Troy Datcher (Chairman), Al Foreman and Mark Castaneda.
Key Transaction Benefits & ~~acquisitions strategy going forward~~Strategic Rationale
·
Increased size and scale to become a leading operator in the world’s largest cannabis market. The combined company operates a footprint of 15 retail stores, 12 house brands, three distribution centers, one manufacturing facility and six cultivation facilities, providing the size and scale to position the combined company as a leader in the California cannabis market.
·
Establishing a strongly positioned vertically-integrated platform to achieve financial and operational efficiency, as one of the largest indoor cultivators and retail operators in California. The combined company has an indoor cultivation canopy of approximately 72,000 square feet, with the opportunity to expand to a further approximately 420,000 square feet, critical to controlling its supply chain and inventory levels while providing consistent high-quality flower, as well as flower-driven products that leverage an exceptional proprietary genetics library to deliver exclusive offerings that align with consumer demands.
·
Significant synergies expected to drive margin improvement and enhance profitability across all verticals. Through the streamlining of retail operations, utilizing scale to access bulk purchasing power, and eliminating third-party contracts, the combined company is expected to achieve annualized cost savings of between $20 million and $25 million, to further improve gross margin and profitability while delivering value for shareholders.
·
Reduction in third-party costs through supply-chain optimization. The combined company will reduce third-party contracts when strategically and cost effectively appropriate by utilizing the capabilities of Gold Flora and controlling its value chain.
·
Combined company is well-positioned as a top 10 brand portfolio by revenue. As two of the premier operators in the state, the Business Combination is has created a diversified and highly complementary customer product offering, with a variety of form factors and brands for differentiated consumer profiles. Additionally, with only 13% overlap in current company retail store footprints, there is a significant opportunity for cross-selling brands into diverse customer bases to drive organic growth.
·
Enhanced financial profile with strong balance sheet. The combined company is expected to have pro forma revenue of approximately $199.6 million for the year ended December 31, 2023. Providing a robust foundation to accelerate growth, the combined company will be well-positioned to capitalize on the market opportunities ahead as a leading public cannabis company in California.
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Working Capital Facility Agreement with Gold Flora
In connection with the Business Combination, TPCO-US, a direct and wholly-owned subsidiary of TPCO, and Gold Flora entered into a working capital facility agreement, pursuant to ~~be more opportunistic and selective rather than~~which the TPCO-US agreed to advance to Gold Flora in a principal amount of up to $5,000,000, at an interest rate of 10% per annum, secured by certain assets of Gold Flora. During the three months ended June 30, 2023, $5,000,000 of the facility was advanced. The balance as ~~a core function~~at June 30, 2023, related to ~~achieve rapid growth.~~this promissory note including accrued interest was $5,125,113.

~~Third~~Second Quarter Highlights

~~Cost Reduction Initiatives~~Operational Update
1)~~Cultivation Pause~~

~~Our operations continue~~Operations continues to focus on increasing gross margin and cost reduction, ~~in high impact areas of the Company, most notably cultivation.~~
In mid-September 2022, in-house cultivation was paused in response to the availability of lower cost flower that meets our quality specifications for our first party brands. We expect to achieve significant margin enhancement, as well as cost certainty with strategic sourcing relationships in place. We anticipate that the pause of in-house cultivation will reduce annual cash operating expenses by approximately $1.8 million and associated annual payroll by approximately $4 million by eliminating 70 positions or approximately 14% of the workforce for total savings of approximately $5.8 million annually.
2)~~Delivery Depot Consolidation~~
In response to proposed changes to California's cannabis delivery regulations to increase the allowed delivery "case pack value" limit, the Company has acted to optimize its delivery footprint. Under existing regulations, delivery drivers are allowed to carry a maximum of $5,000 worth of product in a vehicle, of which a maximum of $3,000 can be product that was not part of an order made before the driver leaves the delivery depot. The proposedcommercializing new ~~regulations would double the "case pack value" limit to $10,000, all of which can be product not part of a previously made order.~~
~~As a result of this change, which is expected to come into effect~~products in the ~~fourth quarter of 2022, delivery vehicles will be able~~R&D pipeline. The following initiatives continued to ~~carry significantly more product than currently allowed. This increase is also expected~~translate to increase the geographic area that can be covered by a vehicle and allow for a much greater breadth of product to be carried. Consequently, the Company has elected to dispose of select redundant delivery depot locations as many geographic regions can now be more efficiently managed, including Culver City, Chula Vista and Sacramento operations. These dispositions resulted in $500,000 in gross sale proceeds and are expected to result in additional annual cost savings of $1.8 million.
~~This consolidation has reduced fixed cost and operational complexity, while retaining sales though store delivery alternatives.~~
~~Revenue Growth and Gross Margin Improvement Initiatives~~
~~To drive revenue growth and~~realized margin improvement ~~in stores, the Company:~~during our second quarter.

1)■
~~Focused~~To maintain gross margins on ~~increasing new~~manufactured product, we forward purchased distillate, locking in a competitive price and ~~returning traffic by introducing and expanding high quality, limited batch Flower brands which include: BLEM, Teds Budz, Alien Labs, Connected, Fig Farms and Marathon.~~
limiting any upward cost exposure.

2)■
We have transferred vape pen and non-infused pre-roll production to Gold Flora operations, capturing cost savings on implied labor margins from outsourcing partners.
We also continued to reduce operating expenses by achieving labor savings in the amount of $1.2 million in Q2 2023 as compared to Q2 2022, an additional 19% reduction since the beginning of 2023. As of June 30, 2023, we had reduced our workforce by approximately 50% from the beginning of 2022 and have realized annualized payroll savings of approximately $25 million.
The Company closed its Ceres retail dispensary during June 2023 to mitigate further losses at this location.
The Company will continue to focus on the following opportunities:
~~Focused on increase in our average basket size by introducing and expanding Ounces and Half Ounces to our Flower assortment.~~·
Reducing cash burn

3)·
~~Continued to focus on curating a localized assortment that is relevant and consistently appealing.~~
Accelerating market share growth

4)·
Rolled out Treez point of sale system in all Coastal and Calma locations. Caliva locations will be transitioned in the fourth quarter of 2022. Treez is a leading commerce platform for cannabis retailers.
Improving gross margin profile

5)·
Significantly increased exposure and advertising on Weedmaps, e.g., push messaging, side banners, improved placement on search pages and programmatic marketing. Weedmaps is a third party platform for users interested in purchasing cannabis.
6)
~~Held several vendor supported promotions for various brand launches by Stiizy and Raw Garden~~
7)
~~Hired street teams to help localize brand awareness and purchased significant billboard space.~~
8)
~~Built out a robust product demonstration schedule to develop brand engagement with customers and increase sell through.~~
9)
~~Opened the Coastal Concord location during September 2022.~~
Generating sustained free cash flow
Product Updates
In May 2023, the Company successfully launched its newest product format, hash infused gummies under the Mirayo brand, providing 3 unique, Latin-inspired flavors (Guava, Prickly Pear and Raspberry) to the portfolio. As part of the product launch, Carlos Santana hosted a meet and greet with budtenders at the Company’s Calma West Hollywood dispensary. The hash rosin gummies each contain 10 mg of THC and are made from all-natural ingredients.


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Social Equity Venture’s Brand Success Program
During the first quarter of 2023, the Company launched a “Brand Success Program” designed to provide minority-owned brands with guaranteed shelf space and individualized mentorship from the Company’s sales, marketing, retail, and operational teams. Brands learn best practices, operational procedures, and tips that can be applied to any retail outlet nationwide. To June 30, 2023, the brand success program has been well received by the participating brands and the Company’s customers.
Subsequent Events
Formation of Stately Distribution – Focused on Building Category Leadership for its Curated Brand Portfolio and Partners
On July 26, 2023, Gold Flora announced that it has launched a new sales and distribution division, Stately Distribution (“Stately”), to provide premium service and support to the California cannabis market. Stately will operate comprehensive sales and management for Gold Flora Corporation’s rapidly growing first party brands, which with the closing of the Business Combination, includes 9 brands as well as a select group of strategically curated third-party partner brands.
With a curated assortment of third-party brands selected for their differentiated offerings, Stately is focused on driving account and sales growth for its partners, while also seamlessly integrating brands into Gold Flora Corporation’s rapidly growing retail footprint, which includes some of the leading dispensaries throughout the state. As a key company within a prominent vertically-integrated operation, Stately provides unparalleled insight and data that it can leverage for its partner brands in both owned and third-party placements and campaigns. Stately also distinguishes itself by creating accountability not seen in other distribution models – setting targets and expansion goals for each of its brands. Gold Flora Corporation is committed to providing services that go beyond traditional distribution, enabling its partners to succeed and thrive in the challenging and dynamic California cannabis landscape.
The formation of Stately coincides with several first-and-third-party brand developments, including the recent launch of Gold Flora Corporation’s Roll Bleezy concentrate line, and the onboarding of The Parent Company’s family of brands including Caliva, Mirayo by Santana, Monogram and Cruisers. Combined with the recent addition of leading third-party brand Henry’s Original to its product portfolio – a premium legacy brand from Mendocino County that has been growing the finest sun-grown cannabis for over 15 years - Stately is building a truly differentiated portfolio.
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~~New Product Updates~~
~~RCVRY~~: A premium cannabis product launched in September 2022 at our Calma location. RCVRY is a brand collaboration featuring Nordan Shat aka "Faze Rain" from the FaZe Clan (NASDAQ: FAZE) gaming community with a fan base of over 510 million across combined social platforms. Our RCVRY cannabis launch coincided with Nordan's "public resurfacing" following his accident that left him temporarily paralyzed two years ago. Nordan is currently filming content that will be released across his social channels that follow his road to recovery (RCVRY).
~~East Coast Expansion~~
On July 6, 2022, the Company announced its first out of California state licensing and cultivation production agreement (the “Licensing Agreement”) with Curio Wellness (“Curio”). The agreement will bring the Company’s brands and products to the State of Maryland with anticipated market launch in late 2022.
Initial brands to be introduced under the terms of the Licensing Agreement include Monogram, Caliva, Mirayo by Santana, Deli, Cruisers and other TPCO owned brands, in a variety of product form factors including jarred fresh flower, pre-rolls, premium vapes, and infused gummies and chocolates. Some of the products will feature signature strains of cannabis cultivated by Curio in collaboration with The Parent Company. The Parent Company brands are expected to initially be available at Curio’s Far & Dotter dispensaries, with broad wholesale distribution to dispensaries across the State of Maryland to follow.
Under the terms the Licensing Agreement, Curio will exclusively manufacture, distribute, market and sell the Company’s branded products in the State of Maryland according to the product specifications and quality standards established by The Parent Company. The Licensing Agreement has an initial term of four years with further renewal terms and anticipates a potential expanded partnership into additional states.
~~Social Equity~~
On July 1, 2022, the Company agreed to make a follow-on $200,000 investment in its existing Josephine & Billie’s investment. Women-founded and led, Josephine and Billie’s is LA’s first cannabis speakeasy that gives Women of Color a tailored cannabis experience. We support Josephine and Billie’s mission to be inclusive, communal and puts the needs of Women of Color at the forefront. The Parent Company is proud to make this follow-on investment to provide Josephine & Billie’s the funds needed to build a sustainable business.
The Company plans to reposition its Social Equity Ventures to become the centralized owner of all corporate social responsibility activities undertaken with the mission to provide Black and underrepresented minorities with the foundation to succeed in the legal cannabis industry through education, advocacy and access to capital. Social Equity Ventures will be rebranded as “Legacy Ventures”.
~~Subsequent Events~~
~~Disposal of SISU~~
On October 31, 2022, the Company finalized the sale of its bulk wholesale business (SISU Extraction LLC) for $317,000 cash. In addition, the purchaser has agreed to enter into a strategic supply agreement providing the Company the right, but not the obligation, to purchase cannabis oil and flower brokerage services for a period of 24 months on preferred terms.
~~Manufacturing Outsourcing~~
~~During October 2022,~~product manufacturing was outsourced to third-party processors, which the Company expects will achieve an average of 27% cost savings on these products. In addition to margin improvement, we expect to benefit from strong R&D capabilities to produce innovative products for our future.
~~Workforce Reduction~~
We also continue to consolidate operational functions within the organization, which we expect to lead to further cost reductions overall. Including the $4 million payroll savings achieved by pausing cultivation in mid-September 2022. As of the date of this Quarterly Report, the Company has reduced its workforce by 33% from the beginning of 2022 and expects realize annual payroll savings of approximately $10 million.
In summary, to the date of this MD&A, the Company has implemented initiatives that are expected to save a total of approximately $13.6 million of costs: approximately $10 million payroll, approximately $1.8 million from cultivation pause/manufacturing outsourcing and approximately $1.8 million from delivery depot consolidation.
~~Closing of Coastal Acquisition~~
On November 14, 2022, the Company completed the acquisition of 100% of the equity of Coastal Holding Company, LLC ("Coastal") by issuing 2S,000,000 shares of Coast L Acquisition Corp., a who(Iy owned subsidiary of the Company. The shares of Coast L Acquisition Corp. are exchangeable on a one-for-one basis into shares of the Company. The Company also paid an additional $3.1 million upon closing and assumed approximately $1.9 million of debt.
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Results of Operations

(Unaudited, in United States dollars)

Three months ended

Nine months ended

Three months ended

Six months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Sales, net of discounts

$ 19,560,190

$ 18,894,135

$ 63,674,204

$ 55,385,321

$ 19,410,764

$ 21,673,714

$ 37,464,976

$ 44,114,014

Cost of sales

12,942,068

13,893,643

44,316,034

43,774,625

9,975,383

15,650,560

20,248,545

31,373,966

Gross profit

6,618,122

5,000,492

19,358,170

11,610,696

9,435,381

6,023,154

17,216,431

12,740,048

Impairment loss

127,815,307

485,601,121

130,244,837

560,500,228

403,271

2,429,530

403,271

2,429,530

Operating expenses

36,838,444

30,936,988

108,036,813

128,763,201

29,889,848

32,288,461

51,991,392

71,198,369

Loss from operations

(158,035,629 )

(511,537,617 )

(218,923,480 )

(677,652,733 )

(20,857,738 )

(28,694,837 )

(35,178,232 )

(60,887,851 )

Other income (expense)

Interest income

614,954

-

1,237,750

-

Interest expense

(1,183,968 )

(1,093,562 )

(3,694,798 )

(3,757,176 )

(1,208,949 )

(1,260,262 )

(2,472,877 )

(2,510,830 )
Gain on debt forgiveness

-

-

-

3,358,686

Loss on disposal of assets

-

(137,042 )

(317,787 )

(3,656,707 )

-

(63,314 )

(93,944 )

(317,787 )
Change in fair value of investments at fair value through profit loss

(388,878 )

(768,030 )

(421,974 )

(418,818 )
Change in fair value of investments

(170,358 )

(330,960 )

(170,358 )

(33,096 )
Change in fair value of contingent consideration

3,558

38,178,321

642,153

220,997,087

(1,177,730 )

249,973

(1,922,931 )

638,595

Other income

524,230

1,521,164

1,633,525

4,198,444

450,000

801,339

455,170

1,109,295

(1,045,058 )

37,700,851

(2,158,881 )

220,721,516

Loss before income taxes

(159,080,687 )

(473,836,766 )

(221,082,361 )

(456,931,217 )

(22,349,821 )

(29,298,061 )

(38,145,422 )

(62,001,674 )

Income tax recovery (expense)

24,460,758

(3,935,160 )

24,418,531

6,541,380

(1,961,804 )

244,473

(2,676,212 )

(42,227 )
Loss and comprehensive loss from continuing operations

(134,619,929 )

(477,771,926 )

(196,663,830 )

(450,389,837 )

(24,311,625 )

(29,053,588 )

(40,821,634 )

(62,043,901 )

Loss from discontinued operations, net of income tax

(2,327,414 )

(83,578,124 )

(4,302,730 )

(86,074,460 )

-

(1,429,097 )

-

(1,975,316 )
Loss from classification to discontinued operations, net of income tax

(11,082,725 )

-

(11,082,725 )

-

Net loss

$ (148,030,068 )

$ (561,350,050 )

$ (212,049,285 )

$ (536,464,297 )

Loss and comprehensive loss attributable to shareholders of the company

$ (147,985,084 )

$ (561,350,050 )

$ (211,800,036 )

$ (536,464,297 )

$ (24,311,625 )

$ (30,123,075 )

$ (40,821,634 )

$ (63,814,952 )
Loss and comprehensive loss attributable to redeemable non-controlling interest

(44,984 )

-

(249,249 )

-

-

(359,610 )

-

(204,265 )
Net loss

$ (148,030,068 )

$ (561,350,050 )

$ (212,049,285 )

$ (536,464,297 )

$ (24,311,625 )

$ (30,482,685 )

$ (40,821,634 )

$ (64,019,217 )

Per share – basic and diluted

Loss per share from continuing operations

$ (1.30 )

$ (4.85 )

$ (1.94 )

$ (4.80 )
Loss per share from discontinued operations

(0.13 )

(0.85 )

(0.15 )

(0.92 )
Loss per share

$ (1.43 )

$ (5.70 )

$ (2.09 )

$ (5.72 )
Weighted average number of common shares

103,489,965

98,421,935

101,154,772

93,802,606

Sales Revenue
The Company’s continuing operations revenue for the three and six months ended June 30, 2023 was $19,410,764 and $37,464,976 compared to $21,673,714 and $44,114,014 in the three and six months ended June 30, 2022 representing decreases of 10.4% and 15.1% respectively. The decreases are due to the change in strategy to focus on higher margin business. This included the winding-down of certain third party wholesale brand relationships and the closure and / or sale of lower volume delivery depots. The Company also closed its Ceres location during the second quarter of 2023.

3711
Table of Contents
~~Discontinued Operations – Bulk Wholesale Business~~
During the third quarter of 2022, the Company made the strategic decision to exit its low margin bulk wholesale business (SISU) during the third quarter of 2022 to reduce complexity, prioritize higher-margin activities and conserve cash. Ultimately, the Company was successful in disposing of its bulk wholesale business on October 31, 2022. The bulk wholesale business generated revenue from the sale of bulk flower and oil produced in-house. As such, the bulk wholesale business has been presented as discontinued operations commencing in the third quarter of 2022 in our financial statements. All comparative information has been restated to remove the bulk wholesale discontinued operations results practically meaning that in our Statement of Operations, we no longer show the revenues and costs of the bulk wholesale business consolidated with our continuing operations but rather the just the net losses incurred from this business below loss from continuing operations (i.e., discontinued operations loss of $2,327,414 and $4,302,730 for the three and nine months ended September 30, 2022 compared to a discontinued operations loss of $83,578,124 and $86,074,460 in the three and nine months ended September 30, 2021). Further, the Company recorded a loss from classification to discontinued operations of $11,082,725 in the three and nine months ended September 30, 2022 compared to $nil in the three and nine months ended September 30, 2021. The Company believes exiting this business will reduce operating losses going forward.
~~Sales Revenue~~
During the third quarter of 2022 the Company focused on optimizing its operations and leveraging the assets it acquired in 2021 to achieve higher gross margins and reduce cash burn. Our results for the nine months ended September 30, 2022 include the various omni-channel retail growth acquisitions we made during 2021 including: Martian Delivery, LLC (“Martian Delivery”) (during the third quarter of 2021), Kase’s Journey Inc. (“Kase’s Journey”) (during the third quarter of 2021), Calma and Coastal (both during the fourth quarter of 2021).

The Company considers itself post the exit of the bulk wholesale business to have one sales ~~channel –~~channel: omni-channel retail (brick and mortar retail, e-commerce pick up & delivery, as well as the sale of various branded wholesale products). The Company directly sells first party and selected third party products into dispensaries across California, leveraging in-house sales teams, as well as the two wholesale distribution centers in San Jose and Costa Mesa, respectively. As previously announced, the Company has transitioned its wholesale distribution activities to ~~Nabis, a leading cannabis wholesale platform in California.~~Nabis.

As of ~~September~~June 30, ~~2022,~~2023, the Company operated ~~twelve~~eleven retail locations and ~~four consumer~~one stand-alone delivery ~~hubs. Subsequent to quarter-end, one delivery hub was closed.~~depot. We operate four store brands, Caliva, Deli by Caliva, Coastal and Calma.
The Company’s continuing operations revenue for the three and nine months ended September 30, 2022 was $19,560,190 and $63,674,204 compared to $18,894,135 and $55,385,321 in the comparative three and nine month periods ending September 30, 2021 representing growth of 3.5% and 15%. respectively.
The Company achieved omni-channel retail growth as the comparative period did not include the financial results contributed by Coastal and Calma all of which were acquired subsequent to September 30, 2021. The consolidation of Coastal and Calma in the three and nine months ended September 30, 2022 offset a decrease in same store revenue and average order volume at several retail locations that are presented in the three and nine months ended September 30, 2021.

Gross Profit

Gross Profit reflects our revenue less our cost of sales, which consist of costs primarily consisting of labor, materials, consumable supplies, overhead, amortization of production equipment, shipping, packaging and other expenses.

The Company’s continuing operations gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$6,618,122 (33.8%~~$9,435,381 (48.6%) and ~~$19,358,170 (30.4%~~$17,216,431 (46.0%) compared with ~~$5,000,492 (26.5%~~$6,023,154 (27.8%) and ~~$11,610,696 (21%)~~$12,740,048 (28.9 %) in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The improved gross margins represent the results of the various margin enhancing initiatives the Company implemented ~~during 2022~~ as described in the ~~highlights~~“Operational Updates” section of this MD&A.

Impairment

Three months ended

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Right-of-use assets (i)

$ 403,271

$ 1,290,591

$ 403,271

$ 1,290,591

Assets held for sale (ii)

-

1,138,939

-

1,138,939

$ 403,271

$ 2,429,530

$ 403,271

$ 2,429,530

(i) During the three and six months ended June 30, 2023, the Company recorded impairment of $403,271 related to one of its properties which is no longer being used by the Company and has been listed for sublease at an amount less than current rental payments. During the six months ended June 30, 2022, the Company recorded impairment of $1,290,591 related to two of its properties which are no longer being used by the Company and were subleased or listed for sublease at an amount less than current rental payments.
(ii) In June 2022, the Company became committed to a plan to sell two licenses and transfer the related right of use asset and lease liability. Prior to reclassification to assets held for sale, the assets were tested for impairment, resulting in an impairment loss of $1,138,939 on intangible assets.
Operating Expenses

Three months ended

Nine months ended

Three months ended

Six months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

General and administrative

$ 9,717,296

$ 10,713,535

$ 31,554,670

$ 29,251,275

$ 13,542,776

$ 8,751,232

$ 21,496,719

$ 21,837,374

Allowance for doubtful amounts

722,456

460,358

3,303,791

546,975

Allowance for accounts receivable

641,984

168,704

683,854

2,581,335

Sales and marketing

2,687,884

2,478,499

9,812,259

37,901,914

3,400,113

3,718,017

4,771,414

7,124,375

Salaries and benefits

9,149,250

8,455,719

29,039,258

26,271,625

7,838,554

9,874,452

14,869,452

19,890,008

Share-based compensation

1,061,119

3,612,656

4,764,289

17,450,820

498,483

1,461,093

2,163,703

3,703,170

Lease expense

1,940,550

1,035,901

5,807,447

3,165,803

1,255,780

2,110,107

2,569,261

3,866,897

Depreciation and amortization

1,139,282

909,111

2,982,641

2,367,810

Depreciation

890,628

882,659

1,793,928

1,843,359

Amortization of intangible assets

10,420,607

3,271,209

20,772,458

11,806,979

1,821,530

5,322,197

3,643,061

10,351,851

$ 36,838,444

$ 30,936,988

$ 108,036,813

$ 128,763,201

$ 29,889,848

$ 32,288,461

$ 51,991,392

$ 71,198,369

Operating expenses primarily include salaries and benefits, professional fees, rent and facilities expenses, travel-related expenses, advertising and promotion expenses, licenses, fees and taxes, office supplies and pursuit expenses related to outside services, stock-based compensation and other general and administrative expenses.

For the three and nine months ended September 30, 2022, the Company recorded operating expenses of $36,838,444 and $108,036,813, respectively compared with $30,936,988 and $128,763,201 in the three and nine months ended September 30, 2021 comparative periods.
General and administrative costs were $9,717,296 and $31,554,670 in the three and nine months ended September 30, 2022 compared with $11,260,510 and $29,798,250 in the comparative ending in the three and nine months ended September 30, 2021. The $1,543,214 or 14% decrease in general administrative expenses achieved during the third quarter of 2022 due mainly to lower professional fees and savings from cost reduction initiatives implemented during the year. General and administrative costs for the nine months ended September 30, 2022 were $1,756,420 or 5.9% higher than in the nine-month comparative period due mainly to the cost of the consolidated 2021 year end audit including costs associated with accounting for the Qualifying Transaction incurred during the first quarter of 2022.

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Table of Contents

For the three and six months ended June 30, 2023, the Company recorded operating expenses of $29,889,848 and $51,991,392, as compared to $32,288,461 and $71,198,369 in the three and six months ended June 30, 2022.
General and administrative costs were $13,542,776 and $21,496,719 in the three and six months ended June 30, 2023, as compared to $8,751,232 and $21,837,374 in the three and six months ended June 30, 2022. General and administrative expenses increased by $4,791,544 in Q2 2023 over Q2 2022 due mainly to Gold Flora transaction related costs being incurred.
The allowance for doubtful accounts ~~was $722,456~~were $641,984 and ~~$3,303,791~~$683,854 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, as compared ~~with $460,358~~to $168,704 and ~~$546,975~~$2,581,335 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~increased~~decrease allowance reflects management’s estimates for credit losses on various trade ~~receivables and~~receivables. The comparative period six month included an allowance on the Mosaic.Ag matter as described ~~later~~below in this MD&A.

Salaries and benefits totaled ~~$9,149,250~~$7,838,554 and ~~$29,039,258~~$14,869,452 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, as compared to $9,874,452 and ~~$8,455,719 and $26,271,625~~$19,890,008 in the three and ~~nine~~six months ended ~~September~~June 30 ~~2021.~~2022, respectively. The ~~increases~~decreases of ~~$693,531 (8.2%~~$2,035,898 (21%) and ~~$2,767,633 (10.5%~~$5,0520,566 (25%) in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, is the result of the ~~consolidation~~significant restructuring undertaken with the pause in cultivation, outsourcing of ~~additional head count acquired via~~wholesale activities and general staff retrenchments to reduce cost and reposition the ~~Coastal, Martian, Kase~~business to be sustainable longer term. As of June 30, 2023, we had reduced our workforce by approximately 50% from the beginning of 2022 and ~~Calma acquisitions, severances~~have realized annualized payroll savings of ~~$409,128 net of restructuring efficiencies.~~approximately $25 million.

~~Share based~~Share-based compensation totaled ~~$1,061,119~~$498,483 and ~~$4,764,289~~$1,461,093 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, as compared ~~with $3,612,656~~to $2,569,261 and ~~$17,450,820~~$3,703,170 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022, respectively. Share based compensation is a non-cash expense and fluctuates with the number of restricted stock units (“~~RSUs”~~RSUs”) granted in a period and the ~~stock price.~~price of our Common Shares. The decrease in stock-based compensation expense was primarily attributable to the ~~significant number of RSUs granted in connection with the Qualifying Transaction during 2021, as well as the~~ fact that the market price of our ~~common shares is~~Common Shares was lower in ~~2022~~the second quarter of 2023 than it was in ~~2021.~~the second quarter of 2022.

Lease expense totaled ~~$1,940,550~~$1,255,780 and ~~$5,807,447 in the three months and nine ended September 30, 2022 and $876,285 and $3,165,803~~$2,110,107 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021. The increases reflect the numerous acquisitions made during 2021 which are consolidated~~2023, respectively, as compared to $2,110,107 and $3,866,897 in ~~the financial results for~~ the three and ~~nine~~six months ended ~~September~~June 30, 2022, ~~whereby~~respectively. The decrease is primarily the ~~Company increased~~result of the ~~number~~divesture of ~~lease properties~~the Culver City location and ~~its California footprint, as well as~~ the ~~Pullman property sale~~closure of the Costa Mesa and ~~lease back arrangement as previously disclosed.~~Ceres locations.

Depreciation of property, plant & equipment totaled ~~$1,139,282~~$890,628 and ~~$2,982,641~~$882,659 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, as compared ~~with $876,285~~to $1,793,928 and ~~$3,165,803~~$1,843,359 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022, respectively. Depreciation is a non-cash expense and is materially consistent between the slight expense increases in the periods represents the higher property, plant & equipment asset base owned by the Company at September 30, 2022 compared to September 30, 2021 due to the various acquisitions made in 2021.periods.

Amortization of intangible assets totaled ~~$10,420,607~~$1,821,530 and ~~$20,772,458~~$5,322,197 in the three and ~~nine~~six months ended ~~September~~June 30, 2023, respectively, as compared to $3,643,061 and $10,351,851 in the three and six months ended June 30, 2022, ~~compared with $3,271,209 and $11,806,979.~~respectively. Amortization is a non-cash expense. The ~~increase~~decrease in amortization expense is due to ~~additional~~the $98,024,797 impairment on various right of use, license and brand intangible assets ~~acquired as part~~during the 2022 financial year which reduced the amortization base of the ~~various acquisitions in 2021.~~
~~Non-Cash Impairment~~
~~In accordance with Accounting Standard Codification (ASC) Topic 350, the Company is required to assess its goodwill and other indefinite-lived~~associated intangible assets for impairment annually or in between tests if events or changes in circumstances indicate the carrying value of its assets may not be recovered. Further, under ASC 360, the Company is required to assess definite lived-intangible assets and long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Impairment charges totaled $127,815,307 and $130,244,837 in the three and nine months ended September 30, 2022 compared with $485,601,121 and $560,500,228 in the three and nine months ended September 30, 2021. As part of the annual impairment assessment, the Company’s future forecasts considered changes in cash flow estimates due to lower cannabis industry growth rate assumptions and cost pressures due to higher U.S. inflation. While the Company remains optimistic that cannabis legalization will occur, our expected future cash flows reflect the current tax and regulatory environment. The issues faced by the Company are not unique to our operations as the entire California cannabis market has been impacted. The Company continues to focus on activities to create long-term shareholder value and restructure its business to reduce its operating costs.assets.

Other Items
Interest income
Interest income totaled $614,954 and $1,237,750 for the three and six months ended June 30, 2023, respectively, compared with $Nil and $Nil in the three and six months ended June 30, 2022. During three and six months ended June 30, 2023, the Company generated interest income on its excess cash balances given higher interest rates and interest on its note receivable from Gold Flora.
13
Table of Contents

Interest (expense)

Interest expense totaled ~~$1,183,968~~$1,208,949 and ~~$3,694,798~~$2,472,877 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, as compared ~~with $1,093,562~~to $1,260,262 and ~~$3,757,176~~$2,510,830 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022, respectively. The interest expense is primarily incurred on lease accounting for the Company’s right-of-use assets.

~~Discontinued Operations~~Loss on disposal of assets

~~The Company recorded a loss from discontinued operations (its bulk wholesale business)~~Loss on disposal of ~~$2,327,414~~assets totaled $Nil and ~~$4,302,730 for the three and nine months ended September 30, 2022 compared to $83,578,124 and $86,074,460~~$93,944 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021. The much larger losses~~2023, respectively, as compared to $63,314, and $317,787 in the three and six months ended June 30, 2022, respectively. Most of the loss in the comparative period ~~ended September 30, 2021 is~~was primarily ~~due to larger impairment losses recorded~~the recognized loss on the sale and lease back of the Pullman property.
Change in ~~this period. The Company further recorded~~fair value of contingent consideration
Change in fair value on contingent consideration was a loss ~~from classification to discontinued operations, net~~ of ~~income tax of $11,082,725~~$1,177,730 and $1,922,931 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, as compared ~~with $nil~~to a gains of $249,973 and $638,595 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022, respectively. The Company recognized losses in the three and six months ended June 30, 2023 on contingent consideration as it increased the probability of a change in control occurring given the pending Business Combination with Gold Flora.

Net loss ~~and Comprehensive Loss~~

The Company recorded net losses of ~~$148,030,068~~$24,311,625 and ~~$212,049,285~~$40,821,634 in the three and ~~nine~~six months ended ~~September~~June 30, 2023, respectively, as compared to $30,482,685 and $64,019,2171 in the three and six month periods ended June 30, 2022, ~~compared to $561,350,050 and $536,464,297 in the comparative period ended September 30, 2021.~~respectively. The reduction in net losses is ~~due primarily to lower impairment charges in the current periods and to a lesser extent~~ due to higher realized margins and ~~some~~lower operating ~~cost efficiencies.~~expenses.
39
~~Table of Contents~~

Management’s Use of Non-GAAP Measures

This MD&A contains certain financial performance measures, including “EBITDA” and “Adjusted EBITDA,” that are not recognized under generally accepted accounting principles in the United States (“GAAP”) and do not have a standardized meaning prescribed by GAAP. As a result, these measures may not be comparable to similar measures presented by other companies. For a reconciliation of these measures to the most directly comparable financial information presented in the Interim Financial Statements in accordance with GAAP, see the section entitled “Reconciliation of Non-GAAP Measures” ofbelow in this MD&A.

We believe EBITDA is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our underlying business performance and other one-time or non-recurring expenses. We define “EBITDA” as net income (loss) before (i) depreciation and amortization; (ii) income taxes; and (iii) interest expense and debt amortization.

Adjusted EBITDA

We believe Adjusted EBITDA is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our underlying business performance and other one-time or non-recurring expenses. We define “Adjusted EBITDA” as EBITDA adjusted to exclude extraordinary items, non-recurring items and, other non-cash items, including, but not limited to (i) ~~stock-based~~share-based compensation expense, (ii) fair value change in contingent consideration and investments measured at Fair Value Through Profit and Loss (“~~FVPL”~~FVPL”), (iii) non-recurring legal and professional fees, human-resources, inventory and collections-related expenses, (iv) intangible and goodwill impairments and loss on disposal of assets, and (v) transaction costs related to merger and acquisition activities.

14
Table of Contents
Reconciliation of Non-GAAP Measures

A reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable measure determined under GAAP is set out below.

TPCO Holding Corp.

Interim condensed consolidated statements of income and comprehensive income

(Unaudited, in United States dollars)

Three-months ended

Nine-months ended

Three-months ended

Six-months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

June 30,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Net loss and comprehensive loss from continuing

$ (134,619,929 )

$ (477,771,926 )

$ (196,663,830 )

$ (450,389,837 )

$ (24,311,625 )

$ (29,053,588 )

(40,821,634 )

(62,043,901 )
Income taxes from continuing operations

(24,460,758 )

3,935,160

(24,418,531 )

(6,541,380 )

1,961,804

(244,473 )

2,676,212

42,227

Depreciation and amortization from continuing operations

11,559,889

4,180,320

23,755,099

14,174,789

2,712,158

6,204,856

5,436,989

12,195,210

Interest expense from continuing operations

1,183,968

1,093,562

3,694,798

3,757,176

1,208,949

1,260,262

2,472,877

2,510,830

EBITDA

(146,336,830 )

(468,562,884 )

(193,632,464 )

(438,999,252 )

(18,428,714 )

(21,832,943 )

(30,235,556 )

(47,295,634 )
Adjustments:

Share based compensation expense

1,061,119

3,612,656

4,764,289

17,450,820

498,483

1,461,093

2,163,703

3,703,170

Other non-recurring items:

Fair value change of contingent consideration

(3,558 )

(38,178,321 )

(642,153 )

(220,997,087 )

1,177,730

(249,973 )

1,922,931

(638,595 )
Change in fair value of investments at fair value through profit or loss

388,878

768,030

421,974

418,818

170,358

330,960

170,358

33,096

Loss on disposal of assets

-

137,042

317,787

3,656,707

-

63,314

93,944

317,787

Impairment loss

127,815,307

485,601,121

130,244,837

560,500,228

403,271

-

403,271

-

Other taxes

-

-

-

2,243,441

De-SPAC costs

-

500,000

-

4,121,807

Transaction costs

2,642,433

-

2,642,433

-

Restructuring costs

1,139,128

1,500,000

1,139,128

3,878,782

1,087,388

-

1,087,388

-

Sales and marketing expense

-

-

-

30,151,147

Adjusted EBITDA

$ (15,935,956 )

$ (14,622,356 )

$ (57,386,602 )

$ (37,574,589 )

$ (12,449,051 )

$ (20,227,549 )

(21,751,528 )

(43,880,176 )

The Company’s EBITDA loss was ~~$146,336,830~~$18,428,714 and ~~$193,632,464~~$30,235,556 for the three and ~~nine~~six months ended ~~September~~June 30, 2023, respectively, as compared to $21,832,943 and $47,295,634 in the three and six months ended June 30, 2022, ~~compared with $468,403,268 and $438,999,252 in the comparative periods ended September 30, 2021.~~respectively. The lower EBITDA losses are due to ~~primarily~~higher realized gross margins, lower ~~impairment charges recorded~~operating losses in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the three ~~and nine~~ months ended ~~September~~June 30, ~~2021.~~2022.

Adjusted EBITDA

The Company’s Adjusted EBITDA loss was ~~$15,935,956~~$12,449,051 and ~~$57,386,602~~$21,751,528 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, as compared ~~with $14,462,740~~to $20,227,549 and ~~$37,574,589~~$43,880,176 in the ~~comparative periods~~three and six months ended ~~September~~June 30, ~~2021.~~2022. The ~~increased~~decreased Adjusted EBITDA losses are due to ~~the increased size of the Company with its numerous acquisitions made during 2021, which are still being integrated.~~higher realized gross margins and lower operating losses. The Company is focused on improving its margins and reducing operating costs.

The Company’s management views Adjusted EBITDA as the best measure of its underlying operating performance.

Liquidity and Capital Resources

~~We manage~~Gold Flora Corporation manages liquidity risk by reviewing, on an ongoing basis, ~~our~~its sources of liquidity and capital requirements. As at ~~September~~June 30, ~~2022,~~2023, The ~~Parent~~ Company had cash and cash equivalents of ~~$107,111,075~~$60,544,072 compared with cash and cash equivalents of ~~$165,310,609~~$93,697,529 as at December 31, ~~2021.~~2022. Cash and cash equivalents are predominately invested in liquid securities issued by the United States government.

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~~Table of Contents~~
The Company completed its previously announced Business Combination on July 7, 2023. Gold Flora Corporation believes that the efficient vertical-integration and scale that the transaction is expected to provide further gross margin expansion and a path to longer-term profitability.

In evaluating ~~our~~Gold Flora Corporation’s capital requirements ~~including the impact, if any, on our business from the COVID-19 pandemic,~~ and ~~our~~its ability to fund the execution of ~~our~~its strategy, ~~we believe we have~~Gold Flora Corporation believes it has adequate available liquidity to enable usit to meet ~~our~~its working capital and other operating requirements, fund growth initiatives and capital expenditures, settle ~~our~~its liabilities and repay scheduled principal and interest payments on debt for at least the next twelve months. Gold Flora has assumed it will realize significant synergies post-closing the Business Combination. To the extent these synergies are not achieved or not achieved on the timeframe expected, additional capital will be required.
~~Our~~
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Table of Contents
Gold Flora Corporation’s objective is to generate sufficient cash to fund ~~our~~its operating requirements and expansion plans. Since the closing of the Qualifying Transaction on January 15, 2021, we have incurred net operating losses. However, management is confident in the Company’s ability to grow revenue and reach long- term profitability. WeGold Flora Corporation also ~~expect~~expects to have access to public capital markets through ~~our listing~~its listng on the NEO Exchange if the trading price of the Gold Flora Common Stock improves, and continue to review and pursue selected external financing sources to ensure adequate financial resources. These potential sources include, but are not limited to (i) obtaining financing from traditional or non-traditional investment capital organizations; (ii) obtaining funding from the sale of ~~our common shares~~Gold Flora Common Stock or other equity or debt instruments; and (iii) obtaining debt financing with lending terms that more closely match ~~our~~Gold Flora Corporation’s business model and capital needs. There can be no assurance that weGold Flora Corporation will gain adequate market acceptance for ~~our~~its products or be able to generate sufficient positive cash flow to achieve ~~our~~tis business plans, that additional capital or other types of financing will be available when needed, or that these financings will be on terms favorable to ~~the Company~~Gold Flora Corporation or at all. In addition, due to the price of the Gold Flora Common Stock, raising equity capital currently may not be feasible. Any additional equity financing may be on terms that are dilutive, or potentially dilutive, to the Company’s shareholders and debt financing, if available, may involve restrictive covenants with respect to the Company’s ability to pay dividends, raise additional capital or execute various other financial and operational plans.

~~We expect~~Gold Flora expects to continue funding operating losses as we ~~ramp up~~appropriately scale our operations with our available cash. Therefore, we are subject to risks including, but not limited to, our inability to raise additional funds through debt and/or equity financing to support our continued development, including capital expenditure requirements, operating requirements and to meet our liabilities and commitments as they come due.

The Company made the strategic decision to exit its low margin bulk wholesale business during the third quarter of 2022 to reduce complexity, prioritize higher-margin activities and conserve cash. As such, this bulk wholesale business has been presented as discontinued operations commencing in the third quarter of 2022 in our financial statements including in the statement of cash flow. During the nine months ended September 30, 2022, discontinued operations used cash of $2,565,934 compared with a use of cash of $5,528,420 in the comparative nine months ended September 30, 2021. The divestment of the bulk wholesale business was completed subsequent to September 30, 2022. The Company expects this divestment will reduce its operating cash burn rate going forward.
Off-Balance Sheet Arrangements

As of the date hereof, ~~the Company~~Gold Flora Corporation does not have any off-balance sheet financing arrangements and has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Contractual Obligations

~~The Company~~Gold Flora Corporation leases real estate used for dispensaries, production plants, and corporate offices. Lease terms for real estate generally range from 1 to 16.5 years. Most leases include options to renew for varying terms at the ~~Company’s~~Gold Flora Corporation’s sole discretion. ~~Lease terms for these assets generally range from 1 to 2 years.~~ Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities, or insurance and maintenance. Rent expense for leases with escalation clauses is accounted for on a straight-line basis over the lease term. ~~The Company’s~~Gold Flora Corporation’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The maturity of the Company’s contractual undiscounted lease liabilities as of ~~September~~June 30, ~~2022:~~2023:

Operating Lease

Finance Lease

Operating Lease

Finance Lease

Remainder of 2022

$ 1,441,432

$ 1,147,681

2023

4,826,896

4,625,156

Remainder of 2023

$ 2,294,365

$ 2,329,793

2024

4,552,956

4,763,910

4,302,015

4,763,910

2025

4,518,781

4,906,828

4,417,481

4,906,828

2026

4,370,472

5,054,033

4,544,592

5,054,033

2027

4,009,473

5,205,654

Thereafter

22,192,154

64,884,898

18,295,465

59,679,244

Total undiscounted lease liabilities

41,902,691

85,382,506

37,863,391

81,939,462

Interest on lease liabilities

16,559,013

48,589,146

14,602,108

45,241,940

Total present value of minimum lease payments

25,343,678

36,793,360

23,261,283

36,697,522

Lease liability – current portion

2,423,413

62,783

1,996,340

224,545

Lease liability

$ 22,920,265

$ 36,730,577

$ 21,264,943

$ 36,472,977

~~Marketing Agreement (“MA”)~~Other Legal Matters

~~The Company has engaged a third-party for strategic and promotional services. During~~From time to time in the ~~three months ended March 31, 2021 and the nine months ended September 30, 2021,~~normal course of business, the Company ~~issued 2,376,425 common shares in settlement~~may be subject to legal matters such as threatened or pending claims or proceedings. We are not currently a party to any material legal proceedings or claims, nor are we aware of ~~the initial $25,000,000. As the shares vested immediately, the full amount of the $25,000,000 has been recognized as an expense in~~any pending or threatened litigation or claims that could have a material adverse effect on our business, operating ~~expenses during the nine months ended September 30, 2021.~~
The Company is obligated to issue shares to the value of $1,875,000 quarterly over the second and third year of the contract. During the nine months ended September 30, 2022, the Company issued 4,926,165 common shares to settle the first, second and third quarterly payments.
The Company recognized an expense of $584,181 and $3,311,454 during the three and nine months ended September 30, 2022, respectively (three and nine months ended September 30, 2021 - $1,363,636 and $3,803,030) in operating expenses as a sales and marketing expense. As at September 30, 2022, the cash-settled liability is $3,632,574 (December 31, 2021 - $5,166,666).
~~The arrangement can~~results, cash flows or financial condition should such litigation or claim be terminated by the counterparty in certain circumstances, one of which is any change of control of the Company. In that case, the Company is required to settle the agreement in a lump sum payment that consists of all unpaid amounts. As at September 30, 2022, the amount that the Company would be liable for if the contract is terminated is $9,375,000.resolved unfavorably.

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~~Brand Strategy Agreement (“BSA”)~~
The Company is party to the BSA, whereby the Company receives the services of Shawn C. Carter p/k/a JAY-Z’s related promotion and advertising for the remaining non-cancellable period of 5 years. The Company is committed to settle $21,500,000 in either cash or common shares at the option of the counterparty over the remaining non-cancellable period. The Company is recognizing the cost associated with the arrangement over the same period it is receiving services.
During the three and nine months ended September 30, 2022, the Company recognized an expense of $1,104,167 and $3,312,500, respectively (three and nine months ended September 30, 2021 - $1,104,167 and $3,079,399, respectively) in operating expenses related to this arrangement and $2,496,065 accounts payable and accrued liabilities as at September 30, 2022 (December 31, 2021 - $2,183,565). During the nine months ended September 30, 2022, the Company made a cash payment of $3,000,000 (September 30, 2021 - $nil).
The agreement can be terminated by the counterparty in certain circumstances, including a change in control of the Company or an involuntary de-listing. In these circumstances, the Company will be obligated to pay damages equal to $18,500,000 less the amount already paid under the arrangement. As at September 30, 2022, the amount of damages that the Company would be liable for if the contract is terminated was $13,500,000.
Mosaic.Ag

On May 16, 2021, ~~the Company~~we entered into a membership interest purchase agreement (the ~~“Membership~~“Membership Interest Purchase ~~Agreement”~~Agreement”) to obtain leasehold interests of approximately 10 years duration in each of four one-acre parcels of land that are licensed for outdoor cannabis grow (collectively, the ~~“Outdoor~~“Outdoor Grow ~~Properties”~~Properties”). On May 21, 2021 (the ~~“Effective Date”~~“Effective Date”), ~~the Company~~we entered into a series of cultivation and supply agreements with each of the leaseholders of the Outdoor Grow Properties and Mosaic. AG, Inc. (“~~Mosaic.Ag”~~Mosaic.Ag”), pursuant to which Mosaic.Ag agreed to cultivate cannabis on each of the Outdoor Grow Properties on ~~the Company’s~~our behalf for a period commencing on the Effective Date of and ending at least three years from the closing of the transactions contemplated by the Membership Interest Purchase Agreement, with options to extend for up to five years (the ~~“Cultivation~~“Cultivation and Supply ~~Agreements”~~Agreements”). Under the terms of the Membership Interest Purchase Agreement, as of the Effective Date, ~~the Company~~we and Mosaic.Ag obtained access to the Outdoor Grow Properties and began to commence cannabis cultivation activities under the Cultivation and Supply Agreements. The purchase price under the Membership Interest Purchase Agreement is $6,000,000 in cash, $2,500,000 in ~~common shares of the Company~~our Common Shares payable on the closing date (with the number of shares issued based on the volume-weighted average price per ~~common share~~Common Share for the ten consecutive trading days prior to the closing date) and up to 1,309,263 ~~common shares~~ of ~~the Company~~our Common Shares subject to an earnout based on the production value of cannabis grown on the Outdoor Grow Properties over the twenty-four months following the Effective Date. The closing of the transactions contemplated by the Membership Interest Purchase Agreement are dependent on the satisfaction of various closing conditions, multiple of which were not met by the end of the second quarter of 2022 as required by the Membership Interest Purchase Agreement. Further, Mosaic.Ag was unable to produce sufficient quantities of biomass according to Company quality standards and pursuant to the Cultivation Supply Agreements. For the foregoing reasons, ~~TPCO~~we delivered to Mosaic on June 30, 2022, notice of ~~its~~our exercise of ~~its~~our contractual rights to terminate each of the Cultivation and Supply Agreements and the Membership Interest Purchase Agreement effective on such ~~date.~~date and requested that Mosaic.Ag present an acceptable restructure to the arrangements and/or a payback plan for the owed refund and for the upfront payment under the promissory note. Pursuant to the terms of the Membership Interest Purchase Agreement, on the Effective Date, ~~the Company~~we advanced to the seller $5,650,000 secured by a promissory note, which note is now past its maturity date. Pursuant to the terms of the Cultivation and Supply Agreements, ~~the Company~~we made payments for cannabis product in advance based on a projected aggregate yield, with Mosaic owing a refund for any overpayment in the event of the actual yield (as measured at the conclusion of the growing season) being less than the projected yield, which event did transpire, triggering a refund owed ~~to Company~~us of approximately $1,500,000. ~~There can be no assurance~~Mosaic.Ag has contested certain of the ~~promissory note and/or~~Company’s positions and has claimed an inability to pay the ~~overpayment amount will be repaid in full, or at all. The~~owed cash amounts. For the foregoing reasons, the Company ~~expects to pursue repayment of such debts through appropriate legal actions.~~
~~Other Legal Matters~~
~~From time to time~~filed a lawsuit against Mosaic.Ag and related individuals on December 16, 2022, in the ~~normal course~~Superior Court of ~~business,~~California, County of Santa Clara, alleging breach of contract and asking for declaratory relief. On March 21, 2023, the ~~Company may be subject~~defendants removed the case to ~~legal matters such as threatened or pending claims or proceedings.~~the United States District Court in the Northern District of California on the pled basis that the litigation involves a “federal question” due to cannabis being controlled under the Controlled Substances Act, a federal law, and thus is entitled to federal question jurisdiction. We ~~are not currently~~have contested the removal and filed a ~~party~~motion to ~~any material legal proceedings or claims, nor are we aware~~remand the case to Superior Court of any pending or threatened litigation or claims that could have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation or claim be resolved unfavorably.California, which motion is now in front of the court.

Inflation

The Company is not immune to the widespread cost inflation experienced in the United States and many parts of the world. The Company intends to continue to work to improve its gross margins ~~by partnering with its vendors.~~despite cost inflation through market pricing, greater cost efficiencies, advantageous vendor partnerships, and other measures.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to Part II, Item 7, 7. “Critical Accounting Policies and Estimates” in our ~~2021~~annual report on Form ~~10-K.~~10-K filed with the Securities and Exchange Commission on April 3, 2023 (our “2022 Form 10-K”). There have been no material changes to our critical accounting estimates from the information provided in our ~~2021~~2022 Form 10-K.

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Table of Contents

Cash Flow

The table below highlights our cash flows for the periods indicated:

(Unaudited, in United States dollars)

      Nine months ended

Six months ended

September 30, 2022

September 30, 2021

June 30,
2023

June 30,
2022

Cash provided by (used in)

Operating activities

Net loss from continuing operations

$ (196,663,830 )

$ (450,389,837 )

$ (40,821,634 )

$ (62,043,901 )
Adjustments for items not involving cash

Impairment loss

130,244,837

560,500,228

Impairment

403,271

2,429,530

Interest expense

3,694,798

3,739,340

2,472,877

2,510,830

Interest income

(75,758 )

(993,639 )
Non- cash Interest income

(153,755 )

(48,417 )
Loss on disposal of assets

317,787

3,656,707

93,944

317,787

Loss on lease termination

(114,458 )

-

41,074

Allowance for accounts receivable and notes receivable

3,438,664

796,403

429,338

2,478,142

Gain on debt forgiveness

-

(3,358,686 )
Fair value change of investments

421,974

418,818

170,358

33,096

Depreciation and amortization

23,755,099

14,174,789

5,436,989

12,195,210

Shares issued for long-term strategic contracts

-

25,000,000

Share-based compensation expense, net of tax

4,284,916

16,765,238

Share-based compensation expense, net of withholding tax

2,077,762

3,282,923

Non-cash marketing expense

3,311,454

3,803,030

565,000

2,727,272

Non-cash operating lease expense

5,402,936

3,029,654

2,515,095

3,704,397

Fair value change of contingent consideration

(642,153 )

(220,997,087 )

1,922,931

(638,595 )
Deferred income tax recovery

(27,771,859 )

(13,714,716 )

(1,103,998 )

(1,550,509 )
Repayment of operating lease liabilities

(5,276,778 )

(3,403,629 )

(3,572,578 )

(4,611,772 )
Net changes in non-cash working capital items

(2,659,682 )

(39,995,798 )

4,113,961

(1,473,083 )

Net cash used in continued operating activities

(58,332,053 )

(100,969,185 )

(25,450,439 )

(40,646,016 )

Net cash used in discontinued operating activities

(2,565,934 )

(5,528,420 )

-

(3,824,924 )

Total operating activities

(60,897,987 )

(106,497,605 )

(25,450,439 )

(44,470,940 )

Financing activities

Receipt of payments on notes receivable

1,759,318

-

Repayment of notes payable

(4,680,000 )

-

Repayment of consideration payable

(1,150,000 )

(872,021 )
Repayment of finance lease liabilities

(3,342,761 )

(3,429,846 )
Proceeds from private placement

-

51,635,000

Redemption of Class A restricted voting shares

-

(264,318,686 )
Proceeds from exercise of options

-

12,972

Repurchase of shares

-

(4,454,571 )
Repayment of line of credit

-

(1,000,000 )
Receipt of payments on notes receivables

-

1,572,712

Repayments of consideration payable

(766,667 )

(766,666 )
Repayments of finance lease liabilities

(2,295,363 )

(2,228,507 )
Total financing activities

(7,413,443 )

(222,427,152 )

(3,062,030 )

(1,422,461 )

Investing activities

Net cash paid in the Qualifying Transaction

-

(28,143,886 )
Net cash paid in business combinations

-

(1,402,337 )
Purchases of property and equipment

(2,733,218 )

(8,725,860 )

(69,928 )

(2,314,113 )
Advances for note receivable

-

(5,650,000 )
Proceeds from sale of property and equipment

328,940

6,176,473

Advances for notes receivables

(5,000,000 )

-

Payments received on notes receivable

100,000

-

Acquisition of investments

(350,000 )

(1,000,000 )

-

(150,000 )
Proceeds from notes receivable

-

187,954

Proceeds from sale of property and equipment, net of
selling costs

6,253,157

11,068,537

Total investing activities

3,169,939

(33,665,592 )

(4,640,988 )

3,712,360

Net change in cash during the period

(65,141,491 )

(362,590,349 )

(33,153,457 )

(42,181,041 )

Cash, restricted cash and restricted cash equivalents

Beginning of period

$ 174,892,298

$ 582,622,025

$ 93,697,529

$ 174,892,298

End of period

$ 109,750,807

$ 220,031,676

$ 60,544,072

$ 132,711,257

Cash

107,111,075

206,677,145

60,544,072

125,993,248

Restricted cash and restricted cash equivalents

2,639,732

13,354,531

-

6,718,009

Cash, restricted cash and restricted cash equivalents

$ 109,750,807

$ 220,031,676

$ 60,544,072

$ 132,711,257

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Table of Contents

Operating Activities

Cash used in continued operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 totaled ~~$58,332,053~~$25,450,439, as compared to cash used in continued operating activities of ~~$100,854,966~~$40,646,016 in the ~~comparative nine month period~~six months ended ~~September~~June 30, ~~2021.~~2022. In the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the cash used in operating activities represents an average operating cash burn rate of ~~$6,481,339~~$4,241,740 per month, as compared to ~~$11,206,107~~$6,774,336 per month in the ~~comparative period. The Company~~six months ended June 30, 2022. Gold Flora Corporation believes that the efficient vertical-integration and scale resulting from the Business Combination will help improve Gold Flora Corporation’s operating results and is also evaluating a number of options to further improve operating results including: gross margin expansion, subleasing excess real estate, ~~combining operations for lower performing locations, closing or disposing of non-core assets,~~ and general and administrative cost reductions.

Cash used in discontinued operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 totaled ~~$2,565,934~~$Nil, as compared ~~with~~to $3,824,924 cash used in discontinued operating activities ~~of $5,528,420~~ in the ~~comparative nine month period~~six months ended ~~September~~June 30, ~~2021.~~2022.

Financing Activities

Cash used in financing activities totaled ~~$7,413,443~~$3,062,030 in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, as compared ~~with~~to cash used of ~~$222,427,152~~$1,422,461 in the ~~comparative nine month period~~six months ended ~~September~~June 30, ~~2021.~~2022. The cash used in the six months ended June 30, 2023 was primarily for repayment of notes associated with our acquisition of Coastal Holding Company, LLC and the settlement of lease liabilities. In the ~~nine~~six months ended ~~September~~June 30, 2022 the Company settled $3,342,761 lease liabilities associated with its real estate, $1,150,000 of consideration payable primarily related to its 2021 acquisition of Coastal, $4,680,000 for repayment of notes payable offset associated with Coastal and received ~~$1,759,318 primarily~~$1,572,712 from a legal settlement and the remainder from the sale of non-core assets. The nine months end September 30, 2021 includes a payment of $264,318,686 in connection with the redemption of Class A restricted voting shares on closing the Qualifying Transaction.settlement.

Investing Activities

Cash used in investing activities totaled $4,640,988 in the six months ended June 30, 2023, as compared to $3,712,360 cash provided by investing activities ~~totaled $3,169,939~~ in the ~~nine months ended September 30, 2022 compared with cash used of $33,665,592 in the comparative nine~~six month period ended ~~September~~June 30, ~~2021.~~2022. During the six months ended June 30, 2023, the Company advanced Gold Flora $5,000,000 as part of a $5,000,000 facility arrangement. It also received proceeds from excess property, plant and equipment of $328,940. In the ~~nine~~comparative six months ended ~~September~~June 30, 2022, the Company ~~invested $150,000 in its social equity venture investment in Digistrains and $200,000 in Josephine & Billies,~~ received ~~$6,253,157~~proceeds of ~~proceeds~~$6,176,473 from the ~~sale~~disposal of property, plant and equipment primarily ~~associated with the sale and leaseback transaction at~~related to its Pullman property ~~invested $2,733,218 of~~sale and lease back transaction. The Company also purchased property, plant and equipment ~~to support~~for its ~~operations. The comparative nine month period ended September 30, 2021 includes $29,546,223 of cash paid~~operations for ~~acquisitions as the major use of cash.~~$2,314,113 and made a $150,000 social equity investment in Digistrains.

Commitments and Contingencies

California Operating Licenses

The Company’s primary activity is the cultivation, manufacturing and sale of adult use cannabis pursuant to California law. However, this activity is not in compliance with the United States Controlled Substances Act (the ~~“CSA”~~“CSA”). The Company’s assets are potentially subject to seizure or confiscation by governmental ~~agencies~~agencies. and the Company could face criminal and civil penalties for noncompliance with the CSA. Management of the Company
believes the Company is in compliance with all California and local jurisdiction laws and ~~monitor~~monitors the regulatory environment on an ongoing basis along with counsel to ensure the continued compliance with all applicable laws and licensing agreements.

The Company’s operation is sanctioned by the State of California and local jurisdictions. Due to the uncertainty surrounding the Company’s noncompliance with the CSA, the potential liability from any non-compliance cannot be reasonably estimated, and the Company may be subject to regulatory fines, penalties or restrictions in the future.

Effective January 1, 2018, the State of California allowed adult use cannabis sales. Beginning on January 1, 2018, the State began issuing temporary licenses that expired 120 days after issuance for retail, distribution, manufacturing and cultivation permits. Temporary licenses could be extended in ~~90- day~~90-day increments by the State upon submission of an annual license application. All temporary licenses had been granted extensions by the State during 2018.
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Table of Contents

In September 2019, Senate Bill 1459 (SB 1459) was enacted which enabled state licensing authorities to issue provisional licenses through 2021. A provisional license could be issued if an applicant submitted a completed annual license application to the California Bureau of Cannabis Control. A completed application for purposes of obtaining a provisional license is not the same as a sufficient application to obtain an annual license. The provisional cannabis license, which is valid for 12 months from the date issued, is said to be in between a temporary license and an annual license and allows a cannabis business to operate as they would under local and state regulations. Licensees issued a provisional license are expected to be diligently working toward completing all annual license requirements in order to maintain a provisional license. The Company obtained its provisional licenses in 2019 and continues to work with the State to obtain annual licensing.

The Company’s prior licenses obtained from the local jurisdictions it operated in have been continued by such jurisdictions and are necessary to obtain state licensing.

The Company has received annual licenses from its local jurisdiction in which it actively operates. Although the Company believes it will continue to receive the necessary licenses from the State of California to conduct its business in a timely fashion, there is no guarantee the Company or its clients will be able to do so and any failure to do so may have a negative effect on the Company’s business and results of operations.

Social Equity Fund

The Company formed a wholly owned subsidiary to serve as its social equity fund, Social Equity Ventures LLC (“SEV”) during the during 2021 with a planned $10,000,000 investment and a planned annual contribution of at least 2% of net income from the Company. Through ~~September~~June 30, ~~2022,~~2023, the Company has invested approximately ~~$1,300,000~~$1,350,000 in three investments being Stanton Brands ~~(dba~~(d/b/a Josephine & Billie’s), Peakz LLC and Digistrains.

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~~Table of Contents~~
During the first quarter of 2023, SEV launched its “brand success program” (“BSP”). The BSP is a program implemented to provide minority owned brands with guaranteed shelf space and individualized mentorship by the Company’s sales, marketing, retails and operational leaders. Brands will learn best practices, operational procedures and tips that can be applied to any retail outlet nationwide. The goal of the program is to empower each brand with the knowledge and opportunity to scale their business, market efficiently, increase brand awareness while building customer loyalty, and boosting sales; thus, creating a solid, sustainable, and scalable business.
The BSP launched on January 19, 2023 with CRONJA, a social equity and veteran founded brand under the leadership of Co-Founder and CEO, Bryant Bowens. CRONJA’s launch was followed by Plaid America’s Substance and Skewville.

Share Capital and Capital Management

As of ~~September~~June 30, ~~2022,~~2023, the Company had ~~104,914,328 common shares~~120,158,606 Common Shares and 35,837,500 ~~common share~~Common Share purchase warrants (the ~~“Warrants”~~“Warrants”) issued and outstanding. The Warrants are exercisable at an exercise price of $11.50 and will expire on January 15, 2026. The Company may accelerate the expiry date of the outstanding Warrants (excluding the Warrants held by Subversive Capital Sponsor LLC in certain circumstances) by providing 30 days’ notice, if and only if, the closing price of the ~~Company’s common shares~~Common Shares equals or exceeds $18.00 per ~~common share~~Common Share (as adjusted for stock splits or combinations, stock dividends, extraordinary dividends, reorganizations and recapitalizations) for any 20 trading days within a 30-trading day period.

The Company has an equity incentive plan (the ~~“Equity~~“Equity Incentive ~~Plan”~~Plan”) that permits the grant of stock options, RSUs, deferred share units, performance share units (“PSUs”) and stock appreciation rights to non-employee directors and any employee, officer, consultant, independent contractor or advisor providing services to the Company or any affiliate. As of ~~September~~June 30, ~~2022,~~2023, a total of ~~3,694,392~~1,547,141 RSUs and ~~2,448,750~~915,000 PSUs were outstanding under the Equity Incentive Plan.

Prior to closing of the ~~Qualifying Transaction,~~acquisitions of each of CMG Partners, Inc. (“Caliva”) and Left Coast Ventures, Inc. (“LCV”) (such transactions collectively, the “Qualifying Transaction”), Caliva maintained the CMG Partners, Inc. 2019 Stock Option and Grant Plan (the ~~“Caliva EIP”~~“Caliva EIP”), which permitted awards of common stock in Caliva. In connection with the Qualifying Transaction, Caliva and the Company agreed that the Company would maintain the Caliva EIP and that outstanding awards thereunder ~~will~~would entitle the holder to receive Common Shares. ~~There are currently 510,363~~As of June 30, 2023, there were 280,568 options to purchase up to ~~510,363~~280,568 Common Shares under the Caliva EIP ~~outstanding.~~outstanding with a weighted average exercise price of $7.07 per share. No further awards will be granted under the Caliva EIP.
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Prior to closing of the Qualifying Transaction, LCV maintained the Amended and Restated 2018 Equity Incentive Plan (the ~~“LCV~~“LCV Equity ~~Plan”~~Plan”) which authorized LCV to grant to its employees, directors and consultants stock options and other equity-based awards. In connection with the Qualifying Transaction, LCV and the Company agreed that the Company would maintain the LCV Equity Plan and that outstanding awards thereunder ~~will~~would entitle the holder to receive Common Shares. ~~There are currently 9,206~~At June 30, 2023, there were 9,149 options to purchase up to ~~9,206~~9,149 Common Shares under the LCV Equity Plan ~~outstanding.~~outstanding with a weighted average exercise price of $26.73 per share. No further awards will be granted under the LCV Equity Plan.

The Company manages its capital with the following objectives:

·
To ensure sufficient financial flexibility to achieve the ongoing business objectives including of future growth opportunities, and pursuit of accretive acquisitions; and

·
To maximize shareholder return through enhancing the ~~share value.~~value of the Common Shares.

The Company considers its capital to be total equity. The Company manages capital through its financial and operational forecasting processes. The Company reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investing and financing activities. Selected information is provided to the Board of Directors of the Company. The Company’s capital management objectives, policies and processes have remained unchanged during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and year ended December 31, ~~2021.~~2022. The Company is not subject to any external capital requirements.

~~Intellectual Property~~
The Company has a portfolio of industry leading products and brands. As part of the Company’s brand strategy, it strives to protect its proprietary products and brand elements and its brand as California’s premier consumer cannabis product company. Intellectual property (“IP”) protection is pursued both in its ability to sell products and brands through first “Freedom to Operate” searches and subsequently, reviewing proprietary and protectable claims, branding, technology, or design assets. The Company evaluates opportunities for IP protection from cultivation and strain development, in manufacturing and processes, and for its portfolio of finished goods. The Company’s IP protection ranges from trademarks to patents to trade secrets and covers anything from cultivation, genetics, product development, packaging development, claims, operations, information technology, and branding.
~~Additionally, the Company partners from time to time with other companies and pursues further IP protection through licensing and collaboration with those partners.~~
~~The Company seeks to protect its proprietary information, in part, by executing confidentiality agreements with third parties and partners and~~
non-disclosure and invention assignment agreements with its employees and consultants. These agreements are designed to protect its proprietary information and ensure ownership of technologies that are developed through its relationship with the respective counterparty. The Company cannot guarantee, however, that these agreements will afford it adequate protection of its intellectual property and proprietary information rights.
~~Competitive Conditions~~
As the Company is vertically integrated it competes on multiple fronts, from manufacturing to retail to delivery, and experience competition in each of these areas. From a retail perspective, the Company competes with other licensed retailers and delivery companies in the geographies where retail and delivery services are located. These other retailers range from small local operators to more significant operators with a presence throughout the State of California and other states in the United States. From a product perspective, the Company competes with other manufactures of brands for shelf space in third-party owned dispensaries throughout California. Similar to certain competitors in the retail space, the Company competes with manufacturers ranging in size from small local operators to significant operators with a larger presence. Indirectly, the Company competes with the illicit market, including many illegal dispensaries.
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~~Specialized Knowledge, Skills, Resources & Equipment~~
Knowledge with respect to cultivating and growing cannabis is important in the cannabis industry and particularly in the medical cannabis industry. The nature of growing cannabis is not substantially different from the nature of growing other agricultural products. Variables such as temperature, humidity, lighting, air flow, watering and feeding cycles are meticulously defined and controlled to produce consistent product and to avoid contamination.
The Company grows or procures the primary component of its finished products, namely cannabis. The Company’s cultivation operations are dependent on a number of key inputs and their related costs including raw materials and supplies related to its growing operations, as well as electricity, water and other utilities.
Staff with suitable horticultural and quality assurance expertise are generally available on the open market. The Company also requires client care staff, which will grow as its business grows. Customer care staff are also generally available on the open market.
Equipment used is specialized but is readily available and not specific to the cultivation of cannabis. Subject to available funding, the Company does not anticipate any difficulty in obtaining equipment.
~~The Company anticipates an increased demand for skilled manpower, energy resources and equipment in connection with the Company’s expected continued growth.~~
UNITED STATES REGULATORY ENVIRONMENT

Cannabis Industry Regulation

On February 8, 2018, the Canadian Securities Administrators revised their previously released Staff Notice 51-352 ~~-Issuers~~(Issuers with U.S. Marijuana-Related ~~Activities~~Activities) (“Staff Notice ~~51-352”~~51-352”), which provides specific disclosure expectations for issuers that currently have, or are in the process of developing, cannabis-related activities in the United States as permitted within a particular state’s regulatory framework. All issuers with U.S. cannabis-related activities are expected to clearly and prominently disclose certain prescribed information in prospectus filings and other required disclosure documents. As a result of ~~the Company’s~~our existing operations in California, ~~the Company is~~we are providing the following disclosure pursuant to Staff Notice 51-352.

~~The Company derives~~We derive a substantial portion of ~~its~~our revenues from state legalized: (i) cannabis, and products containing cannabis, used by someone 21 or older that is not a medical cannabis patient (where use may include inhalation, consumption, or application) (“Adult-Use ~~Cannabis”~~Cannabis”) and (ii) to a lesser extent, cannabis and products containing cannabis used by medical cannabis patients in accordance with applicable state law, but for which no drug approval has been granted by the United States Food and Drug Administration (where use may include inhalation, consumption, or application) (“Medical-Use ~~Cannabis”~~Cannabis”) ((i) and (ii) collectively ~~“Regulated Cannabis”~~“Regulated Cannabis”). The Regulated Cannabis industry is illegal under U.S. ~~Federal Law. The Parent Company is~~federal law. We are directly involved (through ~~its~~our licensed subsidiaries) in both the Adult-Use Cannabis and Medical-Use Cannabis industry in the State of California, which has legalized and regulated such industries.

The United States federal government regulates certain drugs through the ~~Controlled Substances Act (21 U.S.C. §§ 801-971) (the “CSA”)~~CSA and through the Food, Drug & Cosmetic Act (21 U.S.C. §§ ~~301-392)~~301–392) (the ~~“FDCA”~~“FDCA”). The CSA schedules controlled substances, including “marihuana” (defined as all parts of the plant cannabis sativa L. containing more than 0.3 percent THC), based on their approved medical use and potential for abuse. Marihuana (also referred to as cannabis) and THC (“except for tetrahydrocannabinols in hemp”) are each classified as Schedule I controlled substances (21 U.S.C. § 812(c)). The Drug Enforcement Administration, ~~(“DEA”),~~ an agency of the U.S. Department of Justice (the ~~“DOJ”~~“DOJ”) defines Schedule I drugs, substances or chemicals as “drugs with no currently accepted medical use and a high potential for abuse.” The United States Food and Drug Administration (the ~~“FDA”~~“FDA”), which implements and enforces the FDCA, regulates, among other things, drugs used for the diagnosis or treatment of diseases. The FDA has not approved cannabis as a safe and effective treatment for any medical condition, and regularly issues cease-and-desist letters to manufacturers of hemp-derived cannabidiol (“CBD”) products making health claims to consumers in contravention of the FDCA. The FDA has approved drugs containing THC and CBD, individual cannabinoids in the plant cannabis sativa L., for a narrow segment of medical conditions.
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State laws that permit and regulate the cultivation, production, distribution, sale and use of Medical-Use Cannabis or Adult-Use Cannabis are in direct conflict with the CSA, which makes cannabis and THC distribution and possession federally illegal. Although certain states and territories of the U.S. authorize ~~Medical- Use~~Medical-Use Cannabis or Adult-Use Cannabis production and distribution by licensed or registered entities, under U.S. federal law, the possession, cultivation, and/or transfer of cannabis and THC is illegal and any such acts are criminal acts under any and all circumstances under the CSA. Additionally, any cultivation, manufacture, possession, distribution and/or sale of cannabis accessories, in states without laws expressly permitting such activity, are also federally illegal activity under the CSA. Although ~~the Company’s~~our activities are believed to be compliant with applicable California state and local law, strict compliance with state and local laws with respect to cannabis does not absolve ~~the Company~~us of liability under United States federal law, nor does it provide a defense to any federal proceeding which may be brought against ~~the Company.~~us.

However, in October 2022, President Biden directed the Department of Justice and Department of Health & Human Services to conduct a review of the scheduling status of cannabis. ~~It is anticipated that~~While there can be no assurance, cannabis may be rescheduled or descheduled ~~entirely within the next 12-24 months.~~sometime in 2024 or 2025.

As of ~~September 30, 2022, 38~~July 31, 2023, 39 U.S. states, and the District of Columbia and the territories of Guam, Puerto Rico, the U.S. Virgin Islands, and the Northern Mariana Islands have legalized the cultivation and sale of Medical-Use Cannabis, with at least ~~six~~four of the remaining states expected to pass such legalization measures within the next 12 months. In 1923 U.S. states, the sale and possession of both Medical-Use Cannabis and Adult-Use Cannabis has been legalized, though due to the time period between a state’s legalization of commercial cannabis activities and the completion of its regulatory framework and marketplace launch, the purchase of Adult-Use Cannabis is currently possible in 1319 states, with the remainder of the currently-legal states to commence sales activities in ~~2023.~~2024 or 2025. The District of Columbia has legalized Adult-Use Cannabis but has not yet permitted the commercial sale of Adult Use Cannabis, however, Adult-Use sales are ~~expected~~likely to commence in ~~2023.~~
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~~Eleven~~2025. 10 states have also enacted low-THC / high-CBD only laws for medical cannabis patients. The sale and possession of both Medical-Use Cannabis and Adult-Use Cannabis is legal in the State of California, subject to applicable licensing requirements and compliance with applicable conditions. Included in the numbers above are ballot initiatives to legalize Adult-Use Cannabis which passed in November 2020, with Arizona commencing Adult-Use sales in January 2021, and New Jersey and Montana commencing Adult-Use sales in 2022 and Mississippi enacting Medical-Use cannabis legislation in January 2022, following a successful ballot initiative and subsequent invalidation on technical grounds by the Mississippi State Supreme Court.

Under President Barack Obama, the U.S. administration attempted to address the inconsistencies between federal and state regulation of cannabis in a memorandum which then-Deputy Attorney General James Cole sent to all United States Attorneys on August 29, 2013 (the ~~“2013~~“2013 Cole ~~Memorandum”~~Memorandum”) outlining certain priorities for the DOJ relating to the prosecution of cannabis offenses. The 2013 Cole Memorandum noted that in jurisdictions that have enacted laws legalizing or decriminalizing Regulated Cannabis in some form and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of Regulated Cannabis, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level. The DOJ did not provide (and has not provided since) specific guidelines for what regulatory and enforcement systems would be deemed sufficient under the 2013 Cole Memorandum. In light of limited investigative and prosecutorial resources, the 2013 Cole Memorandum concluded that the DOJ should be focused on addressing only the most significant threats related to cannabis, a non-exhaustive list of which was enumerated therein.

On January 4, 2018, U.S. Attorney General Jeff Sessions formally issued a new memorandum (the ~~“Sessions Memorandum”~~“Sessions Memorandum”), which rescinded all “previous nationwide guidance specific to marijuana enforcement,” including the 2013 Cole Memorandum. The Sessions Memorandum stated, in part, that current law reflects “Congress’ determination that Cannabis is a dangerous drug and Cannabis activity is a serious ~~crime”,~~crime,” and Mr. Sessions directed all U.S. Attorneys to enforce the laws enacted by Congress by following well-established principles when pursuing prosecutions related to cannabis activities. There can be no assurance that the federal government will not enforce federal laws relating to cannabis in the future. As a result of the Sessions Memorandum, federal prosecutors are now free to utilize their prosecutorial discretion to decide whether to prosecute cannabis activities despite the existence of State-level laws that may be inconsistent with federal prohibitions. No direction was given to federal prosecutors in the Sessions Memorandum as to the priority they should ascribe to such cannabis activities, and resultantly it is uncertain how active U.S. federal prosecutors will be in relation to such activities.

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~~The Company believes~~
We believe it is still unclear what prosecutorial effects will be created by the rescission of the 2013 Cole Memorandum. ~~The Company believes~~We believe that the sheer size of the Regulated Cannabis industry, in addition to participation by state and local governments and investors, suggests that a ~~large- scale~~large-scale enforcement operation would more than likely create unwanted political backlash for the DOJ and the Biden administration in certain states that heavily favor decriminalization and/or legalization. Regardless, cannabis and THC remain Schedule I controlled substances at the federal level, and neither the 2013 Cole Memorandum nor its rescission has altered that fact. The federal government of the United States has always reserved the right to enforce federal law in regard to the manufacture, distribution, sale and disbursement of Medical-Use Cannabis or Adult-Use Cannabis, even if state law permits such cultivation, manufacture, distribution, sale and disbursement. ~~The Company believes,~~We believe, from a purely legal perspective, that the criminal risk today remains similar to the risk on January 3, 2018. It remains unclear whether the risk of enforcement has been altered. Additionally, under United States federal law, it is a violation of federal money laundering statutes for financial institutions to take any proceeds from the sale of Regulated Cannabis or any other Schedule I controlled substance. Canadian banks are likewise hesitant to deal with cannabis companies, due to the uncertain legal and regulatory framework of the industry. Banks and other financial institutions, particularly those that are federally chartered in the United States, could be prosecuted and possibly convicted of money laundering for providing services to Regulated Cannabis businesses. While Congress is considering legislation that may address these issues, there can be no assurance that such legislation passes.

Despite these laws, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“~~FinCEN”~~FinCEN”) issued a memorandum on February 14, 2014 (the ~~“FinCEN Memorandum”~~“FinCEN Memorandum”) outlining the pathways for financial institutions to bank state-sanctioned Regulated Cannabis businesses in compliance with federal enforcement priorities. The FinCEN Memorandum echoed the enforcement priorities of the 2013 Cole Memorandum and stated that in some circumstances, it is possible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. Under these guidelines, financial institutions must submit a Suspicious Activity Report (“~~SAR”~~SAR”) in connection with all cannabis-related banking activities by any client of such financial institution, in accordance with federal money laundering laws. These cannabis-related SARs are divided into three categories-cannabis limited, cannabis priority, and cannabis terminated-based on the financial institution’s belief that the business in question follows state law, is operating outside of compliance with state law, or where the banking relationship has been terminated, respectively. On the same day that the FinCEN Memorandum was published, the DOJ issued a memorandum (the ~~“2014~~“2014 Cole ~~Memorandum”~~Memorandum”) directing prosecutors to apply the enforcement priorities of the 2013 Cole Memorandum in determining whether to charge individuals or institutions with crimes related to financial transactions involving the proceeds of cannabis-related conduct. The 2014 Cole Memorandum has been rescinded as of January 4, 2018, along with the 2013 Cole Memorandum, removing guidance that enforcement of applicable financial crimes against state-compliant actors was not a DOJ priority.

However, former Attorney General Sessions’ rescission of the 2013 Cole Memorandum and the 2014 Cole Memorandum has not affected the status of the FinCEN Memorandum, nor has the Department of the Treasury given any indication that it intends to rescind the FinCEN Memorandum itself. Though it was originally intended for the 2014 Cole Memorandum and the FinCEN Memorandum to work in tandem, the FinCEN Memorandum is a standalone document which explicitly lists the eight enforcement priorities originally cited in the 2013 Cole Memorandum. As such, the FinCEN Memorandum remains intact, indicating that the Department of the Treasury and FinCEN intend to continue abiding by its guidance. However, FinCEN issued further guidance on December 3, 2019, in which it acknowledged that the Agricultural Improvement Act of 2018 (the ~~“Farm Bill”~~“Farm Bill”) removed hemp as a Schedule I controlled substance and authorized the United States Department of Agriculture ~~(“USDA”)~~ to issue regulations governing, among other things, domestic hemp production. The guidance states that because hemp is no longer a controlled substance under federal law, banks are not required to file SARs on these businesses solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. The guidance further notes that for hemp-related customers, banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants. FinCEN noted in its December 2019 guidance that the 2014 SAR reporting structure for cannabis remains in place even with the passage of the Farm Bill and this additional guidance related to hemp. FinCEN confirmed this point in guidance issued on June 29, 2020, and clarified that, if proceeds from cannabis-related activities are kept separate, a SAR filing is only required for the cannabis-related part of a business that engages in both cannabis and hemp activity.

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Although the 2013 Cole Memorandum has been rescinded, one legislative safeguard for the Medical-Use Cannabis industry has historically remained in place: Congress adopted a so-called “rider” provision to the fiscal years 2015, 2016, 2017, ~~and~~ 2018, 2019, ~~and~~ 2020 and 2021. Consolidated Appropriations Acts (currently referred to as the ~~“Rohrabacher/Blumenauer Amendment”~~“Joyce-Blumenauer Amendment”) to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated Medical-Use Cannabis actors operating in compliance with state and local law. ~~On March 15, 2022, the Rohrabacher/Blumenauer~~The Joyce-Blumenauer Amendment was renewed through the signing of the fiscal year 2022 omnibus bill, which extended the protections of the Amendment through ~~September 30,~~December 16, 2022. The ~~Rohrabacher/Blumenauer Amendment may or may not be~~fiscal year 2023 spending package included ~~in a subsequent omnibus appropriations package or a continuing budget resolution. Should~~ the ~~Rohrabacher/Blumenauer~~Joyce-Blumenauer rider, which extended the rider until fiscal year 2024.
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However, should the Joyce-Blumenauer Amendment not be renewed upon expiration in subsequent spending bills, there can be no assurance that the federal government will not seek to prosecute cases involving medical cannabis businesses that are otherwise compliant with ~~State~~state law. Such potential proceedings could involve significant restrictions being imposed upon ~~the Company.~~us.

The United States Congress has passed appropriations bills each of the last four years that have not appropriated funds for prosecution of cannabis offenses of individuals who are in compliance with state medical cannabis laws. American courts have construed these appropriations bills to prevent the U.S. federal government from prosecuting individuals when those individuals comply with state law relating to approved medical uses. However, because this conduct continues to violate U.S. federal law, American courts have observed that should Congress at any time choose to appropriate funds to fully prosecute the CSA, any individual or business—even those that have fully complied with state law—could be prosecuted for violations of U.S. federal law. And if Congress restores funding, the government will have the authority to prosecute individuals for violations of the law that took place before received funding under the CSA’s five-year statute of limitations.

In recent years, certain temporary federal legislative enactments that protect the Medical-Use Cannabis and industry have also been in effect. For instance, cannabis businesses that are in strict compliance with state law receive a measure of protection from federal prosecution by operation of a temporary appropriations measures that has been enacted into law as an amendment (or “rider”) to federal spending bills passed by Congress and signed by Presidents Obama, Trump and Biden. First adopted in the Appropriations Act of 2015, Congress has included in successive budgets since a “rider” that prohibits the DOJ from expending any funds to enforce any law that interferes with a state’s implementation of its own medical cannabis laws. The rider, discussed above, is known as the “Rohrbacher-Blumenauer” Amendment, and now known colloquially as the “Joyce-Amendment” after its most recent sponsors. The rider was renewed on March 15, 2022 through the signing of the FY 2022 omnibus spending bill, which extended the protections of the Amendment through September 30, 2022.
Despite the legal, regulatory, and political obstacles the Regulated Cannabis industry currently faces, the industry has continued to grow. Under certain circumstances, the federal government may repeal the federal prohibition on cannabis and thereby leave the states to decide for themselves whether to permit Regulated Cannabis cultivation, production and sale, just as states are free today to decide policies governing the distribution of alcohol or tobacco. Until that happens, ~~the Company faces~~we face the risk of federal enforcement and other risks associated with ~~the Company’s~~our business.
However, as noted previously, in October 2022 President Biden directed the Department of Justice and Department of Health & Human Services to conduct a review of the scheduling status of cannabis. It is anticipated that cannabis may be rescheduled or descheduled entirely within the next 12-24 months.

To the knowledge of our management, ~~of the Company,~~ there have not been any statements or guidance made by federal authorities or prosecutors regarding the risk of enforcement action in California.

~~The Company’s~~Our objective is to capitalize on the opportunities presented as a result of the changing regulatory environment governing the cannabis industry in the United States. Accordingly, there are a number of significant risks associated with ~~the business of the Company.~~our business. Unless and until the United States Congress amends the CSA with respect to Medical-Use Cannabis or Adult-Use Cannabis, there is a risk that federal authorities may enforce current federal law, and ~~the~~our business ~~of the Company~~ may be deemed to be producing, cultivating, extracting, or dispensing “marihuana” or aiding or abetting or otherwise engaging in a conspiracy to commit such acts in violation of U.S. federal law.

~~The Company has~~We have received and ~~continues~~continue to receive legal input, in verbal and written form (including opinions when required), regarding (a) compliance with applicable state and local regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law in certain respects.

The 2013 Cole Memorandum and the ~~Rohrabacher/Blumenauer~~Joyce-Blumenauer Amendment gave Medical-Use Cannabis operators and investors in states with legal regimes greater certainty regarding federal enforcement as to establish Regulated Cannabis businesses in those states. While the Sessions Memorandum has introduced some uncertainty regarding federal enforcement, the Regulated Cannabis industry continues to experience growth in legal Medical-Use Cannabis and Adult-Use Cannabis markets across the United States. U.S. Attorney General Jeff Sessions resigned on November 7, 2018. ~~Nonetheless,~~It is anticipated that the current Attorney General, Merrick Garland, will issue a memorandum resembling the Cole Memorandum in late 2023. Still, this is not guaranteed. More generally, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, even under a Biden Administration’s DOJ 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 CSA with respect to cannabis and THC (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 U.S. federal law.

Despite the expanding market for Regulated Cannabis, traditional sources of financing, including bank lending or private equity capital, are lacking which can be attributable to the fact that cannabis remains a Schedule I substance under the CSA. These traditional sources of financing are expected to remain scarce unless and until the federal government legalizes cannabis cultivation and sales.

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Below is a discussion of U.S. state-level regulatory regimes in those jurisdictions where we are, and will be, directly or indirectly involved through our subsidiaries. A discussion of the U.S. federal regulatory regime can be found above under the heading “—United States Regulatory Environment—Cannabis Industry Regulation.” We are directly engaged in the manufacture, possession, use, sale or distribution of cannabis and/or hold licenses in the Adult-Use Cannabis and/or Medical-Use Cannabis marketplace in the State of California. We 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 cannabis regulation. We intend to cause our businesses to promptly remedy any known occurrences of non-compliance with applicable State and local cannabis rules and regulations, and intends to publicly disclose any non-compliance, citations or notices of violation which may have an impact on our licenses, business activities or operations.
Exposure to U.S. Marijuana Related Activities

~~The Company operates~~We operate in the United States through various subsidiaries and other entities pursuant to arrangements with third-parties on arm’s length terms as more specifically described herein. As of the date ~~hereof,~~of this Quarterly Report, a majority of ~~the Company’s~~our business was directly derived from U.S. cannabis-related activities. As such, a majority of ~~the Company’s~~our balance sheet and operating statement for periods following closing of the Qualifying Transaction ~~will~~ reflects exposure to U.S. cannabis related activities.

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California

California Regulatory Landscape

In 1996, California was the first state to legalize Medical-Use Cannabis through Proposition 215, the Compassionate Use Act of 1996. This legislation legalized the use, possession and cultivation of cannabis by patients with a physician recommendation for treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which cannabis provides relief.

In 2003, Senate Bill 420 was signed into law establishing not-for-profit medical cannabis collectives and dispensaries, and an optional identification card system for Medical-Use Cannabis patients.

In September 2015, the California legislature passed three bills collectively known as the Medical Cannabis Regulation and Safety Act (“ ~~MCRSA”~~MCRSA”). The MCRSA established a licensing and regulatory framework for Medical-Use Cannabis businesses in California. The system created multiple license types for dispensaries, infused products manufacturers, cultivation facilities, testing laboratories, transportation companies, and distributors. Edible infused product manufacturers would require either volatile solvent or non-volatile solvent manufacturing licenses depending on their specific extraction methodology. Multiple agencies would oversee different aspects of the program and businesses would require a state license and local approval to operate. However, in November 2016, voters in California passed Proposition 64, the Adult Use of Marijuana Act (“~~AUMA”~~AUMA”), creating an Adult-Use Cannabis program for adults 21 years of age or older. In June 2017, the California State Legislature passed Senate Bill No. 94, known as Medicinal and Adult-Use Cannabis Regulation and Safety Act (“~~MAUCRSA”~~MAUCRSA”), which amalgamated MCRSA and AUMA and provided for a set of regulations to govern a medical and adult-use licensing regime for cannabis businesses in the State of California. The four agencies that regulate cannabis at the state level are the Bureau of Cannabis Control (“~~BCC”~~BCC”), CalCannabis at the California Department of Food and Agriculture (“~~CalCannabis”~~CalCannabis”), and the Manufactured Cannabis Safety Branch California Department of Public Health (“~~MCSB”~~MCSB”), and California Department of Tax and Fee Administration. MAUCRSA went into effect on January 1, 2018. MAUCRSA was then amended and restated in July 2021 through the annual budget trailer bill process to, among other things, consolidate the three state licensing agencies-BCC, CalCannabis and MCSB-into a single licensing authority known as the Department of Cannabis Control (“~~DCC”~~DCC”). Subsequent to the agency consolidation, the newly formed DCC consolidated the three separate sets of BCC, CalCannabis, and MCSB regulations into a single set of state regulations, which regulations went into effect as of September 27, 2021.
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To legally operate a Medical-Use Cannabis or Adult-Use Cannabis business in California, the operator must generally have both a local and state license. This requires license holders to operate in cities with cannabis licensing programs. Therefore, counties and cities in California are allowed to determine the number of licenses they will issue to cannabis operators, or can choose to outright ban the siting of cannabis operations in their jurisdictions.

California Licensing Requirements

A storefront retailer license with an “M-designation” permits (i) the purchase of cannabis goods that are “For Medical Use Only” from licensed distributors (ii) the sale of such medicinal cannabis goods to medicinal cannabis patients age 18 years of age or older in California who possesses a physician’s recommendation. Only certified physicians may provide medicinal cannabis recommendations. A storefront retailer license with an “A-designation” permits the sale of cannabis and cannabis products to any individual age 21 years of age or older regardless of whether they possess a physician’s recommendation. A storefront retailer license with both the M- and ~~A- designations~~A-designations is permitted to do all of the above described in this paragraph. Where the local jurisdiction permits, a state storefront retailer license allows the retailer to engage in delivery of cannabis goods to retail customers. A non-storefront license permits the same delivery activity, but does not permit the licensee to operate a retail storefront.

A distribution license permits the license holder to engage in the procurement, storage, required regulatory and compliance testing, sale to certain licensed entities within the State of California, and transport of cannabis and cannabis products between licensees.

An adult-use or medicinal cultivation license permits cannabis cultivation, which means any activity involving the planting, growing, harvesting, drying, curing, grading or trimming of cannabis. Such licenses further permit the production of a limited number of “non-manufactured cannabis products” and the sales of cannabis to certain licensed entities within the State of California for resale or manufacturing purposes.

An adult-use or medical manufacturing license permits the manufacturing of “manufactured cannabis ~~products”.~~products.” Manufacturing includes the compounding, blending, extracting, post-processing refinement, infusion, packaging or repackaging, labeling or relabeling, remediation or other preparation of a cannabis product in the State of ~~California, only~~California. Only cannabis that is grown in the state by a licensed operator can be sold in the state. California neither mandates or prohibits integration, and the state allows licensees to make wholesale purchase of cannabis from, or a distribution of cannabis and cannabis product to, another licensed entity within the state.

Holders of cannabis licenses in California are subject to a detailed regulatory scheme encompassing security, staffing, transport, sales, manufacturing standards, testing, inspections, inventory, advertising and marketing, product packaging and labeling, white labeling, records and reporting, and more. As with all jurisdictions, the full regulations, as promulgated by each applicable state agency, should be consulted for further information about any particular operational area.

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California Reporting Requirements

The State of California uses METRC as the state’s track-and-trace system used to track commercial cannabis activity and movement across the distribution chain for all state-issued licensees. The system allows for other third-party system integration via application programming interface. Only licensees have access to METRC.

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California 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, California’s retail cannabis businesses are generally required to do the following:

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limit access to storefront retail premises to medical cannabis patients at least 18 years and older, and adults 21 and over maintain a fully operational security alarm system;

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contract for professionally-certified security guard services;

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maintain a video surveillance system that records continuously 24 hours a day;

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ensure that the facility’s outdoor premises have sufficient lighting;

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not dispense from its premises outside of permissible hours of operation;

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limit the daily amount of cannabis goods dispensed to individual customers to prevent diversion;

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store cannabis and cannabis product only in areas per the premises diagram submitted to and approved by the State of California during the licensing process;

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store all cannabis and cannabis products in a secured, locked room or a vault; report to local law enforcement and the DCC within 24 hours after discovering the theft, diversion, or loss of cannabis; and

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ensure the safe transport of cannabis and cannabis products between licensed facilities, maintain a delivery manifest and QR-code scannable State license in any vehicle transporting cannabis and cannabis products. Only vehicles registered with the DCC that meet DCC distribution requirements are to be used to transport cannabis and cannabis products.

California Home Delivery Requirements

California law allows certain licensed retailers to deliver cannabis to adult customers at any private address within the state, including within those jurisdictions that have land use and zoning ordinances prohibiting the establishment of commercial cannabis businesses. At least 25 local jurisdictions where cannabis sales are banned sued the state, seeking to overturn the rule allowing home deliveries statewide. As of the date hereof, the suit was dismissed on procedural grounds, and the state regulation stands. To the knowledge of management, there have been no significant enforcement efforts mounted by local governments.
The State of California requires the satisfaction of various regulatory compliance obligations in order to operate a cannabis delivery service. The cannabis license that permits the operation of a storefront dispensary in the State of California (also referred to as a retail license) currently permits that entity to also establish a delivery operation. If an entity does not wish to set up and operate a storefront dispensary location at which it can sell products to customers in person, California has established a separate license which allows for a retail delivery operation (also referred to as a non-storefront retail license). California regulations regarding the delivery of cannabis products include the following requirements:

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All deliveries of cannabis goods must be performed by a delivery employee (at least 21 years of age) who is directly employed by a licensed retailer.

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All deliveries of cannabis goods must be made in person to a physical address that is not on publicly-owned land or to a building leased by a public agency.

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Prior to providing cannabis goods to a delivery customer, a delivery employee must confirm the identity and age of the delivery customer (as is required if such customer was purchasing the product in the physical retail store) and ensure that all cannabis goods sold comply with the regulatory requirements.

·
A licensed cannabis entity is permitted to contract with a service that provides a technology platform to facilitate the sale and delivery of cannabis goods, in accordance with all of the following: (1) the licensed cannabis entity does not allow for delivery of cannabis goods by the technology platform service provider; (2) the licensed entity does not share in the profits of the sale of cannabis goods with the technology platform service provider, or otherwise provide for a percentage or portion of the cannabis goods sales to the technology platform service provider; (3) the licensed cannabis entity does not advertise or market cannabis goods in conjunction with the technology platform service provider, outside of the technology platform, and ensures that the technology platform service provider does not use the licensed cannabis entity’s license number or legal business name on any advertisement or marketing that primarily promotes the services of the technology platform; and (4) provides various disclosures to customers about the source of the delivered cannabis goods.
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In March 2022, the state of California issued notable new regulations pertaining to cannabis delivery. First, the state increased the total value of cannabis goods delivery employees can carry in their vehicle from $5,000 to $10,000. Second, for purposes of this limit, the state removed any distinction between “ordered” and “unordered” product. These changes will afford cannabis delivery operators considerably more flexibility, allowing them to carry a broader array of products and serve a larger geographic area. These regulations ~~are proposed to take~~took effect in November 2022.

California Cannabis Cultivation Tax

As of July ~~1st,~~1, 2022, California has eliminated its cannabis cultivation tax. Prior to this, cannabis cultivated in California was subject to a $161/pound tax. In practice, this tax amounted to 30% or more of the wholesale price of cannabis. The elimination of the cannabis cultivation tax may make legal cannabis more competitive with California’s robust illicit cannabis market.

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Laws Applicable to Financial Services for Regulated Cannabis Industry

All banks are subject to federal law, whether the bank is a national bank or state-chartered bank. At a minimum, most banks maintain federal deposit insurance which requires adherence to federal law. Violation of federal law could subject a bank to loss of its charter. Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Currency and Foreign Transactions Reporting Act of 1970 (31 U.S.C. §§§ 5311 et ~~seq)~~seq.) (commonly known as the ~~“Bank~~“Bank Secrecy ~~Act”~~Act”). For example, under the Bank Secrecy Act, banks must report to the federal government any suspected illegal activity, which would include any transaction associated with a Regulated Cannabis-related business. These reports must be filed even though the business is operating in compliance with applicable state and local laws. Therefore, financial institutions that conduct transactions with money generated by Regulated Cannabis-related conduct could face criminal liability under the Bank Secrecy Act for, among other things, failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the CSA.

FinCEN issued guidance in February 2014 which clarifies how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. Concurrently with the FinCEN guidance, the DOJ issued supplemental guidance directing federal prosecutors to consider the federal enforcement priorities enumerated in the 2013 Cole Memorandum with respect to federal money laundering, unlicensed money transmitter and Bank Secrecy Act offenses based on cannabis-related violations of the CSA. The FinCEN guidance sets forth extensive requirements for financial institutions to meet if they want to offer bank accounts to cannabis-related businesses, including close monitoring of businesses to determine that they meet all of the requirements established by the DOJ, including those enumerated in the 2013 Cole Memorandum. This is a level of scrutiny that is far beyond what is expected of any normal banking relationship. Under the 2019 FinCEN guidance discussed above, banks are not required to file SARs on businesses solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. However, the 2014 guidance remains in place with respect to Regulated Cannabis businesses. FinCEN confirmed this point in guidance issued on June 29, 2020, and clarified that, if proceeds from cannabis-related activities are kept separate, a SAR filing is only required for the ~~cannabis- related~~cannabis-related part of a business that engages in both cannabis and hemp activity.

As a result, many banks are hesitant to offer any banking services to Regulated Cannabis-related businesses, including opening bank accounts. While ~~the Company~~we currently ~~has~~have bank accounts, ~~its~~our inability to maintain these accounts or the lack of access to bank accounts or other banking services in the future, would make it difficult for ~~the Company~~us to operate ~~its~~our business, increase ~~its~~our operating costs, and pose additional operational, logistical and security challenges. Furthermore, it remains unclear what impact the rescission of the 2013 Cole Memorandum and 2014 Cole Memorandum will have, but federal prosecutors may increase enforcement activities against institutions or individuals that are conducting financial transactions related to cannabis activities.

The increased uncertainty surrounding financial transactions related to cannabis activities may also result in financial institutions discontinuing services to the cannabis industry.
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Ongoing Compliance

Overview

~~The Company~~Gold Flora Corporation is subject to the general licensing and regulatory framework in California set out under the heading ~~“United~~“United States Regulatory ~~Environment - California”~~Environment—California. ~~The Company~~” Gold Flora Corporation has developed a compliance program designed to achieve its strategic business goals while protecting the organization and operations. ~~The Company’s~~Gold Flora Corporation’s compliance program integrates external regulations with internal rules and procedures to effectively lay out expectations for employee duties and behaviors; this aligns the goals of ~~its~~Gold Flora Corporation employees with ~~those of the Company~~Gold Flora Corporation’s goals and helps ~~the Company’s~~our operations run smoothly. ~~The Company focuses~~We focus on upholding policies and procedures that ensure the organization and ~~its~~our employees comply with applicable laws and regulations.

Employee Training

~~The Company is in the process of~~Gold Flora Corporation provides ongoing employee training, ~~employees,~~ and ~~in completing~~has completed development of and ~~instituting~~instituted a robust online training center for employees, in connection with ~~its~~the objectives of Gold Flora Corporation’s compliance ~~program’s objectives,~~program, regulatory and statutory requirements, relevant policies and procedures, and the basic components of the compliance program. All of the training modules available to employees in the online training center were created by Gold Flora Corporation’s in-house Compliance Team. Such training includes additional specialized training for various policies and procedures that are applicable to specific job functions and/or departments where needed to properly perform their jobs. Training is tracked, attested to, and documented. Further, all employees and management are encouraged to request new or refresher compliance training as often as necessary to compliantly fulfill their job duties.

Inventory and Security Policies

Maintaining security and inventory control is important to ~~the Company~~us and itGold Flora Corporation has adopted a number of policies, procedures, and practices in these areas:

Security: The Company has taken extensive security measures including implementing professionally vetted policies, procedures, and systems to provide comprehensive protection, not only for its physical plant and inventory, but also for its employees, customers, and the surrounding public. Every licensed facility has strict access controls, thorough video surveillance coverage, and burglar alarms linked directly to local police departments.
·
Security. Gold Flora Corporation has taken extensive security measures including implementing professionally vetted policies, procedures, and systems to provide comprehensive protection, not only for its physical facilities and inventory, but also for its employees, customers, and the surrounding public. Every licensed facility has strict and limited access controls, thorough video surveillance coverage, and burglar alarms linked to our remote security monitoring service, as well as a loss prevention policy and procedure. These controls are supported by professionally certified on-site security personnel in certain instances.
·
Inventory. Gold Flora Corporation maintains inventory control and reporting systems that document the present location, amount, and a description of all cannabis and cannabis products at all facilities. The traceability of cannabis goods is maintained using the California’s “Track-and-Trace” system, METRC, Gold Flora Corporation’s point-of-sales system, TREEZ, which provides application programming interface with METRC, and Gold Flora Corporation’s integrated enterprise resource planning system (“ERP”), Odoo. We conduct regular continuous cycle counts in addition to both quarterly and annual manual inventory reconciliations, in accordance with regulations and best practices.

Inventory: The Company maintains inventory control and reporting systems that document the present location, amount, and a description of all cannabis and cannabis products at all facilities. The traceability of cannabis goods is maintained using the California’s “Track-and-Trace” system, METRC, and the Company’s integrated enterprise resource planning system (“ERP”). The Company conducts regular continuous cycle counts in addition to both quarterly and annual manual inventory reconciliations, in accordance with regulations and best practices.
Operational Compliance

Internal audits are conducted ~~quarterly~~monthly in the normal ~~course.~~course across all active licenses. These audits allow usGold Flora Corporation to identify and monitor ~~the Company’s~~our strengths and weaknesses, highlighting continuous opportunities for improvement. These internal audits also provide usGold Flora Corporation with an opportunity to reinforce best practices and to institute changes in areas that are identified as opportunities for improvement. The information discovered and obtained during these internal audits is used to improve the compliance programs, when necessary, by revising ~~policies,~~practices, strengthening training, and establishing better issue-spotting and reporting processes. The focus of ~~the Company’s~~Gold Flora Corporation’s internal compliance audit is to ensure itGold Flora Corporation is compliant with both state and local laws and regulations and internal policies and procedures. ~~Internal audits may be delayed or completed remotely by video from time to time as a result of COVID-19 precautions.~~

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Big Data Analysis

~~The Company~~Gold Flora Corporation has invested in a highly scalable data architecture and platform built using leading technologies and tools. By extracting data from ~~its~~Gold Flora Corporation’s ERP software, point-of-sales software, and the California METRC track and trace system and subsequently organizing it in ~~its~~our data warehouse, ~~the Company~~Gold Flora Corporation has enabled critical data and insights for its compliance efforts. ~~The Company’s~~Gold Flora Corporation’s data warehouse secures and stores all data and transactions at frequent intervals, allowing extensive access and analysis to information that is current. ~~The Company~~Gold Flora Corporation has the ability to understand precise movement of inventory or dollars, past or present, required for review or due diligence as related to compliance requirements or inquiries. ~~The Company~~Gold Flora Corporation is using this data infrastructure proactively to track, monitor and reconcile inventory levels and for ongoing reconciliation with METRC.

~~Ongoing~~ Compliance Personal and Use of External Compliance Counsel and Consultants

~~The Company~~Gold Flora Corporation prides itself on a robust internal compliance program encompassing both the compliance measures described above as well as monitoring compliance with U.S. state law on an ongoing basis. Key to those compliance efforts is the employment of individuals dedicated to monitoring California law for changes and updates to statutes and regulations, both at the state level and the local level, that impact business operations. Currently, ~~the Company~~Gold Flora Corporation employs ~~five~~several individuals whose job function includes some aspect of compliance. Further, ~~the Company~~Gold Flora Corporation employs a government relations employee whose primary job function is to monitor the changing landscape of state and local law while employing an external consultant and two external law firms that assist in the monitoring, notification, and interpretation of any changes. Additionally, ~~the Company currently~~Gold Flora Corporation implements and ~~maintains~~maintain standard operating procedures (“~~SOPs”~~SOPs”) that are designed for monitoring compliance with California law on an ongoing basis. These SOPs include regular review of current and anticipated statutes, regulations, and ordinances and the training of employees to maintain compliance with California law.

In addition to the internal compliance team and the consultants and law firms described above, ~~the Company~~Gold Flora Corporation also engages local regulatory compliance counsel and consultants in the jurisdictions in which it operates. Such counsel regularly provides legal advice to ~~the Company~~Gold Flora Corporation regarding compliance with state and local laws and regulation and ~~the Company’s~~its legal and compliance exposures under United States federal law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.
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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and ~~Procedures.~~Procedures

Based on an evaluation as of ~~September~~June 30, ~~2022,~~2023, our management, including the ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial Officer, has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were not effective to provide reasonable assurance because of a material weakness in our internal control over financial reporting described below.

Material Weakness

As reported in our ~~2021~~Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021, we and our ~~then~~ independent registered public accounting firm identified control deficiencies in the design and operation of our internal control over financial reporting that constituted a material weakness.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected in a timely manner.

We did not design or maintain an effective control environment commensurate with financial reporting requirements. Specifically, we lack a sufficient number of adequately skilled professionals to appropriately analyze, record and disclose accounting matters timely and accurately while maintaining appropriate segregation of duties.

The above material weakness did not result in a material misstatement of our previously issued financial statements, ~~however,~~However, it could result in a misstatement of our account balances or disclosures that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected. See “Risk Factors—We identified a material weakness in our internal control over our financial reporting process. If we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations” in our 2021 Form 10-K.

Remediation Activities

We ~~are working~~continue to work fully remediate the material weakness and are taking steps to strengthen our internal control over financial ~~reporting through the continued hiring of additional appropriately skilled finance and accounting personnel with the requisite technical knowledge and skills. With the additional skilled personnel, we~~reporting. We are taking appropriate and reasonable steps to remediate ~~this~~the material weakness through the implementation of appropriate segregation of duties, formalization of accounting policies and controls (including evidence of review and timeliness of completion) and retention of appropriate expertise for complex accounting transactions.
During the second quarter of ~~2022,~~2023, we ~~restructured~~focused on preparing for a new ERP implementation with completion targeted by the ~~responsibilities~~end of ~~several members~~ our ~~senior finance team to help improve our financial reporting. During the~~ third quarter of ~~2022, we added additional resources.~~2023.   It is expected that the new ERP system will help address segregation of duty deficiencies with its more sophisticated user rights assignment capabilities. Appropriate information technology general controls are being followed. We believe ~~the internal finance department responsibility re-allocation, additional resources and recent divestment of the bulk wholesale business~~that these changes will over time improve ~~our~~Gold Flora Corporation’s internal control over financial reporting.

Management expects to continue to review and make necessary changes to the overall design of ~~our~~Gold Flora Corporation’s internal control environment, as well as policies and procedures to improve the overall effectiveness of ~~our~~Gold Flora Corporation’s internal control over financial reporting. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

~~There~~Except as noted above, there has been no change in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2022,~~2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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P~~ART~~PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

To the knowledge of the Company, the Company is not a party to any material legal proceedings nor, to the Company’s knowledge, are any such proceedings contemplated by or against the Company.

Item 1A. Risk Factors.

~~Not~~Because Gold Flora Corporation is a successor registrant, we have set forth below a complete set of the Gold Flora Corporation risk factors.
Risks Related to the Business Combination
Each of TPCO and Gold Flora have a history of losses, and Gold Flora Corporation may never achieve profitability or generate positive cash flow.
TPCO had an operating loss of $35,178,232 (including an impairment loss of US$ 403,271) for the six months ended June 30, 2023, an operating loss of US$242,938,219 (including an impairment loss of US$130,566,825) for the year ended December 31, 2022 and an operating loss of US$733,885,024 (including an impairment loss of US$575,498,897) for the year ended December 31, 2021. Gold Flora had operating income of US$ 3,175,185 (including an impairment loss of $Nil) for the year ended December 31, 2022, and an operating loss of US$6,062,218 (including an impairment loss of $Nil) for the year ended December 31, 2021. Gold Flora Corporation may never achieve profitability or generate positive cash flow, which could cause Gold Flora Corporation to curtail its operations and could adversely affect your investment.
Payments in connection with the exercise of dissent rights could have an adverse effect on Gold Flora’s financial condition.
In connection with the Business Combination, holders of approximately 17 million TPCO Common Shares exercised dissent rights in accordance with the Business Corporations Act (British Columbia). These former TPCO shareholders have demanded payment of the fair value of their TPCO Common Shares, in cash, in accordance with the Business Corporations Act (British Columbia). The determination of fair value for this purpose can be made through an agreement between Gold Flora Corporation and the applicable dissenting shareholders, or through an application to the British Columbia courts. Such determination may ultimately exceed the market price of the TPCO Common Shares at the time the resolution approving the Business Combination was passed. Accordingly, a substantial cash payment may be required to be made to such dissenting shareholders, which may have an adverse effect on Gold Flora Corporation’s financial condition and cash resources.
Gold Flora Corporation, following the Transaction, may not realize the anticipated benefits of the Transaction.
The Business Combination was consummated to strengthen the position of each of Gold Flora and TPCO and to create the opportunity to realize certain benefits including, among other things, those set forth above under the heading “Part 1—Business Overview—Transaction Summary—Key Transaction Benefits & Strategic Rationale” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Achieving the benefits of the Business Combination depends in part on the ability of Gold Flora Corporation to effectively capitalize on its scale, scope and leadership, to realize the anticipated operating synergies, and to maximize the potential of its growth opportunities. A variety of factors, including those risk factors set forth in this Quarterly Report, may adversely affect the ability to achieve the anticipated benefits of the Business Combination.
There are risks related to the integration of TPCO’s and Gold Flora’s existing businesses.
The ability to realize the benefits of the Business Combination will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as on Gold Flora Corporation’s ability to realize the anticipated growth opportunities and operating synergies from integrating TPCO’s and Gold Flora’s businesses. The integration process may result in the loss of key employees and the disruption of ongoing business, customer and employee relationships that may adversely affect the ability of Gold Flora Corporation to achieve the anticipated benefits of the Business Combination.
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Risks Related to the Cannabis Industry and the Gold Flora Corporation’s Business
Cannabis continues to be a controlled substance under the CSA.
Cannabis is regulated at the federal and state level in the United States. To Gold Flora Corporation’s knowledge, as of the date hereof, there are a total of 47 states, plus the District of Columbia, Puerto Rico and Guam that have legalized or decriminalized cannabis in some form (including hemp). Further, ballot initiatives to legalize Adult-Use Cannabis recently passed in Arizona, New Jersey, South Dakota, and Montana, and ballot initiatives to legalize Medical-Use Cannabis passed in South Dakota and Mississippi, with implementation of applicable regulations expected in those states in the near future. Notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis and THC continue to be categorized as controlled substances under the CSA and as such, violate federal law in the United States.
The United States Congress has passed appropriations bills in recent years that have not appropriated funds for prosecution of cannabis offenses of individuals who are in compliance with state medical cannabis laws. American courts have construed these appropriations bills to prevent the U.S. federal government from prosecuting individuals when those individuals comply with state law relating to approved medical uses. However, because this conduct continues to violate U.S. federal law, American courts have observed that should Congress at any time choose to appropriate funds to fully prosecute the CSA, any individual or business – even those that have fully complied with state law – could be prosecuted for violations of U.S. federal law. And if Congress restores funding, the government will have the authority to prosecute individuals for violations of the law that took place before received funding under the CSA’s five-year statute of limitations.
Violations of any U.S. federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the U.S. federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on Gold Flora Corporation, including its reputation and ability to conduct business, its holding (directly or indirectly) of cannabis licences in the United States, the listing of its securities on the NEO Exchange Inc. (the “Exchange”) or other applicable exchanges, its financial position, operating results, and profitability or liquidity. In addition, it is difficult to estimate the time or resources that would be needed for the investigation of any such matters or its final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.
The approach to the enforcement of Regulated Cannabis laws may be subject to change or may not proceed as previously outlined.
As a result of the conflicting views between states and the federal government regarding cannabis, investments in regulated cannabis businesses in the United States are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed on August 29, 2013 when then Deputy Attorney General, James Cole, authored the 2013 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 U.S. states have enacted laws relating to cannabis for medical purposes.
The 2013 Cole Memorandum outlined certain priorities for the Department of Justice (“DOJ”) relating to the prosecution of cannabis offenses. In particular, the 2013 Cole Memorandum noted that in jurisdictions that have enacted laws legalizing cannabis in some form and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of regulated cannabis, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level. Notably, however, the DOJ has never provided specific guidelines for what regulatory and enforcement systems it deems sufficient under the 2013 Cole Memorandum standard.
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In light of limited investigative and prosecutorial resources, the 2013 Cole Memorandum concluded that the DOJ should be focused on addressing only the most significant threats related to cannabis. States where Medical-Use Cannabis had been legalized were not characterized as a high priority. In March 2017, then newly appointed Attorney General Jeff Sessions again noted limited federal resources and acknowledged that much of the 2013 Cole Memorandum had merit; however, he disagreed that it had been implemented effectively and, on January 4, 2018, Attorney General Jeff Sessions authored the Sessions Memorandum, which rescinded all “previous nationwide guidance specific to marijuana enforcement,” including the 2013 Cole Memorandum. The Sessions Memorandum rescinded previous nationwide guidance specific to the prosecutorial authority of United States attorneys relative to cannabis enforcement on the basis that they are unnecessary, given the well-established principles governing federal prosecution that are already in place. Those principles are included in chapter 9.27.000 of the United States Attorneys’ Manual and 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.
As a result of the Sessions Memorandum, federal prosecutors will now be free to utilize their prosecutorial discretion to decide whether to prosecute cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions. No direction was given to federal prosecutors in the Sessions Memorandum as to the priority they should ascribe to such cannabis activities, and resultantly it is uncertain how active federal prosecutors will be in relation to such activities. Furthermore, the Sessions Memorandum did not discuss the treatment of Medical-Use Cannabis by federal prosecutors.
Former U.S. Attorney General Jeff Sessions resigned on November 7, 2018. Nonetheless, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, even under a Biden Administration’s DOJ 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 CSA with respect to cannabis and THC (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 U.S. federal law.
In recent years, certain temporary federal legislative enactments that protect the Medical-Use Cannabis and industry have also been in effect. For instance, cannabis businesses that are in strict compliance with state law receive a measure of protection from federal prosecution by operation of a temporary appropriations measures that has been enacted into law as an amendment (or “rider”) to federal spending bills passed by Congress and signed by both Presidents Obama and Trump. First adopted in the Appropriations Act of 2015, Congress has included in successive budgets since a “rider” that prohibits the DOJ from expending any funds to enforce any law that interferes with a state’s implementation of its own medical cannabis laws. The rider, discussed above, is known as the “Joyce-Blumenauer Amendment”, and now known colloquially as the “Joyce Amendment” after its most recent sponsor. The Joyce-Blumenauer Amendment was included in the Consolidated Appropriations Act of 2020, which was signed by President Trump on December 20, 2019 and funded the departments of the federal government through the fiscal year ending September 30, 2020. In signing the act, President Trump issued a signing statement noting that the Act “provides that the DOJ may not use any funds to prevent implementation of medical cannabis laws by various States and territories,” and further stating “I will treat this provision consistent with the President’s constitutional responsibility to faithfully execute the laws of the United States.” While the signing statement can fairly be read to mean that the executive branch intends to enforce the CSA and other federal laws prohibiting the sale and possession of medical cannabis, the President did issue a similar signing statement in May 2017 and February 2019 and no federal enforcement actions followed. The Joyce-Blumenauer Amendment was renewed through the signing of the fiscal year 2022 omnibus bill, which extended the protections of the Joyce Amendment through December 16, 2022. The fiscal year 2023 spending package included the Joyce-Blumenauer rider, which extended the rider until fiscal year 2024.
Should the Joyce-Blumenauer Amendment not be renewed in subsequent spending bills, there can be no assurance that the federal government will not seek to prosecute cases involving medical cannabis businesses that are otherwise compliant with State law. Such potential proceedings could involve significant restrictions being imposed upon Gold Flora Corporation, while diverting the attention of executives. Such proceedings could have a material adverse effect on Gold Flora Corporation’s business, revenues, operating results and financial condition as well as Gold Flora Corporation’s reputation, even if such proceedings were concluded successfully in favor of Gold Flora Corporation.
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Moreover, unless and until the U.S. Congress amends the CSA with respect to Medical-Use Cannabis 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 U.S. federal law. If the U.S. federal government begins to enforce U.S. federal laws relating to Regulated Cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, Gold Flora Corporation’s business, assets, revenues, operating results and financial condition as well as Gold Flora Corporation’s reputation may be material adversely effected. In the extreme case, such enforcement could ultimately involve the prosecution of key executives of Gold Flora Corporation or the seizure of its assets.
U.S. state regulatory uncertainty may adversely impact Gold Flora Corporation.
There is no assurance that state laws legalizing and regulating the sale and use of cannabis will not be repealed, amended or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the U.S. federal government begins to enforce U.S. federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing state laws are repealed or curtailed, Gold Flora Corporation’s business or operations in those states or under those laws would be materially and adversely affected. Federal actions against any individual or entity engaged in the cannabis industry or a substantial repeal of cannabis related legislation could adversely affect Gold Flora Corporation, its business and its assets or investments.
Certain U.S. states where medical and/or Adult-Use Cannabis is legal have or are considering special taxes or fees on the cannabis industry. It is uncertain at this time whether other states are in the process of reviewing such additional taxes and fees. The implementation of special taxes or fees could have a material adverse effect upon the businesses, results of operations and financial condition of Gold Flora Corporation.
Gold Flora Corporation may be subject to applicable anti-money laundering laws and regulations.
Given the nature of its business, Gold Flora Corporation may be subject to a variety of laws and regulations in the United States that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States. Banks often refuse to provide banking services to businesses involved in the U.S. cannabis industry due to the present state of the laws and regulations governing financial institutions in the United States. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry. The potential lack of a secure place in which to deposit and store cash, the inability to pay creditors through the issuance of cheques and the inability to secure traditional forms of operational financing, such as lines of credit, are some of the many challenges presented by the unavailability of traditional banking and financial services.
In February 2014, the FinCEN issued the FinCEN Memorandum, which states that in some circumstances, it is possible for banks to provide services to cannabis related businesses without risking prosecution for violation of U.S. federal money laundering laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to U.S. federal prosecutors relating to the prosecution of U.S. money laundering offenses predicated on cannabis-related violations of the CSA. It is unclear at this time whether the current administration will follow the guidelines of the FinCEN Memorandum.
In the event that any of Gold Flora Corporation’s operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of Gold Flora Corporation to declare or pay dividends or affect other distributions.
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FDA rulemaking related to Medical-Use Cannabis and the possible registration of facilities where Medical-Use Cannabis is grown could negatively affect the Medical-Use Cannabis industry, which would directly affect Gold Flora Corporation’s financial condition.
Should the federal government legalize Medical-Use Cannabis, it is possible that the FDA would be tasked by Congress to regulate it under the FDCA. Additionally, the FDA may issue rules and regulations including current good manufacturing practices, or GMPs, related to the growth, cultivation, harvesting and processing of Medical-Use Cannabis. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where Medical-Use Cannabis is grown register with the FDA and comply with certain federal regulations. In the event that some or all of these regulations are imposed, Gold Flora Corporation does not know what the impact would be on the Medical-Use Cannabis industry, including what costs, requirements and possible prohibitions may be enforced. If Gold Flora Corporation are unable to comply with any regulations or registration requirements that the FDA may prescribe, it may be unable to continue to operate its business in its current form or at all.
U.S. border officials could deny entry into the U.S. to employees of, or investors in companies with cannabis operations in the United States.
Because cannabis remains illegal under U.S. federal law, those non-U.S. citizens employed at or investing in legal and licensed cannabis companies could face detention, denial of entry or lifetime bans from the United States for their business associations with U.S. cannabis businesses. Entry of non-U.S. citizens happens at the sole discretion of the U.S. Customs and Border Protection (“CBP”) officers on duty, and these officers have wide latitude to ask questions to determine the admissibility of a foreign national.
On September 21, 2018, CBP released a statement outlining its current position with respect to enforcement of the laws of the United States. It stated that CBP enforcement of United States laws regarding controlled substances has not changed and because cannabis continues to be a controlled substance under United States law, working in or facilitating the proliferation of the legal cannabis industry in U.S. states where it is deemed legal may affect admissibility to the U.S. While the CBP under the Biden Administration has archived its website page covering the September 21, 2018 statement, the Biden Administration has not officially rescinded the policy in question.
Gold Flora Corporation may have difficulty accessing the services of banks, which may make it difficult to operate its business.
Gold Flora Corporation may have trouble accessing services of financial institutions. For example, in February 2014, FinCEN issued the FinCEN Memorandum (which is not law) that provides guidance with respect to financial institutions providing banking services to cannabis business, including burdensome due diligence expectations and reporting requirements. This guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the DOJ, FinCEN or other federal regulators. Thus, most banks and other financial institutions in the United States do not appear to be comfortable providing banking services to cannabis-related businesses, or relying on this guidance, which can be amended or revoked at any time by the executive branch. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. As a result, Gold Flora Corporation may have limited or no access to banking or other financial services in the United States. In addition, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state it resides in permits cannabis sales. While the United States House of Representatives has passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, Gold Flora Corporation’s inability, or limitations on Gold Flora Corporation’s ability, to open or maintain bank accounts and/or obtain other banking services may make it difficult for Gold Flora Corporation to operate and conduct its business as planned or to operate efficiently.
Since the use of cannabis is illegal under U.S. federal law, and in light of concerns in the banking industry regarding money laundering and other federal financial crime related to cannabis, businesses involved in the cannabis industry often have difficulty finding a bank willing to accept their business. Likewise, cannabis businesses have limited access, if any, to credit card processing services. As a result, cannabis businesses in the United States are to a significant degree cash-based. This complicates the implementation of financial controls and increases security issues.
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Gold Flora Corporation may have difficulty accessing capital.
Commercial banks, private equity firms and venture capital firms have approached the cannabis industry cautiously to date. However, there are certain high net worth individuals and family offices that have made meaningful investments in companies and businesses similar to Gold Flora Corporation. There is neither a broad nor deep pool of institutional capital that is available to cannabis license holders and license applicants. There can be no assurance that additional financing, if raised privately, will be available to Gold Flora Corporation when needed or on terms which are acceptable to Gold Flora Corporation. Gold Flora Corporation’s inability to raise financing to fund capital expenditures or acquisitions could limit its growth and may have a material adverse effect upon future profitability and ability to continue its operations.
There may be a restriction on deduction of certain expenses.
Section 280E of the United States Internal Revenue Code of 1986, as amended (the “Code”) generally prohibits businesses from deducting or claiming tax credits with respect to expenses paid or incurred in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by U.S. federal law or the law of any state in which such trade or business is conducted. Section 280E currently applies to businesses operating in the cannabis industry, irrespective of whether such businesses are licensed and operating in accordance with applicable state laws. The application of Code Section 280E generally causes such businesses to pay higher effective U.S. federal income tax rates than similar businesses in other industries due to the loss of certain deductions and credits. The impact of Code Section 280E on the effective tax rate of a cannabis business generally depends on how large the ratio of non-deductible expenses is to the business’s total revenues. Gold Flora Corporation expects to continue to be subject to Code Section 280E. The application of Code Section 280E to Gold Flora Corporation may adversely affect Gold Flora Corporation’s profitability and, in fact, may cause Gold Flora Corporation to operate at a loss when it would otherwise have a profit. While recent legislative proposals, if enacted into law, could eliminate or diminish the application of Code Section 280E to cannabis businesses, the enactment of any such law is uncertain. Accordingly, Code Section 280E may to apply to Gold Flora Corporation indefinitely.
Gold Flora Corporation may lack access to U.S. bankruptcy protections.
As discussed above, cannabis is illegal under U.S. federal law. Therefore, there is a compelling argument that the federal bankruptcy courts cannot provide relief for parties who engage in regulated cannabis businesses. Recent bankruptcy rulings have denied bankruptcies for dispensaries upon the justification that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot ask a bankruptcy trustee to take possession of, and distribute Regulated Cannabis-related assets as such action would violate the CSA. Therefore, Gold Flora Corporation may not be able to seek the protection of the bankruptcy courts and this could materially affect its business or its ability to obtain credit.
Gold Flora Corporation’s operations in the U.S. cannabis market may be subject to heightened scrutiny by regulatory authorities.
For the reasons set forth above, Gold Flora Corporation’s existing operations in the United States, and any future operations or investments, may become the subject of heightened scrutiny by securities regulators, stock exchanges and other authorities in Canada and the United States. As a result, Gold Flora Corporation may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on Gold Flora Corporation’s ability to invest or hold interests in other entities, or have consequences for its stock exchange listing or Canadian reporting obligations, in addition to those described herein. See “—Risks Related to the Cannabis Industry and Gold Flora Corporation’s Business—Cannabis continues to be a controlled substance under the CSA”.
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For example, to date, the New York Stock Exchange and the Nasdaq Stock Market have refused to list on their exchanges securities of companies, like Gold Flora Corporation, that are in the business of cultivating and selling cannabis in the United States.
On February 8, 2018, the Canadian Securities Administrators published Staff Notice 51-352 describing the Canadian Securities Administrators’ disclosure expectations for specific risks facing issuers with cannabis-related activities in the U.S. Staff Notice 51-352 confirms that a disclosure-based approach remains appropriate for issuers with U.S. cannabis-related activities. Staff Notice 51-352 includes additional disclosure expectations that apply to all issuers with U.S. 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 U.S. cannabis industry.
CDS Clearing and Depositary Services Inc. (“CDS”) is Canada’s central securities depository, clearing and settling trades in the Canadian equity, fixed income and money markets. On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group, which is the owner and operator of CDS, announced the signing of a Memorandum of Understanding (“MOU”) with the Exchange, the Canadian Securities Exchange and the Toronto Stock Exchange confirming that it relies on such exchanges to review the conduct of listed issuers. The MOU notes that securities regulation requires that the rules of each of the exchanges must not be contrary to the public interest and that the rules of each of the exchanges have been approved by the securities regulators. Pursuant to the MOU, CDS will not ban accepting deposits of or transactions for clearing and settlement of securities of issuers with cannabis-related activities in the United States.
Even though the MOU indicated that there are no plans of banning the settlement of securities of issuers with U.S. cannabis related activities through CDS, there can be no guarantee that the settlement of securities will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability of holders of Gold Flora Common Stock to make and settle trades. In particular, the Gold Flora Common Stock would become highly illiquid until an alternative (if available) was implemented, and investors would have no ability to effect a trade of the Gold Flora Common Stock through the facilities of a stock exchange.
Gold Flora Corporation may be subject to the risk of civil asset forfeiture.
Because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property was never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.
The laws and regulations affecting the cannabis industry are constantly changing.
The constant evolution of laws and regulations affecting the cannabis industry could detrimentally affect Gold Flora Corporation. The current and proposed operations of Gold Flora Corporation are subject to a variety of local, state and federal cannabis laws and regulations relating to the manufacture, management, transportation, storage and disposal of cannabis, as well as laws and regulations relating to consumable products health and safety, the conduct of operations and the protection of the environment. These laws and regulations are broad in scope and subject to evolving interpretations, which could require Gold Flora Corporation to incur substantial costs associated with compliance or alter certain aspects of its business plans. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the business plans of Gold Flora Corporation and result in a material adverse effect on certain aspects of their planned operations. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect Gold Flora Corporation’s profitability or cause it to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by the FDA, the SEC, the DOJ, the Financial Industry Regulatory Authority or other federal or applicable state or non-governmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or adult-use purposes in the United States. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the industry may adversely affect the business and operations of Gold Flora Corporation, including without limitation, the costs to remain compliant with applicable laws and the impairment of its business or the ability to raise additional capital. In addition, Gold Flora Corporation is not able to predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to its business.
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Gold Flora Corporation may be subject to the risks associated with governmental approvals, permits and compliance with applicable laws.
Government approvals and permits are currently, and may in the future be, required in connection with the operations of Gold Flora Corporation. To the extent such approvals are required and not obtained, Gold Flora Corporation may be curtailed or prohibited from its production, manufacture, and sale of Medical-Use Cannabis and Adult-Use Cannabis or from proceeding with the development of its operations as currently proposed.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Gold Flora Corporation may be required to compensate those suffering loss or damage by reason of their operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Gold Flora Corporation may not be able to obtain or maintain the necessary licenses, permits, certificates, authorizations or accreditations to operate its businesses, or may only be able to do so at great cost. In addition, Gold Flora Corporation may not be able to comply fully with the wide variety of laws and regulations applicable to the cannabis industry. Failure to comply with or to obtain the necessary licenses, permits, certificates, authorizations or accreditations could result in restrictions on Gold Flora Corporation’s ability to operate in the cannabis industry, which could have a material adverse effect on the business, results of operations and financial condition of Gold Flora Corporation.
Amendments to current laws, regulations and permits governing the production of medical and adult-use cannabis, or more stringent implementation thereof, could have a material adverse impact on Gold Flora Corporation and cause increases in expenses, capital expenditures or production costs, or reduction in levels of production, or require abandonment or delays in development.
There may be difficulty with the enforceability of contracts.
It is a fundamental principle of law that a contract will not be enforced if it involves a violation of law or public policy. Because cannabis remains illegal in the United States at a federal level, judges in multiple U.S. states have on a number of occasions refused to enforce contracts for the repayment of money when the loan was used in connection with activities that violate federal law, even if there is no violation of state law. It is possible that Gold Flora Corporation may not be able to legally enforce contracts it enters into if necessary, which means there can be no assurance that there will be a remedy for breach of contract, which would have a material adverse effect on Gold Flora Corporation’s business, assets, revenues, operating results, financial condition and prospects. For example, at least some federal courts have dismissed lawsuits seeking to enforce contracts involving the purchase or sale of regulated cannabis businesses.
The ability to grow a business with ties to cannabis operations in the United States depends on state laws pertaining to the cannabis industry.
Continued development of the regulated cannabis industry depends upon continued legislative authorization of cannabis at the state level. The status quo of, or progress in, the regulated cannabis industry is not assured and any number of factors could slow or halt further progress in this area. While there may be ample public support for legislative action permitting the manufacture and use of cannabis, numerous factors impact the legislative process. For example, many states that voted to legalize Medical-Use Cannabis and/or Adult-Use Cannabis have seen significant delays in the drafting and implementation of regulations and issuance of licenses. In addition, burdensome regulation at the state level could slow or stop further development of the regulated cannabis industry, such as limiting the medical conditions for which medical cannabis can be recommended by physicians for treatment, restricting the form in which medical cannabis can be consumed, imposing significant registration requirements on physicians and patients or imposing significant taxes on the growth, processing and/or retail sales of cannabis, which could have the impact of dampening growth for cannabis businesses and making it difficult for cannabis businesses to operate profitably in those states. Any one of these factors could slow or halt additional legislative authorization of medical and/or recreational-use cannabis, which could adversely affect Gold Flora Corporation’s business prospects.
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A revised statutory and regulatory framework implemented by a newly consolidated agency; cannabis tax relief under consideration in California.
In 2021, California consolidated the three state agencies licensing and regulating commercial cannabis activity in California, merging the Bureau of Cannabis Control, CalCannabis at the California Department of Food and Agriculture, and the Manufactured Cannabis Safety Branch at the Department of Public Health into a single Department of Cannabis Control (the “DCC”) effective July 1, 2021. The DCC in turn promulgated, consolidated and streamlined regulations, adopting the bulk of these on September 29, 2021. The consolidation of the three licensing divisions, development of a unified single licensing system for future cannabis business licenses and the transition of existing licensing data has yet to occur, but is contemplated in California Governor Gavin Newsom’s 2022-2023 Budget Proposal. Still, the enacted form of the uniform licensing protocols and regulatory clean-up as part of a short-term and longer term strategy are unknown. The foregoing changes will continue to impact the processes, procedures, administration, and generally the operations of commercial cannabis licenses in California.
Governor Newsom also recently announced that he is also considering tax relief and/or simplification, in connection with releasing his 2022-2023 Budget Proposal: “It is my goal to look at tax policy to stabilize markets.” The Newsom administration, in addition to potentially adjusting tax rates, could elect to shift the responsibilities of tax collection from the final distributor to the first for cultivation, and for the retail excise tax from the distributor to the retailer. While Gold Flora Corporation closely follows the Newsom administration’s budget proposals and revisions, the legislation, regulations and regulatory and tax impact on the licenses and operations therefrom is not currently known.
Political uncertainty may have an adverse impact on Gold Flora Corporation’s operating performance and results of operations.
General political uncertainty may have an adverse impact on Gold Flora Corporation’s operating performance and results of operations. In particular, the United States continues to experience significant political events that cast uncertainty on global financial and economic markets, especially in light of the upcoming presidential election. It is presently unclear exactly what actions the new administration in the United States will implement, and if implemented, how these actions may impact the cannabis industry in the United States. Any actions taken by the new United States administration may have a negative impact on the United States economies and on the businesses, financial conditions, results of operations and the valuation of United States cannabis companies, including Gold Flora Corporation.
Risks Related to Gold Flora Corporation’s Products and Services
Unfavorable publicity or consumer perception may affect the success of Gold Flora Corporation’s business.
The legal cannabis industry in the United States is at an early stage of its development. Cannabis has been, and is expected to continue to be, a regulated substance for the foreseeable future. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of Gold Flora Corporation. Further, adverse publicity, reports or other media attention regarding cannabis in general, or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect.
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Public opinion and support for Medical-Use Cannabis and Adult-Use Cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing Medical-Use Cannabis and Adult-Use Cannabis, it remains a controversial issue subject to differing opinions surrounding the level of legalization (for example, medical cannabis as opposed to legalization in general).
The ability to gain and increase market acceptance of Gold Flora Corporation’s products may require Gold Flora Corporation to establish and maintain its brand name and reputation. In order to do so, substantial expenditures on product development, strategic relationships and marketing initiatives may be required. There can be no assurance that these initiatives will be successful and their failure may have an adverse effect on Gold Flora Corporation.
Further, a shift in public opinion may also result in a significant influence over the regulation of the cannabis industry in the United States or elsewhere. A negative shift in the perception of the public with respect to cannabis in the United States or any other applicable jurisdiction could affect future legislation or regulation. Among other things, such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize Adult-Use Cannabis, thereby limiting the number of new state jurisdictions into which Gold Flora Corporation could expand. Any inability to fully implement Gold Flora Corporation’s expansion strategy may have a material adverse effect on its business, financial condition and results of operations.
Gold Flora Corporation faces competition from the illegal cannabis market.
Gold Flora Corporation faces competition from illegal dispensaries and the illegal market that are unlicensed and unregulated, and that are selling cannabis and cannabis products, including products with higher concentrations of active ingredients, using flavors or other additives or engaging in advertising and promotion activities that Gold Flora Corporation is not permitted to. As these illegal market participants do not comply with the regulations governing the cannabis industry, their operations may also have significantly lower costs. The illegal cannabis market within California and other markets across the United States continues to thrive. The perpetuation of the illegal market for cannabis may have a material adverse effect on Gold Flora Corporation’s business, results of operations, as well as the perception of cannabis use.
Social media may impact Gold Flora Corporation’s reputation.
The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views in regard to issuers and their activities, whether true or not and the cannabis industry in general, whether true or not. Negative posts or comments about Gold Flora Corporation or its properties on any social networking website could damage Gold Flora Corporation’s reputation. In addition, employees or others might disclose non-public sensitive information relating to Gold Flora Corporation’s business through external media channels. The continuing evolution of social media will present Gold Flora Corporation with new challenges and risks.
Significant failure or deterioration of Gold Flora Corporation’s quality control systems may adversely impact Gold Flora Corporation.
The quality and safety of Gold Flora Corporation’s products are critical to the success of its business and operations. As such, it is imperative that Gold Flora Corporation’s quality control systems operate effectively and successfully. Quality control systems can be negatively impacted by the design of the quality control systems, the quality training program, and adherence by employees to quality control guidelines. Although Gold Flora Corporation strives to ensure that it and any of its service providers have implemented and adhere to high caliber quality control systems, any significant failure or deterioration of such quality control systems could have a material adverse effect on Gold Flora Corporation business, financial condition, results of operations or prospects.
Service providers could suspend or withdraw service, which could adversely affect Gold Flora Corporation’s business.
As a result of any adverse change to the approach in enforcement of U.S. cannabis laws, adverse regulatory or political changes, additional scrutiny by regulatory authorities, adverse changes in the public perception in respect of the consumption of cannabis or otherwise, third-party service providers to Gold Flora Corporation could suspend or withdraw their services, which may have a material adverse effect on the business, revenues, operating results, financial condition or prospects of Gold Flora Corporation. In this regard, on July 19, 2021, TPCO announced the launch of an updated Caliva app available through the Apple App Store, which allows California-based consumers to make cannabis purchases through the app and to receive rewards through its integrated loyalty program, Caliva CLUB. Previously, Apple had not allowed in-app cannabis purchases on apps sold through the Apple App Store. There can be no assurance that Apple will not change its policy and determine not allow in-app cannabis purchases, which would adversely affect Gold Flora Corporation’s business.
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Gold Flora Corporation may be subject to product liability claims.
Gold Flora Corporation manufactures, processes and/or distributes products designed to be ingested by humans, and therefore faces an inherent risk of exposure to product liability claims, regulatory action and litigation if products are alleged to have caused significant loss or injury. In addition, the manufacture and sale of cannabis products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of cannabis products alone or in combination with other medications or substances could occur. Gold Flora Corporation may be subject to various product liability claims, including, among others, that the products produced by it caused injury or illness, include inadequate instructions for use, or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action could result in increased costs, could adversely affect the reputation of Gold Flora Corporation and could have a material adverse effect on the business, results of operations and financial condition of Gold Flora Corporation. There can be no assurances that product liability insurance will be obtained or maintained on acceptable terms or with adequate coverage against potential liabilities.
Gold Flora Corporation may be subject to product recalls.
Cultivators, manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of the products produced or sold by Gold Flora Corporation are recalled due to an alleged product defect or for any other reason, Gold Flora Corporation could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall and may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. Additionally, if one of the products produced by Gold Flora Corporation were subject to recall, the image of that product and Gold Flora Corporation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for products produced by Gold Flora Corporation and could have a material adverse effect on the business, results of operations and financial condition of Gold Flora Corporation.
Gold Flora Corporation is subject to risks inherent in an agricultural business.
Medical-Use Cannabis and Adult-Use Cannabis is an agricultural product. There are risks inherent in the cultivation business, such as insects, plant diseases and similar agricultural risks. Although the products are usually grown indoors or in green houses 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 Gold Flora Corporation’s products and, consequentially, on the business, financial condition and operating results of Gold Flora Corporation.
Gold Flora Corporation may be vulnerable to rising energy costs.
Cannabis growing operations consume considerable energy, making Gold Flora Corporation potentially vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business, results of operations, financial condition or prospects of Gold Flora Corporation.
Gold Flora Corporation is reliant on key inputs.
The cannabis business is dependent on a number of key inputs and their related costs including raw materials and supplies related to growing operations, as well as electricity, water and other local utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs, including as a result of additional outbreaks of COVID-19 or future pandemics, could materially impact the business, financial condition, results of operations or prospects of Gold Flora Corporation. In this regard, California, where all of Gold Flora Corporation’s growing operations are located, experienced droughts in 2021 and 2022, and may experience droughts in the future, which may increase its costs and adversely affect its growing operations. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source supplier was to go out of business, Gold Flora Corporation might be unable to find a replacement for such source in a timely manner or at all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to Gold Flora Corporation in the future. Any inability to secure a replacement for such source in a timely manner or at all could have a material adverse effect on the business, financial condition, results of operations or prospects of Gold Flora Corporation.
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The pricing of raw materials used in Gold Flora Corporation’s products and some of its products can be extremely volatile, which may have a material adverse effect on Gold Flora Corporation’s financial results.
Gold Flora Corporation purchases and sells certain raw materials. The pricing of these raw materials has been extremely volatile. For example, the price of both flower and distilled cannabis (oil) has fluctuated significantly and, in particular, decreased significantly in the second half of 2021. This volatility may be disruptive to Gold Flora Corporation’s supply chain and have an adverse effect on Gold Flora Corporation’s financial results.
Gold Flora Corporation may be subject to the risk of competition from synthetic production and technological advances.
The pharmaceutical industry may attempt to dominate the cannabis industry, through the development and distribution of synthetic products which emulate the effects and treatment of organic cannabis. If they are successful, the widespread popularity of such synthetic products could change the demand, volume and profitability of the cannabis industry. This could materially adversely affect the ability of Gold Flora Corporation to secure long-term profitability and success through the sustainable and profitable operation of its business.
Results of future clinical research may negatively impact the cannabis industry.
Research in the U.S. and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids (such as CBD and THC), and associated terpenoids remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC). Although Gold Flora Corporation believes that the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, risks, efficacy, dosing and social acceptance of cannabis, future basic research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Future research studies and clinical trials may reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could have a material adverse effect on the demand for Gold Flora Corporation’s products with the potential to lead to a material adverse effect on Gold Flora Corporation’s business, financial condition, results of operations or prospects.
Investments made by Gold Flora Corporation’s social equity venture fund may result in losses for Gold Flora Corporation.
Concurrent with the closing of the Qualifying Transaction, the TPCO launched a new social equity venture fund focused on investing in Black and other people-of-color cannabis entrepreneurs with a planned $10,000,000 investment over time and a planned annual contribution of at least 2% of its net income. The social equity fund identifies, conducts diligence on, and invests in such entrepreneurs as a means of directly impacting the issues of social equity and diversity in the cannabis industry. While TPCO has historically made social equity fund investments with the intent of making a profit, investments in businesses, particularly the smaller businesses in which the social equity fund has invested and expects to invest in future, is risky, and Gold Flora Corporation could lose some or all of the capital TPCO has invested in these businesses.
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Controversy surrounding vaporizers and vaporizer products may materially and adversely affect the market for vaporizer products and expose Gold Flora Corporation to litigation and additional regulation.
There have been a number of highly publicized cases involving lung and other illnesses and deaths that appear to be related to vaporizer devices and/or products used in such devices (such as vaporizer liquids). The controversy surrounds the vaporizer devices, the manner in which the devices were used and the related vaporizer device products—THC, nicotine, other substances in vaporizer liquids, possibly adulterated products and other illegal unlicensed cannabis vaporizer products. Some states and cities in the United States have already taken steps to prohibit the sale or distribution of vaporizers, restrict the sale and distribution of such products or impose restrictions on flavors or use of such vaporizers. This trend may continue, accelerate and expand.
This controversy could well extend to non-nicotine vaporizer devices and other product formats. Any such extension could materially and adversely affect Gold Flora Corporation’s business, financial condition, operating results, liquidity, cash flow and operational performance. Litigation pertaining to vaporizer products is accelerating and that litigation could potentially expand to include Gold Flora Corporation’s products, which would materially and adversely affect Gold Flora Corporation’s business, financial condition, operating results, liquidity, cash flow and operational performance.
Other Regulatory Risks
We may have to pay back funds borrowed under the Paycheck Protection Program (“PPP”). As a result, the repayment of certain subsidiaries PPP loans and any potential penalties, could negatively impact Gold Flora Corporation’s business, financial condition and results of operations and prospects.
During 2020, Gold Flora Corporation participated in the Paycheck Protection Program as a part of the Coronavirus Aid, Relief and Economic Securities Act (“Cares Act”) which, in part, provides loans for qualifying businesses with the proceeds to be used for payroll costs, rent, utilities, and interest on other debt obligations. Gold Flora, LLC, through certain of its subsidiaries, borrowed approximately $1 million under the Cares Act. At the time Gold Flora Corporation borrowed funds under the Cares Act it received guidance that it was eligible to participate in the program. Subsequent to the receipt of funds, it was determined that the applicable Gold Flora entities may not have been eligible to participate in the program. The PPP loans have been forgiven, but Gold Flora Corporation is in the process of evaluating options regarding the PPP loans, which could include repaying the PPP loans. Any potential penalties in addition to the potential repayment of the forgiven PPP loans could negatively impact Gold Flora Corporation’s business, financial condition and results of operations and prospects.
Gold Flora Corporation may be subject to environmental regulations and risks.
Gold Flora Corporation’s operations are subject to environmental regulation in the jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors (or the equivalent thereof) and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect Gold Flora Corporation’s operations.
Government approvals and permits are currently, and may in the future, be required in connection with Gold Flora Corporation’s operations. To the extent such approvals are required and not obtained, Gold Flora Corporation may be curtailed or prohibited from its current or proposed production, manufacturing or sale of cannabis or from proceeding with the development of its operations as currently proposed. States mandate unique inventory tracking requirements and systems which may present implementation and adherence challenges for operators, such as California’s METRC track and trace inventory system, which requires integration with other systems and suffers frequent outages.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Gold Flora Corporation may be required to compensate those suffering loss or damage by reason of its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current laws, regulations and permits governing the production or manufacturing of cannabis, or more stringent implementation thereof, could have a material adverse impact on Gold Flora Corporation and cause increases in expenses, capital expenditures or production or manufacturing costs or reduction in levels of production or manufacturing or require abandonment or delays in development.
Gold Flora Corporation may be subject to constraints on the marketing of its products.
The development of Gold Flora Corporation’s business and operating results may be hindered by applicable restrictions on sales and marketing activities imposed by government regulatory bodies. The regulatory environment in the United States limits companies’ abilities to compete for market share in a manner similar to other industries. If Gold Flora Corporation is unable to effectively market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for its products, Gold Flora Corporation’s sales and results of operations could be adversely affected.
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Risks Relating to Gold Flora Corporation’s Business Structure
Gold Flora Corporation is reliant on its management team.
The success of Gold Flora Corporation is dependent upon the ability, expertise, judgment, discretion and good faith of its senior management, including Laurie Holcomb, its CEO. While employment agreements or management agreements and equity incentives that vest over time are customarily used as a primary method of retaining the services of key employees, these agreements and equity incentives cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material adverse effect on Gold Flora Corporation’s business, operating results, financial condition or prospects.
Gold Flora Corporation is a holding company.
Gold Flora is a holding company and essentially all of its assets, other than certain real property, constitute the capital stock of its subsidiaries. As a result, investors are subject to the risks attributable to Gold Flora Corporation’s subsidiaries. As a holding company, Gold Flora Corporation will conduct substantially all of its business through subsidiaries, which generate substantially all of Gold Flora Corporation’s revenues. Consequently, Gold Flora Corporation’s cash flows and ability to complete current or desirable future enhancement opportunities are dependent on the earnings of Gold Flora Corporation’s subsidiaries and the distribution of those earnings to Gold Flora Corporation. The ability of these entities to pay dividends and other distributions depends on their operating results and is subject to applicable laws and regulations, which require that solvency and capital standards be maintained by such subsidiaries and contractual restrictions are contained in the instruments governing their debt. In the event of a bankruptcy, liquidation or reorganization of any of Gold Flora Corporation’s material subsidiaries, holders of indebtedness and trade creditors may be entitled to payment of their claims from the assets of those subsidiaries before Gold Flora Corporation.
General Risks related to Gold Flora Corporation
Limited market for Gold Flora Corporation’s securities
The Gold Flora Common Stock and the 35,837,500 outstanding Gold Flora Warrants are listed on the Exchange. However, there can be no assurance that an active and liquid market for the Gold Flora Common Stock or the Gold Flora Warrants will develop or be maintained and an investor may find it difficult to resell any securities of Gold Flora Corporation. The daily average trading volume of the Common Shares and Warrants has historically been extremely volatile. It is likely such volatility, and therefore risk to Company investors, will continue.
Any equity financings undertaken or acquisitions by Gold Flora Corporation may dilute the interests of Gold Flora Corporation’s stockholders and further depress the price of the Gold Flora Common Stock.
If Gold Flora Corporation raises additional capital through the issuance of equity securities (including securities convertible or exchangeable into equity securities) or completes an acquisition or merger by issuing additional equity securities, such issuance may substantially dilute the interests of its stockholders and reduce the value of their investment. As of August 11, 2023, there were 288,425,908 shares of Gold Flora Common Stock outstanding, and Gold Flora Corporation’s certificate of incorporation provides that a total 450,000,000 shares of Gold Flora Common Stock may be issued. The board of directors of Gold Flora Corporation (the “Gold Flora Board”) has the discretion to determine the price and the terms of issue of future issuances. Moreover, additional shares of Gold Flora Common Stock may be issued upon the exercise or vesting of awards under Gold Flora Corporation 2023 Equity Incentive Plan and upon the exercise of outstanding Gold Flora Warrants. The market price of the Gold Flora Common Stock could decline as a result of issuances of new shares or sales of Gold Flora Common Stock in the market or the perception that such sales could occur. Sales by stockholders of Gold Flora Corporation might also make it more difficult for Gold Flora Corporation itself to sell equity securities at a time and price that it deems appropriate.
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There is no guarantee that the Gold Flora Warrants will ever be in-the-money, and the Gold Flora Warrants may expire worthless.
The Gold Flora Warrants became exercisable on March 22, 2021 at an exercise price of US$11.50 per Common Share and expire on January 15, 2026. The closing price of the Gold Flora Common Stock on the Exchange was C$0.17 on August 3, 2023. There is no guarantee that the Gold Flora Warrants will ever be in-the-money prior to their expiration, and as such, the Gold Flora Warrants may expire worthless.
Financial reporting obligations of being a public company in Canada and the United States are expensive and time-consuming, and Gold Flora Corporation management will be required to devote substantial time to compliance matters.
As a public company with securities listed on the Exchange, Gold Flora Corporation is subject to the reporting requirements of applicable securities rules and regulations of Canadian securities regulators and other requirements in Canada. Complying with these rules and regulations increases Gold Flora Corporation’s legal and financial compliance costs, makes some activities more difficult, time-consuming and costly, and increases demand on Gold Flora Corporation’s systems and resources. In addition, the obligations of being a public company in the United States require significant expenditures and place significant demands on Gold Flora Corporation’s management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules require the establishment and maintenance of effective disclosure controls and procedures and internal control over financial reporting among many other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recent reforms made possible by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), the reporting requirements, rules and regulations will make some activities more time-consuming and costly, particularly after Gold Flora Corporation is no longer deemed an “emerging growth company” or a “smaller reporting company.” In addition, Gold Flora Corporation expects these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and Gold Flora Corporation may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Gold Flora Corporation management and other personnel will need to devote a substantial amount of time to ensure that Gold Flora Corporation complies with all of these requirements and to keep pace with new regulations, otherwise Gold Flora Corporation may fall out of compliance and risk becoming subject to litigation, among other potential problems. Compliance with these rules and regulations could also make it more difficult for us to attract and retain qualified members of the Gold Flora Board.
TPCO identified a material weakness in its internal control over financial reporting. If Gold Flora Corporation fails to comply with the rules under Sarbanes-Oxley related to accounting controls in the future, or, if Gold Flora Corporation discovers further material weaknesses or other deficiencies in its internal control over financial reporting or Gold Flora Corporation fails to maintain effective disclosure controls and procedures, the price of the Gold Flora Common Stock could decline, which would make raising capital could be more difficult.
Pursuant to Rule 13a-15(c) under the Exchange Act, Gold Flora Corporation is required to conduct annual management assessments of the effectiveness of its internal control over financial reporting. The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
In addition, pursuant to Rule 13a-15(b) under the Exchange Act, Gold Flora Corporation is required to evaluate the effectiveness of Gold Flora Corporation’s disclosure controls and procedures each quarter. the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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While TPCO and its independent registered public accounting firm did not and were not required to perform an audit of TPCO’s internal control over financial reporting with respect to 2021, in connection with the audit of TPCO’s 2021 consolidated financial statements, TPCO and its independent registered public accounting firm identified control deficiencies in the design and operation of its internal control over financial reporting that constituted a material weakness. TPCO did not design or maintain an effective control environment commensurate with financial reporting requirements. Specifically, TPCO lacked a sufficient number of adequately skilled professionals to appropriately analyze, record and disclose accounting matters timely and accurately while maintaining appropriate segregation of duties. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Despite the efforts TPCO has undertaken, it had not remediated this material weakness as of June 30, 2023. Gold Flora Corporation cannot assure you that the additional measures its expect to take in the future will be sufficient to remediate the material weakness identified by TPCO or avoid the identification of additional material weaknesses in the future. If the steps Gold Flora Corporation takes do not remediate the material weakness in a timely manner, there could continue to be a reasonable possibility that this material weakness or other control deficiencies could result in a material misstatement of Gold Flora Corporation’s annual or interim financial statements that would not be prevented or detected on a timely basis, which could in turn cause its stock price to decline significantly and make raising capital more difficult. If Gold Flora Corporation fails to remediate this material weakness, identify future material weaknesses in its internal control over financial reporting or fails to meet the demands placed on it as a public company, including the requirements of Sarbanes-Oxley, Gold Flora Corporation may be unable to accurately report its financial results or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 of Sarbanes-Oxley could also potentially subject Gold Flora Corporation to sanctions or investigations by the SEC or other regulatory authorities. If additional material weaknesses exist or are discovered in the future, and Gold Flora Corporation is unable to remediate any such material weakness, its reputation, results of operations and financial condition could suffer.
Risks associated with recent or future acquisitions.
Prior to the Business Combination, as part of Gold Flora’s overall business strategy, Gold Flora recently completed its acquisitions of Captain Kirk Services Inc., including its core retail outlet, Airfield Supply, Higher Level of Care Seaside, Inc. and Higher Level of Care Hollister, Inc. . In addition, TPCO recently completed its acquisition of 100% of the equity of Coastal Holding Company, LLC, a California retail dispensary and delivery operator. Gold Flora Corporation intends to pursue strategic acquisitions which could provide additional product offerings, integrations, additional industry expertise or a stronger industry presence in both existing and new jurisdictions. Recent and future acquisitions may expose Gold Flora Corporation to potential risks, including risks associated with: (i) the integration of new operations, services and personnel; (ii) unforeseen or hidden liabilities; (iii) the diversion of resources from Gold Flora Corporation’s existing interests and business; (iv) potential inability to generate sufficient revenue to offset new costs; (v) the expenses of acquisitions; or (vi) the potential loss of or harm to relationships with both employees and existing users resulting from its integration of new businesses. In addition, any proposed acquisitions may be subject to regulatory approval.
Gold Flora Corporation may invest in cannabis companies, including pre-revenue companies, that may not be able to meet anticipated revenue targets in the future.
Gold Flora Corporation may make investments in companies with no significant sources of operating cash flow and no revenue from operations. Investments in such companies will be subject to risks and uncertainties that new companies with no operating history may face. In particular, there is a risk that Gold Flora Corporation’s investment in these pre-revenue companies will not be able to meet anticipated revenue targets or will generate no revenue at all. The risk is that underperforming pre-revenue companies may lead to these businesses failing, which could have a material adverse effect on Gold Flora Corporation’s business, prospects, revenue, results of operation and financial condition.
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Gold Flora Corporation may not be able to achieve sustainable revenues and profitable operations.
Gold Flora Corporation’s ability to carry out and implement its planned business objectives and strategies may be dependent upon, among other things, its ability to achieve sustainable revenues and profitable operations. There can be no assurance that Gold Flora Corporation will be able to generate positive cash flow from its operations in the future, that additional capital or other types of financing will be available when needed, or that these financings will be on terms favorable to Gold Flora Corporation. If Gold Flora Corporation is unable to maintain positive cash flow from its operations, its ability to carry out and implement its planned business objectives and strategies may be significantly delayed, limited, or may not occur.
Financial projections may prove materially inaccurate or incorrect.
Gold Flora Corporation does not currently provide any financial guidance or projections. Gold Flora Corporation may elect to provide financial projections in the future. Any of Gold Flora Corporation’s financial estimates, projections and other forward-looking information or statements were prepared by Gold Flora Corporation without the benefit of reliable historical industry information or other information customarily used in preparing such estimates, projections and other forward-looking information or statements. Such forward-looking information or statements are based on assumptions of future events that may or may not occur. Investors should inquire of Gold Flora Corporation and become familiar with the assumptions underlying any estimates, projections or other forward-looking information or statements. Projections are inherently subject to varying degrees of uncertainty and their achievability depends on the timing and probability of a complex series of future events. There is no assurance that the assumptions upon which these projections are based will be realized. Accordingly, investors should not rely on any projections to indicate the actual results Gold Flora Corporation might achieve.
There can be no assurance that Gold Flora Corporation’s strategic alliances or expansions of scope of existing relationships will have a beneficial impact on Gold Flora Corporation’s business, financial condition and results of operations.
Gold Flora Corporation may enter into strategic alliances and partnerships with third parties that Gold Flora Corporation believes will complement or augment its business. Gold Flora Corporation’s ability to complete strategic alliances is dependent upon, and may be limited by, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance Gold Flora Corporation’s business and may involve risks that could adversely affect Gold Flora Corporation, including significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. Future strategic alliances could result in the incurrence of additional debt, costs and contingent liabilities, and there can be no assurance that such strategic alliances will achieve the expected benefits to Gold Flora Corporation’s business. Any of the foregoing could have a material adverse effect on Gold Flora Corporation’s business, financial condition and results of operations.
Competition in the cannabis industry is intense and increased competition by larger and better-financed competitors could materially and adversely affect the business, financial condition and results of operations of Gold Flora Corporation.
Gold Flora Corporation will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and experience than Gold Flora Corporation. Increased competition by larger and better financed competitors could materially and adversely affect the business, financial condition, results of operations or prospects of Gold Flora Corporation. Because of the early stage of the industry in which Gold Flora Corporation operates, Gold Flora Corporation expects to face additional competition from new entrants. To become and remain competitive, Gold Flora Corporation will require research and development, marketing, sales and support. Gold Flora Corporation may not have sufficient resources to maintain research and development, marketing, sales and support efforts on a competitive basis which could materially and adversely affect the business, financial condition, results of operations or prospects of Gold Flora Corporation.
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Gold Flora Corporation is dependent on equipment and skilled labor.
The ability of Gold Flora Corporation to compete and grow will be dependent on it having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that Gold Flora Corporation will be successful in maintaining its required supply of skilled labor, equipment, parts and components, including as a result of the COVID-19 pandemic. It is also possible that the final costs of the major equipment contemplated by Gold Flora Corporation’s capital expenditure plans may be significantly greater than anticipated by Gold Flora Corporation’s management, and may be greater than the funds available to Gold Flora Corporation, in which circumstance Gold Flora Corporation may curtail, or extend the timeframes for completing, its capital expenditure plans. This could have an adverse effect on the business, financial condition, results of operations or prospects of Gold Flora Corporation.
The cannabis industry is difficult to forecast.
Gold Flora Corporation must rely largely on its own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the industry. The California cannabis industry experienced an unprecedented decline in the average price per pound of cannabis biomass throughout 2022, making historical data less reliable. Furthermore, mergers and acquisitions, which represent a material portion of Gold Flora Corporation’s strategy, are particularly difficult to forecast. If Gold Flora Corporation’s forecasts are not accurate as a result of competition, biomass commoditization, integration, deal-execution, technological change, change in the regulatory or legal landscape, change in consumer behavior, or other factors, the business, results of operations, financial condition or prospects of Gold Flora Corporation may be adversely affected. See “General Risk Factors – Financial projections may prove material inaccurate or incorrect”.
Gold Flora Corporation may be subject to the risk of litigation.
Gold Flora Corporation is a party to litigation from time to time in the ordinary course of business which could adversely affect its business. Should any litigation in which Gold Flora Corporation becomes involved be determined against Gold Flora Corporation, such a decision could adversely affect Gold Flora Corporation’s ability to continue operating. Even if Gold Flora Corporation is involved in litigation and wins, litigation can redirect significant company resources. Litigation may also create a negative perception of Gold Flora Corporation’s brand.
Gold Flora Corporation may be subject to risks related to information technology systems, including cyber-attacks.
Gold Flora Corporation’s operations depend, in part, on how well it and its suppliers protect networks, equipment, information technology systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, ransomware, hacking, computer viruses, vandalism and theft. Gold Flora Corporation’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, information technology systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays, theft and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact Gold Flora Corporation’s reputation and results of operations. Gold Flora Corporation, Gold Flora and TPCO have not experienced any material losses to date relating to cyber-attacks or other information security breaches, but there can be no assurance that Gold Flora Corporation will not incur such losses in the future. Gold Flora Corporation’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, Gold Flora Corporation may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
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Gold Flora Corporation may be subject to risks related to security breaches.
Given the nature of Gold Flora Corporation’s products and its lack of legal availability outside of channels approved by the United States federal government, as well as the concentration of inventory in its facilities, and despite meeting or exceeding all legislative security requirements, there remains a risk of shrinkage as well as theft. A security breach at one of Gold Flora Corporation’s facilities could expose Gold Flora Corporation to additional liability and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches and may deter potential customers from choosing Gold Flora Corporation’s products. In addition, Gold Flora Corporation collects and stores personal information about its customers and is responsible for protecting that information from privacy breaches. A privacy breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly customer lists and preferences, is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse effect on Gold Flora Corporation’s business, financial condition, results of operations and prospects.
Gold Flora Corporation may be subject to intellectual property risks.
Gold Flora Corporation has certain proprietary intellectual property, including but not limited to brands, trademarks, trade names, copyright protected materials, trade secrets, and proprietary and/or confidential processes and know-how. Gold Flora Corporation will rely on this intellectual property, know-how and other proprietary information, and require employees, consultants, partners and suppliers to sign confidentiality agreements as appropriate. However, confidentiality agreements may be breached, and Gold Flora Corporation’s remedies under law may not have the effect of fully mitigating or preventing damage stemming from a breach. Furthermore, Gold Flora Corporation may enter into agreements to license its intellectual property with third parties in states where Gold Flora Corporation currently does not operate. In such instances, Gold Flora Corporation will be reliant on third-party licensees to comply with trademark guidelines and otherwise be diligent stewards of Gold Flora Corporation’s intellectual property. Third party licensees may not protect Gold Flora Corporation’s intellectual property against counterfeit copies of Gold Flora Corporation brands or trademarks, for example.
Absent of breach, third parties may independently develop substantially equivalent proprietary information without infringing upon any proprietary technology. Third parties may otherwise gain access to Gold Flora Corporation’s proprietary information and adopt it in a competitive manner. Any loss of intellectual property protection may have a material adverse effect on Gold Flora Corporation’s business, results of operations or prospects.
As long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance pursuant to the CSA, the benefit of certain U.S. federal laws and protections which may be available to most businesses, such as federal trademark protection regarding the intellectual property of a business, may not be available to Gold Flora Corporation. For example, in the United States, registered federal trademark protection is only available for goods and services that can be lawfully used in interstate commerce; the U.S. Patent and Trademark Office is not currently approving any trademark applications for cannabis, or certain goods containing U.S. hemp-derived CBD (such as dietary supplements and food) until the FDA and the USDA provide clearer guidance on the regulation of such products. As a result, Gold Flora Corporation’s intellectual property may not be adequately or sufficiently protected against the use or misappropriation by third parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, Gold Flora Corporation can provide no assurance that it will obtain any protection of its intellectual property, whether on a federal, provincial, state or local level, despite its efforts to so do. While many states do offer the ability to protect and register trademarks independent of the federal government, and courts have recognized the legal validity of common law rights in cannabis-business trademarks, such common law rights and state-registered trademarks provide a lower degree of protection than would federally registered marks as the rights provided are state-by-state and not nationwide and are dependent on use rather than intent to use.
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Gold Flora Corporation’s intellectual property rights may be invalid or unenforceable under applicable laws, and Gold Flora Corporation may be unable to have issued or registered, and unable to enforce, its intellectual property rights.
The laws and positions of intellectual property offices administering such laws regarding intellectual property rights relating to cannabis and cannabis-related products are constantly evolving, and there is uncertainty regarding which countries will permit the filing, prosecution, issuance, registration and enforcement of intellectual property rights relating to cannabis and cannabis-related products. Gold Flora Corporation’s ability to obtain registered trademark protection for cannabis and cannabis-related goods and services (including hemp and hemp-related goods and services), may be limited in certain countries, including the United States, where registered federal trademark protection is currently unavailable for trademarks covering the sale of cannabis products or certain goods containing U.S. hemp-derived CBD (such as dietary supplements and foods) until the FDA provides clearer guidance on the regulation of such products. Accordingly, Gold Flora Corporation’s ability to obtain intellectual property rights or enforce intellectual property rights against third-party uses of similar trademarks may be limited.
Moreover, in any infringement proceeding, some or all of Gold Flora Corporation’s current or future trademarks, patents or other intellectual property rights or other proprietary know-how, or arrangements or agreements seeking to protect the same for Gold Flora Corporation’s benefit, may be found invalid, unenforceable, anti-competitive or not infringed. An adverse result in any litigation or defense proceedings could put one or more of Gold Flora Corporation’s current or future trademarks, patents or other intellectual property rights at risk of being invalidated or interpreted narrowly and could put existing intellectual property applications at risk of not being issued. Any or all of these events could materially and adversely affect Gold Flora Corporation’s business, financial condition and results of operations.
Gold Flora Corporation may be subject to allegations that it is in violation of third-party intellectual property rights, and Gold Flora Corporation may be found to infringe third-party intellectual property rights, possibly without the ability to obtain licenses necessary to use such third-party intellectual property rights.
Other parties may claim that Gold Flora Corporation’s products infringe on their intellectual property rights, including with respect to patents, and Gold Flora Corporation’s operation of its business, including its development, manufacture and sale of its goods and services, may be found to infringe third-party intellectual property rights. There is a risk that Gold Flora Corporation is infringing the proprietary rights of third parties because numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are the focus of Gold Flora Corporation’s business, and which may cover the development, manufacturing, sale or use of Gold Flora Corporation’s products, processes or other aspects of its business operations. Others might have been the first to make the inventions covered by each of its pending patent applications and/or might have been the first to file patent applications for these inventions. In addition, because patent applications take many months to publish and patent applications can take many years to issue, there may be currently pending applications, unknown to Gold Flora Corporation, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization, formulation or use of Gold Flora Corporation’s products. As a result, there may be currently pending patent applications, some of which may still be confidential, that may later result in issued patents that Gold Flora Corporation’s products or processes may infringe. In addition, the production, manufacture, synthesis, commercialization, formulation or use of Gold Flora Corporation’s products may infringe existing patents of which Gold Flora Corporation is not aware. In addition, third parties may obtain patents in the future and claim that use of Gold Flora Corporation’s inventions, trade secrets, technical know-how and proprietary information, or the manufacture, use or sale of its products infringes upon those patents. Third parties may also claim that Gold Flora Corporation’s use of its trademarks infringes upon their trademark rights.
Defending itself against third-party claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from its business, which could lead to delays in Gold Flora Corporation’s development or commercialization efforts. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, result in injunctions, temporary restraining orders, other equitable relief, and/or require the payment of damages, any or all of which may have an adverse impact on Gold Flora Corporation’s business. If third parties are successful in their claims, Gold Flora Corporation might have to pay substantial damages or take other actions that are adverse to Gold Flora Corporation’s business. In addition, Gold Flora Corporation may need to obtain licenses from third parties who allege that Gold Flora Corporation has infringed on their lawful rights. Such licenses may not be available on terms acceptable to Gold Flora Corporation, and Gold Flora Corporation may be unable to obtain any licenses or other necessary or useful rights under third-party intellectual property.
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Gold Flora Corporation receives licenses to use some third-party intellectual property rights, and the failure of the owner of such intellectual property to properly maintain or enforce the intellectual property underlying such licenses, or Gold Flora Corporation’s inability to maintain such licenses, could have a material adverse effect on Company’s business, financial condition and performance.
Gold Flora Corporation is party to licenses granted by third parties, including the certain brands and trademarks, that give Gold Flora Corporation rights to use third-party intellectual property that is necessary or useful to Gold Flora Corporation’s business. Gold Flora Corporation’s success will depend, in part, on the ability of the applicable licensor to maintain and enforce its licensed intellectual property against other third parties, particularly intellectual property rights to which Gold Flora Corporation has secured exclusive rights. Without protection for the intellectual property Gold Flora Corporation has licensed, other companies might be able to offer substantially similar products for sale, or utilize substantially similar processes, any of which could have a material adverse effect on Gold Flora Corporation’s business, financial condition and results of operations.
Any of Gold Flora Corporation’s licensors may allege that Gold Flora Corporation has breached its license agreements with those licensors, whether with or without merit, and accordingly seek to terminate Gold Flora Corporation’s applicable licenses. If successful, this could result in Gold Flora Corporation’s loss of the right to use applicable licensed intellectual property, which could adversely affect its ability to commercialize its products or services, as well as have a material adverse effect on its business, financial condition and results of operations.
Any of these outcomes could impair Gold Flora Corporation’s ability to prevent competition from third parties, which could materially and adversely affect its business, financial condition and results of operations.
Gold Flora Corporation may be subject to the risks associated with fraudulent or illegal activity by its employees, contractors and consultants.
Gold Flora Corporation is exposed to the risk that its employees, independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent unauthorized conduct that violates: (i) government regulations, including regulations of the DCC; (ii) manufacturing standards; (iii) federal, state and provincial healthcare fraud and abuse laws and regulations; (iv) laws that require the true, complete and accurate reporting of financial information or data; or (v) contractual arrangements, including confidentiality requirements. It may not always be possible for Gold Flora Corporation to identify and deter misconduct by its employees and other third parties, and the precautions taken by Gold Flora Corporation to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Gold Flora Corporation from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with applicable laws or regulations or contractual requirements. If any such actions are instituted against Gold Flora Corporation, and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on Gold Flora Corporation’s business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of Gold Flora Corporation’s operations, any of which could have a material adverse effect on Gold Flora Corporation’s business, financial condition, results of operations or prospects.
Gold Flora Corporation may be subject to risks related to high bonding and insurance coverage.
There is a risk that a greater number of state regulatory agencies will begin requiring entities engaged in certain aspects of the business or industry of legal cannabis to post a bond or significant fees when, for example, applying for a dispensary license or renewal as a guarantee of payment of sales and franchise tax. Gold Flora Corporation is not able to quantify at this time the potential scope for such bonds or fees in the states in which it currently or may in the future operate. Any bonds or fees of material amounts could have a negative impact on the ultimate success of Gold Flora Corporation’s business. Gold Flora Corporation’s business is subject to a number of risks and hazards generally, including adverse environmental conditions (such as droughts), accidents, labor disputes and changes in the regulatory environment. Such occurrences could result in damage to assets, personal injury or death, environmental damage, delays in operations, monetary losses and possible legal liability. Although Gold Flora Corporation maintains insurance to protect against certain risks in such amounts as it considers to be reasonable, insurance does not cover all the potential risks associated with its operations. Gold Flora Corporation may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards encountered in the operations of Gold Flora Corporation is not generally available on acceptable terms. Gold Flora Corporation might also become subject to liability for pollution, fire, explosion or other hazards which it may not be insured against or which Gold Flora Corporation may elect not to insure against because of premium costs or other reasons. Losses from these events may cause Gold Flora Corporation to incur significant costs that could have a material adverse effect upon its business, results of operations, financial condition or prospects.
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Global financial conditions and future economic shocks may impair Gold Flora Corporation’s financial condition.
Future economic shocks may be precipitated by a number of causes, including a rise in the price of oil, geopolitical instability, pandemics or outbreaks of new infectious diseases or viruses and natural disasters. Any sudden or rapid destabilization of global economic conditions, including the recent bank failures, could impact Gold Flora Corporation’s ability to obtain equity or debt financing in the future on terms favorable to Gold Flora Corporation, or at all. Additionally, any such occurrence could cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. In such an event, Gold Flora Corporation’s operations and financial condition could be adversely impacted.
Furthermore, general market, political and economic conditions, including, for example, inflation, interest and currency exchange rates, structural changes in the cannabis industry, supply and demand for commodities, political developments, legislative or regulatory changes, social or labor unrest and stock market trends will affect Gold Flora Corporation’s operating environment and its operating costs and profit margins and the price of its securities. Any negative events in the global economy could have a material adverse effect on Gold Flora Corporation’s business, financial condition, results of operations or prospects.
Gold Flora Corporation’s operations may be adversely affected by changes in the economic environment, including the rise in inflation, an economic slowdown and impacts from recent bank failures.
Gold Flora Corporation’s operations could be affected by the economic environment in which it operates should the unemployment level, interest rates or inflation reach levels that influence consumer trends and, consequently, impact Gold Flora Corporation’s sales and profitability.
Gold Flora Corporation has experienced inflationary impacts on key production inputs, wages and other costs of labor, equipment, services, and other business expenses. Commodity prices in particular have risen significantly over the past year. Inflation and its negative impacts could escalate in future periods.
We may not be able to include these additional costs in the prices of the products we sell. As a result, inflation may have a material adverse effect on Gold Flora Corporation’s results of operations and financial condition.
Management of growth may prove to be difficult.
Gold Flora Corporation may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls. The ability of Gold Flora Corporation to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of Gold Flora Corporation to deal with this growth may have a material adverse effect on Gold Flora Corporation’s business, financial condition, results of operations or prospects.
Gold Flora Corporation does not intend to pay dividends on the Gold Flora Common Stock. Thus, any returns will be limited to increases, if any, in the value of the Gold Flora Common Stock.
Gold Flora Corporation currently anticipates that it will retain future earnings for the development, operation and expansion of its business and does not anticipate declaring or paying any cash dividends for the foreseeable future. Any future determination to declare dividends will be made at the discretion of the Gold Flora Board and will depend on, among other factors, Gold Flora Corporation’s financial condition, operating results, capital requirements, general business conditions and other factors that the Gold Flora Board may deem relevant. Any return to stockholders will therefore be limited to the appreciation in the value of their shares of Gold Flora Common Stock, if any.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about Gold Flora Corporation or its business, the Gold Flora Common Stock trading price and volume could decline.
The trading market for the Gold Flora Common Stock depends in part on the research and reports that securities or industry analysts publish about Gold Flora Corporation or its business. If securities or industry analysts do not provide coverage on Gold Flora Corporation, the trading price for Gold Flora Common Stock could be negatively impacted. Additionally, if one or more of the analysts who cover Gold Flora Corporation downgrade the Gold Flora Common Stock or publish inaccurate or unfavorable research about Gold Flora Corporation’s business, the trading price of the Gold Flora Common Stock may decline.
Gold Flora Corporation may be subject to international or additional state regulatory risks.
While Gold Flora Corporation currently has no plans to expand internationally, it may in the future and, as a result, it would become further subject to the laws and regulations of (as well as international treaties among) the foreign jurisdictions in which it operates or imports or exports products or materials. In addition, Gold Flora Corporation may avail itself of proposed legislative changes in certain jurisdictions to expand its product portfolio outside of the state of California, which expansion may include business and regulatory compliance risks as yet undetermined. Failure by Gold Flora Corporation to comply with the current or evolving regulatory framework in any jurisdiction could have a material adverse effect on Gold Flora Corporation’s business, financial condition and results of operations. There is the possibility that any such international jurisdiction or state could determine that Gold Flora Corporation was not or is not compliant with applicable local regulations. If Gold Flora Corporation’s sales or operations were found to be in violation of such international regulations Gold Flora Corporation may be subject to enforcement actions in such jurisdictions including, but not limited to civil and criminal penalties, damages, fines, the curtailment or restructuring of Gold Flora Corporation’s operations or asset seizures and the denial of regulatory applications.
The market price of the Gold Flora Common Stock may be highly volatile.
Market prices for cannabis companies have at times been volatile and subject to substantial fluctuations. The stock market, from time-to-time, experiences significant price and volume fluctuations unrelated to the operating performance of particular companies, including as a result of the COVID-19 pandemic. Future announcements concerning Gold Flora Corporation or its competitors, including those pertaining to financial results, financing arrangements, government regulations, developments concerning regulatory actions affecting Gold Flora Corporation, litigation, additions or departures of key personnel, and economic conditions and political factors in the United States may have a significant impact on the market price of the Gold Flora Common Stock. In addition, there can be no assurance that the Gold Flora Common Stock will continue to be listed on the Exchange.
The price of the Gold Flora Common Stock may to fluctuate significantly due to Gold Flora Corporation’s financial results and other reasons, including those unrelated to Gold Flora Corporation’s specific performance, such as reports by industry analysts, investor perceptions, regulatory developments (or lack thereof) or negative announcements by its competitors or suppliers regarding their own performance, as well as general economic and industry conditions. For example, to the extent that other large companies within its industry experience declines in their stock price, the share price of the Gold Flora Common Stock may decline as well. In addition, when the market price of a company’s shares drops significantly, shareholders often institute securities class action lawsuits against the company. A lawsuit against Gold Flora Corporation could cause it to incur substantial costs and could divert the time and attention of its management and other resources.
Certain of Gold Flora Corporation’s officers and its manager are, and may continue to be, or may become, involved in other business ventures through their direct and indirect participation in, among other things, corporations, partnerships and joint ventures, that are or may become competitors of the products and services Gold Flora Corporation provides or intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from Gold Flora Corporation’s interests. In accordance with applicable law, officers and managers who have a material interest in a contract or transaction or a proposed contract or transaction with Gold Flora Corporation are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the transaction. In addition, the directors and officers are required to act honestly and in good faith with a view to Gold Flora Corporation’s best interests.
However, in conflict of interest situations, Gold Flora Corporation’s managers and officers may owe the same duty to another company and will need to balance their competing interests with their duties to Gold Flora Corporation. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to Gold Flora Corporation.
Anti-takeover provisions contained in Gold Flora Corporation’s certificate of incorporation and Gold Flora Corporation’s bylaws and under Delaware law could impair a takeover attempt
Certain provisions of Delaware law, as well as provisions in Gold Flora Corporation’s certificate of incorporation and bylaws, may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions may make it more difficult to remove management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for Gold Flora Corporation’s securities. Among other things, these provisions:
·
allow the Gold Flora Board to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of other stockholders;
·
prohibit stockholder action by written consent;
·
provide that special meetings may only be called by (i) the Chairperson of the Gold Flora Board, (ii) the Gold Flora Board, or (iii) the Secretary of Gold Flora Corporation, following receipt of one or more written demands to call a special meeting of the stockholders from stockholders of record who own, in the aggregate, at least 25% of the voting power of the outstanding shares of Gold Flora Corporation then entitled to vote on the matter or matters to be brought before the proposed special meeting;
·
provide that Gold Flora Corporation may indemnify Gold Flora Corporation’s directors and officers, in each case to the fullest extent permitted by Delaware law; and
·
establish advance notice requirements for nominations for elections to the Gold Flora Board and for proposing matters that can be acted upon by stockholders at stockholder meetings.
Gold Flora Corporation’s certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the exclusive forums for certain disputes between Gold Flora Corporation and its stockholders, which could make its securities less attractive and impose legal costs on us if such limitations are challenged.
Gold Flora Corporation’s certificate of incorporation provides that, unless Gold Flora Corporation otherwise consents in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) is, to the fullest extent permitted by law, the sole and exclusive forum for:
·
any derivative action or proceeding brought on behalf of Gold Flora Corporation;
·
any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Gold Flora Corporation to Gold Flora Corporation or its stockholders;
·
any action arising pursuant to any provision of the Delaware General Corporation Law or the Gold Flora Corporation certificate of incorporation or bylaws (as either may be amended from time to time); or
·
any action asserting a claim governed by the internal affairs doctrine.
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Unless Gold Flora Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of Gold Flora Corporation shall be deemed to have notice of and consented to this provision of Gold Flora’s certificate of incorporation.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Gold Flora Corporation or Gold Flora Corporation’s directors, officers, or other employees and this limitation may make Gold Flora Corporation’s securities less attractive to investors. Further, while the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against Gold Flora Corporation or its directors, officers, or other employees in a venue other than in the federal district courts of the United States. In such instance, Gold Flora Corporation would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of its certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and Gold Flora Corporation cannot assure you that the provisions will be enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provisions in Gold Flora Corporation’s certificate of incorporation to be inapplicable or unenforceable in an action, Gold Flora Corporation may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could harm Gold Flora Corporation’s business.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect Gold Flora Corporation’s reported financial results or financial condition.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to Gold Flora Corporation’s business, including but not limited to revenue recognition, impairment of goodwill and intangible assets, inventory, income taxes and litigation, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation, or changes in underlying assumptions, estimates or judgments, could significantly change Gold Flora Corporation’s reported financial performance or financial condition in accordance with generally accepted accounting principles.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~None.~~Not applicable.

Item 3. Defaults Upon Senior Securities.

~~None.~~Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Incorporated by Reference From
Exhibit No.

Title of Document

Form

Date Filed

Exhibit
Number

Filed
Herewith

2.1*

Definitive Transaction Agreement, dated November 24, 2020 by and among Subversive Capital Acquisition Corp., Caliva, TPCO CMG Merger Sub, Inc. and GRHP Management. LLC. as shareholders’ representative for Caliva’s shareholders

10-12G

9/30/2021

2.1

X
2.2*

Definitive Agreement. dated November 24. 2020 by and among Subversive Capital Acquisition Corp.. Left Coast Ventures. Inc.. TPCO LCV Merger Sub Inc. and Shareholder Representative Services LLC. as shareholders’ representative for LCV’s shareholders

10-12G

9/30/2021

2.2

2.3*

Agreement and Plan of Merger dated November 24. 2020 by and among Left Coast Ventures. Inc.. LCV Holdings 710. LLC. SISU Extraction. LLC and John Figueiredo

10-12G

9/30/2021

2.3

2.4*

Acquisition Agreement. dated November 24. 2020 among Subversive Capital Acquisition Corp.. Caliva. OG Enterprises. SC Branding. LLC and SC Vessel 1. LLC

10-12G

9/30/2021

2.4

2.5*†

Unit Purchase Agreement. dated as of October 1. 2021, by and among Coast L Acquisition Corp.. TPCO Holding Corp. the Members of Coastal Holding Company, LLC. Identified on the Signature Pages Thereto. Julian Michalowski, as Equityholders’ Representative and Coastal Holding Company, LLC.

10-12G/A

10/27/2021

2.5

2.6

First Amendment to Unit Purchase Agreement, dated as of March 4, 2022, by and among Coastal Holding Company LLC, TPCO Holding Corp and Julian Michalowski, as Equityholders’ Representative and Coastal Holding Company, LLC.

—

—

—

X
2.7

Second Amendment to Unit Purchase Agreement, dated as of September 29, 2022, by and among Coastal Holding Company, LLC, TPCO Holding Corp. and Julian Michalowski, as Equityholders’ Representative and Coastal Holding Company, LLC

—

—

—

X
3.1

Notice of Articles of Subversive Capital Acquisition Corp.. dated July 15, 2019

10-12G

9/30/2021

3.1

3.2

Articles of Subversive Capital Acquisition Corp., dated July 15, 2019

10-12G/A

10/01/2021

3.2

3.3

Certificate of Change of Name. dated January 15, 2021 by Subversive Capital Acquisition Corp.

10-12G

9/30/2021

3.3

4.1

Specimen Common Share Certificate

10-12G

9/30/2021

4.1

4.2

Warrant Agency Agreement between the Company and Odyssey Trust Company dated July 16, 2019

10-12G

9/30/2021

4.2

31.1

Section 302 Certification of Principal Executive Officer

—

—

—

x
31.2

Section 302 Certification of Principal Financial Officer

—

—

—

x
32.1

Section 1350 Certification of Principal Executive Officer

—

—

—

x
32.2

Section 1350 Certification of Principal Financial Officer

—

—

—

x
101.SCH

Inline XBRL Taxonomy Extension Schema Document

—

—

—

x
101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

—

—

—

x
101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

—

—

—

x
54
~~Table of Contents~~

Incorporated by Reference From

Exhibit No.

Title of Document

Form
Date Filed
Exhibit Number
Filed/Furnished Herewith

2.8†*

Business Combination Agreement, dated February 21, 2023, by and among TPCO Holding Corp., Gold Flora, LLC, Stately Capital Corporation, Gold Flora Corporation and Golden Grizzly Bear LLC

8-K
2/27/2023
2.1
-
3.1

Certificate of Incorporation of Gold Flora Corporation

8-K
7/13/2023
3.1
-
3.2

Bylaws of Gold Flora Corporation

8-K
7/13/2023
3.2
-
4.1

Supplemental Warrant Indenture between Gold Flora Corporation and Odyssey Trust Company dated July 7, 2023

8-K
7/13/2023
4.1
-
10.1+

Gold Flora Corporation 2023 Equity Incentive Plan

8-K
7/13/2023
10.1
-
31.1

Section 302 Certification of Principal Executive Officer

-
-
-
X
31.2

Section 302 Certification of Principal Financial Officer

-
-
-
X
32.1††

Section 1350 Certification of Principal Executive Officer

-
-
-
X
32.2††

Section 1350 Certification of Principal Financial Officer

-
-
-
X
101.SCH

Inline XBRL Taxonomy Extension Schema Document

-
-
-
X
101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

-
-
-
X
101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

-
-
-
X
101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

-
-
-
X
101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

-
-
-
X
104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

-
-
-
X

*
~~Incorporated by Reference From~~
Schedules and exhibits to this Exhibit ~~No.~~
~~Title~~omitted pursuant to Item 601(a)(5) of ~~Document~~
~~Form~~
~~Date Filed~~
~~Exhibit~~
~~Number~~
~~Filed~~
~~Herewith~~Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

†
Certain identified portions of this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

~~101.LAB~~††
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

~~Inline XBRL Taxonomy Extension Label Linkbase Document~~+
—
—
—
X
~~101.PRE~~
~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~
—
—
—
x
~~104~~
~~Cover Page Interactive Data File (embedded within the Inline XBRL document)~~
—
—
—
xManagement contract or compensatory plan or arrangement.
* Schedules and exhibits to this Exhibit omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
~~† Certain portions of this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K.~~
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~TPCO HOLDING CORP.~~GOLD FLORA CORPORATION

Date: ~~November~~August 14, ~~2022~~2023
By:
/s/ ~~Troy Datcher~~Laurie Holcomb

~~Troy Datcher~~Laurie Holcomb

Chief Executive Officer

(Principal Executive Officer)

Date: ~~November~~August 14, ~~2022~~2023
By:
/s/ ~~Mike Batesole~~Marshall Minor

~~Mike Batesole Chief~~Marshall Minor

Chief Financial Officer (Principal Financial Officer)

5658

As at	Note		September 30, 2022			December 31, 2021
Assets
Current
Cash			$	107,111,075		$	165,310,609
Restricted cash and restricted cash equivalents				2,639,732			9,581,689
Accounts receivable, net		27		2,155,444			4,705,563
Income tax receivable				-			1,322,340
Inventory		5		15,543,825			22,196,981
Notes and other receivables, net		6		389,816			4,732,617
Prepaid expenses and other current assets		4		9,869,406			11,940,043
Assets held for sale and discontinued operations		14		3,318,065			5,042,670
Total current assets				141,027,363			224,832,512

Investments		7		2,488,095			2,500,069
Security deposits				1,205,629			1,119,754
Prepaid expenses and other assets				800,755			756,968
Property and equipment		8		15,558,716			22,159,470
Right-of-use assets – operating		12		19,143,848			27,662,847
Right-of-use assets – finance		12		23,462,364			24,639,605
Intangible assets		9		118,908,000			212,587,865
Goodwill		9		-			44,051,645
Assets held for sale and discontinued operations		14		-			11,144,254
Total assets			$	322,594,770		$	571,454,989
Liabilities
Current
Accounts payable and accrued liabilities		11	$	25,327,121		$	41,625,317
Consideration payable – current portion				7,153,013			7,496,240
Operating lease liability – current portion		12		2,423,413			3,177,666
Finance lease liability – current portion		12		62,783			13,712
Cash settled share-based payments		16		3,632,574			5,166,666
Note payable		12		931,103			-
Contingent consideration		27		1,964			943,131
Liabilities held for sale and discontinued operations		14		2,149,220			264,044
Total current liabilities				41,681,191			58,686,776

Operating lease liabilities		12		22,920,265			27,142,326
Finance lease liabilities		12		36,730,577			36,774,714
Consideration payable				520,681			1,827,515
Deferred tax liabilities		21		25,527,230			43,847,866
Liabilities held for sale and discontinued operations		14		-			644,219
Total liabilities				127,379,944			168,923,416

Mezzanine equity
Redeemable non-controlling interest		15		35,010,200			41,456,387
Total mezzanine equity				35,010,200			41,456,387

Shareholders’ equity
Common shares, no par value, unlimited Common shares authorized, 104,914,328 issued and outstanding at September 30, 2022 and 97,065,092 at December 31, 2021		17		-			-
Additional paid in capital				965,032,335			954,102,859
Accumulated deficit				(804,827,709	)		(593,027,673	)
Total shareholders’ equity				160,204,626			361,075,186
Total liabilities, mezzanine equity and shareholders’ equity			$	322,594,770		$	571,454,989

As at	Note		June 30, 2023 (unaudited)			December 31, 2022
Assets
Current
Cash			$	60,544,072		$	93,697,529
Accounts receivable, net		24		1,114,729			1,205,700
Inventory		3		6,183,033			8,727,858
Notes and other receivables, net		4		121,057			108,957
Prepaid expenses and other current assets		5		7,910,331			8,368,495
Assets held for sale		6		5,698,193			6,102,764
Total current assets				81,571,415			118,211,303

Investments		8		1,312,846			1,478,204
Security deposits				1,307,509			1,181,078
Prepaid expenses and other assets				260,906			844,239
Notes and other receivables, net		4		5,333,598			518,846
Property and equipment		9		13,618,281			15,146,084
Right-of-use assets – operating		10		16,431,134			20,689,086
Right-of-use assets – finance		10		22,287,811			23,070,846
Intangible assets		11		95,735,035			99,378,098
Total assets			$	237,858,535		$	280,517,784

Liabilities
Current
Accounts payable and accrued liabilities		13	$	26,109,146			24,560,359
Consideration payable – current portion				4,988,833			5,777,943
Operating lease liability – current portion		10		1,996,340			2,355,174
Finance lease liability – current portion		10		224,545			156,184
Note payable				-			931,103
Contingent consideration		24		3,534,774			1,611,843
Liabilities held for sale		6		1,104,425			1,309,077
Total current liabilities				37,958,063			36,701,683

Operating lease liabilities		10		21,264,943			24,803,815
Finance lease liabilities		10		36,472,977			36,618,530
Consideration payable				-			383,334
Deferred tax liabilities		14		19,868,631			20,972,629
Total liabilities				115,564,614			119,479,991

Shareholders’ equity
Common shares, no par value, unlimited Common shares authorized 120,158,606 issued and outstanding at June 30, 2023 and 107,516,333 at December 31, 2022		15		-			-
Additional paid in capital				998,775,061			996,697,299
Non-controlling interest				1			1
Accumulated deficit				(876,481,141	)		(835,659,507	)
Total shareholders’ equity				122,293,921			161,037,793
Total liabilities and shareholders’ equity			$	237,858,535			280,517,784

			Three months ended						Nine months ended
	Note		September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021

Sales, net of discounts			$	19,560,190		$	18,894,135		$	63,674,204		$	55,385,321
Cost of sales				12,942,068			13,893,643			44,316,034			43,774,625
Gross profit				6,618,122			5,000,492			19,358,170			11,610,696

Impairment loss		13		127,815,307			485,601,121			130,244,837			560,500,228
Operating expenses		22		36,838,444			30,936,988			108,036,813			128,763,201

Loss from operations				(158,035,629	)		(511,537,617	)		(218,923,480	)		(677,652,733	)

Other income (expense)
Interest expense				(1,183,968	)		(1,093,562	)		(3,694,798	)		(3,757,176	)
Gain on debt forgiveness				-			-			-			3,358,686
Loss on disposal of assets				-			(137,042	)		(317,787	)		(3,656,707	)
Change in fair value of investments at fair value through profit loss		28		(388,878	)		(768,030	)		(421,974	)		(418,818	)
Change in fair value of contingent consideration		28		3,558			38,178,321			642,153			220,997,087
Other income				524,230			1,521,164			1,633,525			4,198,444
				(1,045,058	)		37,700,851			(2,158,881	)		220,721,516

Loss before income taxes				(159,080,687	)		(473,836,766	)		(221,082,361	)		(456,931,217	)

Income tax recovery (expense)		21		24,460,758			(3,935,160	)		24,418,531			6,541,380
Loss and comprehensive loss from continuing operations				(134,619,929	)		(477,771,926	)		(196,663,830	)		(450,389,837	)

Loss from discontinued operations, net of income tax		14		(2,327,414	)		(83,578,124	)		(4,302,730	)		(86,074,460	)
Loss from classification to discontinued operations, net of income tax		14		(11,082,725	)		-			(11,082,725	)		-
Net loss			$	(148,030,068	)	$	(561,350,050	)	$	(212,049,285	)	$	(536,464,297	)

Loss and comprehensive loss attributable to shareholders of the company			$	(147,985,084	)	$	(561,350,050	)	$	(211,800,036	)	$	(536,464,297	)
Loss and comprehensive loss attributable to redeemable non-controlling interest		15		(44,984	)		-			(249,249	)		-
Net loss			$	(148,030,068	)	$	(561,350,050	)	$	(212,049,285	)	$	(536,464,297	)

Per share – basic and diluted
Loss per share from continuing operations		20	$	(1.30	)	$	(4.85	)	$	(1.94	)	$	(4.80	)
Loss per share from discontinued operations		20		(0.13	)		(0.85	)		(0.15	)		(0.92	)
Loss per share		20	$	(1.43	)	$	(5.70	)	$	(2.09	)	$	(5.72	)
Weighted average number of common shares		20		103,489,965			98,421,935			101,154,772			93,802,606

			Three months ended						Six months ended
	Note		June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Sales, net of discounts			$	19,410,764		$	21,673,714		$	37,464,976		$	44,114,014
Cost of sales				9,975,383			15,650,560			20,248,545			31,373,966
Gross profit				9,435,381			6,023,154			17,216,431			12,740,048

Impairment loss		12		403,271			2,429,530			403,271			2,429,530
Operating expenses		16		29,889,848			32,288,461			51,991,392			71,198,369

Loss from operations				(20,857,738	)		(28,694,837	)		(35,178,232	)		(60,887,851	)

Other income (expense)
Interest income				614,954			-			1,237,750			-
Interest expense				(1,208,949	)		(1,260,262	)		(2,472,877	)		(2,510,830	)
Loss on disposal of assets				-			(63,314	)		(93,944	)		(317,787	)
Change in fair value of investments		8		(170,358	)		(330,960	)		(170,358	)		(33,096	)
Change in fair value of contingent consideration		24		(1,177,730	)		249,973			(1,922,931	)		638,595
Other income				450,000			801,339			455,170			1,109,295

Loss before income taxes				(22,349,821	)		(29,298,061	)		(38,145,422	)		(62,001,674	)

Income tax recovery (expense)				(1,961,804	)		244,473			(2,676,212	)		(42,227	)
Loss and comprehensive loss from continuing operations				(24,311,625	)		(29,053,588	)		(40,821,634	)		(62,043,901	)

Loss from discontinued operations, net of income tax		7		-			(1,429,097	)		-			(1,975,316	)

Loss and comprehensive loss attributable to shareholders of the company			$	(24,311,625	)	$	(30,123,075	)	$	(40,821,634	)	$	(63,814,952	)
Loss and comprehensive loss attributable to redeemable non-controlling interest				-			(359,610	)		-			(204,265	)
Net loss			$	(24,311,625	)	$	(30,482,685	)	$	(40,821,634	)	$	(64,019,217	)

Per share – basic and diluted
Loss per share from continuing operations			$	(0.20	)	$	(0.29	)	$	(0.37	)	$	(0.62	)
Loss per share from discontinued operations				-			(0.01	)		-			(0.02	)
Loss per share			$	(0.20	)	$	(0.30	)	$	(0.37	)	$	(0.64	)
Weighted average number of common shares				120,070,367			101,102,391			111,208,235			99,967,824

			Number of
	Note		Shares		Warrants		Class B Shares		Common Shares to be Issued			Additional Paid in Capital			Accumulated Deficit			Total Stockholder's Deficit

Balance December 31, 2021				97,065,092		35,837,500		-		743,768		$	954,102,859		$	(593,027,673	)	$	361,075,186
Shares issued for long-term strategic contract		16		2,790,014		-		-		-			3,750,000			-			3,750,000
Shares issued to settle contingent consideration		17		569,939		-		-		(305,325	)		299,014			-			299,014
Shares issued for RSUs vested		17,19		459,118		-		-		-			-			-			-
Tax settlements associated with RSUs				-		-		-		-			(420,247	)		-			(420,247	)
Share-based compensation		19		-		-		-		-			3,703,170			-			3,703,170
Net loss				-		-		-		-			-			(63,814,952	)		(63,814,952	)
Balance June 30, 2022				100,884,163		35,837,500		-		438,443		$	961,434,796		$	(656,842,625	)	$	304,592,171

Shares issued for long-term strategic contract		16		2,136,151		-		-		-			1,095,546			-			1,095,546
Shares issued for RSUs vested		17,19		131,589		-		-		-			-			-			-
Shares issued to acquire NCI		15		1,762,425		-		-		-			1,500,000			-			1,500,000
Tax settlements associated with RSUs				-		-		-		-			(59,126	)		-			(59,126	)
Share-based compensation		19		-		-		-		-			1,061,119			-			1,061,119
Net loss				-		-		-		-			-			(147,985,084	)		(147,985,084	)
Balance September 30, 2022				104,914,328		35,837,500		-		438,443		$	965,032,335		$	(804,827,709	)	$	160,204,626

	Note		Common Shares			Warrants		Common Shares to be issued / returned			Additional Paid in Capital			Accumulated Deficit			Non-controlling interest		Total

Balance December 31, 2022				107,516,333			35,837,500		(6,673,222	)	$	996,697,299		$	(835,659,507	)	$	1	$	161,037,793
Shares issued for RSUs vested		15		165,217			-		-			-			-			-		-
Tax settlements associated with RSUs				-			-		-			(16,799	)		-			-		(16,799	)
Share-based compensation		18		-			-		-			1,665,220			-			-		1,665,220
Shares returned to Treasury		15		(7,122,321	)		-		7,122,321			-			-			-		-
Shares issued in exchange for shares of subsidiary		15		18,268,094			-		-			-			-			-		-
Net loss				-			-		-			-			(16,510,009	)		-		(16,510,009	)
Balance March 31, 2023				118,827,323			35,837,500		449,099		$	998,345,720		$	(852,169,516	)	$	1	$	146,176,205

Shares issued for RSUs vested		15		768,177			-					-			-			-		-
Tax settlements associated with RSUs				-			-		-			(69,142	)		-			-		(69,142	)
Share-based compensation		18		-			-		-			498,483			-			-		498,483
Shares returned to Treasury		15		(2,517	)		-		-			-			-			-		-
Shares issued in exchange for shares of subsidiary		15		452,989			-		-			-			-			-		-
Share issuance for previous acquisitions		15		112,634			-		(112,634	)		-			-			-		-
Net loss				-			-		-			-			(24,311,625	)		-		(24,311,625	)
Balance June 30, 2023				120,158,606			35,837,500		336,465		$	998,775,061		$	(876,481,141	)	$	1	$	122,293,921

(Unaudited, in United States dollars)			Nine months ended
	Note		September 30, 2022			September 30, 2021

Cash provided by (used in)
Operating activities
Net loss from continuing operations			$	(196,663,830	)	$	(450,389,837	)
Adjustments for items not involving cash
Impairment loss		13		130,244,837			560,500,228
Interest expense				3,694,798			3,739,340
Interest income				(75,758	)		(993,639	)
Loss on disposal of assets				317,787			3,656,707
Loss on lease termination		12		(114,458	)
Allowance for accounts receivable and notes receivable				3,438,664			796,403
Gain on debt forgiveness				-			(3,358,686	)
Fair value change of investments		7		421,974			418,818
Depreciation and amortization		22		23,755,099			14,174,789
Shares issued for long-term strategic contracts				-			25,000,000
Share-based compensation expense, net of withholding tax settlement				4,284,916			16,765,238
Non-cash marketing expense		16		3,311,454			3,803,030
Non-cash operating lease expense		12		5,402,936			3,029,654
Fair value change of contingent consideration		27		(642,153	)		(220,997,087	)
Deferred income tax recovery		21		(27,771,859	)		(13,714,716	)
Repayment of operating lease liabilities				(5,276,778	)		(3,403,629	)
Net changes in non-cash working capital items		23		(2,659,682	)		(39,995,798	)

Net cash used in continued operating activities				(58,332,053	)		(100,969,185	)

Net cash used in discontinued operating activities				(2,565,934	)		(5,528,420	)

Total operating activities				(60,897,987	)		(106,497,605	)

Financing activities
Receipt of payments on notes receivable				1,759,318			-
Repayment of notes payable				(4,680,000	)		-
Repayment of consideration payable				(1,150,000	)		(872,021	)
Repayment of finance lease liabilities				(3,342,761	)		(3,429,846	)
Proceeds from private placement				-			51,635,000
Redemption of Class A restricted voting shares				-			(264,318,686	)
Proceeds from exercise of options				-			12,972
Repurchase of shares				-			(4,454,571	)
Repayment of line of credit				-			(1,000,000	)
Total financing activities				(7,413,443	)		(222,427,152	)

Investing activities
Net cash paid in the Qualifying Transaction				-			(28,143,886	)
Net cash paid in business combinations		10		-			(1,402,337	)
Purchases of property and equipment				(2,733,218	)		(8,725,860	)
Advances for note receivable				-			(5,650,000	)
Acquisition of investments		7		(350,000	)		(1,000,000	)
Proceeds from notes receivable				-			187,954
Proceeds from sale of property and equipment, net of selling costs				6,253,157			11,068,537
Total investing activities				3,169,939			(33,665,592	)

Net change in cash during the period				(65,141,491	)		(362,590,349	)

Cash, restricted cash and restricted cash equivalents
Beginning of period			$	174,892,298		$	582,622,025
End of period			$	109,750,807		$	220,031,676

Cash				107,111,075			206,677,145
Restricted cash and restricted cash equivalents				2,639,732			13,354,531
Cash, restricted cash and restricted cash equivalents			$	109,750,807		$	220,031,676

	September 30, 2022		December 31, 2021
Prepaid expenses	$	51,456	$	109,929
Prepaid insurance		1,434,394		1,560,840
Prepaid inventory		379,159		2,188,881
Prepaid rent		177,740		650,000
Other prepaid assets		1,782,502		1,386,238
Indemnification assets		6,044,155		6,044,155
	$	9,869,406	$	11,940,043

	September 30, 2022		December 31, 2021
Packaging supplies	$	2,943,653	$	2,784,846
Biological assets		1,523		1,371,749
Raw materials		465,204		2,009,754
Work in progress		1,406,179		1,969,696
Finished goods		10,727,266		14,060,936
	$	15,543,825	$	22,196,981

	September 30, 2022			December 31, 2021
Upfront payment	$	5,650,000		$	5,650,000
Promissory note receivable		389,816			543,560
Other receivable		-			1,200,000
Total notes receivable		6,039,816			7,393,560
Less allowance for credit losses		(5,650,000	)		(2,660,943	)
Note receivable	$	389,816		$	4,732,617

	Marketable securities			Non-marketable securities		Available for sale securities		Other		Total
Balance, December 31, 2021	$	860,496		$	591,545	$	1,048,028	$	-	$	2,500,069
Acquired in the period		-			-		200,000		150,000		350,000
Interest income		-			-		60,000		-		60,000
Change in fair value		(421,974	)		-		-		-		(421,974	)
Balance, September 30, 2022	$	438,522		$	591,545	$	1,308,028	$	150,000	$	2,488,095

	September 30, 2022			December 31, 2021
Gross carrying amounts
Leasehold improvements	$	16,412,209		$	13,726,734
Production equipment		2,232,687			2,500,473
Furniture and fixtures		814,631			858,859
Vehicles		333,325			425,886
Office equipment		1,007,055			1,030,216
Building		-			6,549,489
		20,799,907			25,091,657

Accumulated depreciation
Leasehold improvements		(3,343,755	)		(1,724,692	)
Production equipment		(1,064,412	)		(671,688	)
Furniture and fixtures		(319,085	)		(196,124	)
Vehicles		(87,152	)		(51,573	)
Office equipment		(426,787	)		(206,244	)
Building		-			(81,866	)
		(5,241,191	)		(2,932,187	)

Property and equipment, net	$	15,558,716		$	22,159,470

	June 30, 2023			December 31, 2022
Current assets classified as held for sale
Right-of-use assets - operating	$	1,146,661		$	1,240,211
Intangible assets		9,822,809			11,443,681
Total carrying value of current assets		10,969,470			12,683,892
Impairment recognized on classification as held for sale		(5,271,277	)		(6,581,128	)
Total assets classified as held for sale	$	5,698,193		$	6,102,764

Current liabilities classified as held for sale
Operating lease liability – current portion	$	1,104,425		$	1,309,077
Total liabilities classified as held for sale	$	1,104,425		$	1,309,077

	September 30, 2022			December 31, 2021
Total goodwill	$	-		$	44,051,645

Intangible assets gross carrying amounts
License		83,410,737			112,161,292
Brand		69,751,919			116,700,360
Customer relations		2,920,000			2,920,000
		156,082,656			231,781,652

Intangible assets accumulated amortization
License		(26,357,126	)		(13,620,757	)
Brand		(10,265,773	)		(5,264,606	)
Customer relations		(551,757	)		(308,424	)
		(37,174,656	)		(19,193,787	)

Intangible assets, net	$	118,908,000		$	212,587,865

	Estimated Amortization

Remainder of 2022	$	2,070,460
2023		8,253,599
2024		7,896,572
2025		7,801,531
2026		7,801,531
Thereafter		85,084,307
	$	118,908,000

	Three months ended June 30, 2022			Six months ended June 30, 2022
Sales, net of discounts	$	5,704,716		$	16,495,607
Cost of sales		5,177,831			14,501,234
Gross profit		526,885			1,994,373

Operating expenses		(1,830,658	)		(3,536,193	)
Loss from operations		(1,303,773	)		(1,541,820	)

Other expense		(12,130	)		(12,130	)
Income tax expense		(113,194	)		(421,366	)

Loss from discontinued operations, net of income tax	$	(1,429,097	)	$	(1,975,316	)

	Marketable securities			Non-marketable securities		Available for sale securities			Other		Total
Balance, December 31, 2021	$	860,496		$	591,545	$	1,048,028		$	-	$	2,500,069
Acquired		-			-		-			150,000		150,000
Interest income		-			-		40,000			-		40,000
Change in fair value		(33,096	)		-		-			-		(33,096	)
Balance, June 30, 2022	$	827,400		$	591,545	$	1,088,028		$	150,000	$	2,656,973

Balance, December 31, 2022	$	-		$	591,545	$	736,659		$	150,000	$	1,478,204
Interest income		-			-		5,000			-		5,000
Change in fair value		-			-		(170,358	)		-		(170,358	)
Balance, June 30, 2023	$	-		$	591,545	$	571,301		$	150,000	$	1,312,846

	September 30, 2022		December 31, 2021

Trade payables	$	4,943,448	$	8,390,991
Other accrued expenses		6,670,646		7,288,466
Accrued payroll expenses		1,847,317		1,326,493
Accrued severance expenses		953,830		1,331,365
Accrued income and other taxes		6,229,451		19,062,306
Goods received but not yet invoiced		4,682,429		4,225,696
	$	25,327,121	$	41,625,317

	Operating Lease		Finance Lease		Operating Lease		Finance Lease

Remainder of 2022	$	1,441,432	$	1,147,681
2023		4,826,896		4,625,156
Remainder of 2023					$	2,294,365	$	2,329,793
2024		4,552,956		4,763,910		4,302,015		4,763,910
2025		4,518,781		4,906,828		4,417,481		4,906,828
2026		4,370,472		5,054,033		4,544,592		5,054,033
2027						4,009,473		5,205,654
Thereafter		22,192,154		64,884,898		18,295,465		59,679,244
Total undiscounted lease liabilities		41,902,691		85,382,506		37,863,391		81,939,462
Interest on lease liabilities		16,559,013		48,589,146		14,602,108		45,241,940
Total present value of minimum lease payments		25,343,678		36,793,360		23,261,283		36,697,522
Lease liability – current portion		2,423,413		62,783		1,996,340		224,545
Lease liability	$	22,920,265	$	36,730,577	$	21,264,943	$	36,472,977

	Operating lease			Finance lease

Gross carrying amount
Balance, December 31, 2021	$	30,099,933		$	26,258,698

Measurement period adjustment (Note 10)		411,322			-
Additions (i)		2,163,935			-
Lease termination (ii)		(1,882,008	)		-
Impairment (Note 13)		(4,840,390	)		-
Transfer to assets held for sale (Note 14)		(1,406,339	)		-
Balance, September 30, 2022	$	24,546,453		$	26,258,698

Depreciation
Balance, December 31, 2021	$	2,437,086		$	1,619,093

Additions		2,965,519			1,177,241
Balance, September 30, 2022	$	5,402,605		$	2,796,334

Carrying amount December 31, 2021	$	27,662,847		$	24,639,605
Carrying amount September 30, 2022	$	19,143,848		$	23,462,364

Sale price	$	6,389,816
Selling costs		(230,960	)
Carrying value of building		(6,413,329	)
Loss on disposal of asset	$	(254,473	)

Asset	Carrying value before impairment		Carrying value after impairment		Total impairment loss
Right of use assets	$	1,680,224	$	825,424	$	854,800
License		52,304,385		9,699,829		42,604,556
Brand		78,189,441		23,624,000		54,565,441
Goodwill		21,418,546		-		21,418,546
	$	153,592,596	$	34,149,253	$	119,443,343

Asset	Approach	Discount Rate	Forecasted Sales Growth Rate	Terminal Value Growth Rate
Right of use assets	Market	N/A	N/A	N/A
License	Market	N/A	N/A	N/A
Brand	Income	11.75%	Average of 4%	3%

Reporting unit		Discount Rate		Forecasted Sales Growth Rate		Terminal Value Growth Rate
DTC		10.75%		Average of 4%		3%

		Discontinued operations (a)		September 30, 2022 Other assets held for sale (b)		Total		December 31, 2021 Discontinued operations (a)

Current assets of disposal groups classified as held for sale

Inventory	$	2,889,897	$	-	$	2,889,897	$	5,042,670
Right-of-use assets - operating		546,731		1,406,339		1,953,070		-
Property and equipment		442,871		-		442,871		-
Intangible assets		8,520,446		7,410,410		15,930,856		-
Total carrying value of current assets		12,399,945		8,816,749		21,216,694		5,042,670
Loss recognized on classification as held for sale		(11,082,725)		(6,815,904)		(17,898,629)		-
Total current assets	$	1,317,220	$	2,000,845	$	3,318,065	$	5,042,670

Non-current assets of disposal groups classified as held for sale

Right-of-use asset	$	-	$	-	$	-	$	701,439
Property and equipment		-		-		-		887,795
Intangible assets		-		-		-		9,555,020
Total non-current assets	$	-	$	-	$	-	$	11,144,254

Total assets of disposal groups	$	1,317,220	$	2,000,845	$	3,318,065	$	16,186,924

Current liabilities of disposal groups classified as held for sale

Operating lease liability – current portion	$	719,620	$	1,429,600	$	2,149,220	$	264,044
Total current liabilities	$	719,620	$	1,429,600	$	2,149,220	$	264,044

Non-current liabilities of disposal groups classified as held for sale

Operating lease liability	$	-	$	-	$	-	$	644,219
Total non-current liabilities	$	-	$	-	$	-	$	644,219

Total liabilities of disposal groups	$	719,620	$	1,429,600	$	2,149,220	$	908,263

	Coastal Holding (a)			Varda Inc. (b)			Calma (c)			Total
Balance, December 31, 2021	$	35,307,459		$	4,648,928		$	1,500,000		$	41,456,387
Net (loss) income attributable to redeemable non-controlling interest		(297,259	)		48,010			-			(249,249	)
Reclassification to liability		-			(4,696,938	)		-			(4,696,938	)
Reclassification to equity		-			-			(1,500,000	)		(1,500,000	)
Balance, September 30, 2022	$	35,010,200		$	-		$	-		$	35,010,200

a)	The Company is obligated to acquire 100% of the equity in Coastal Holding when the transaction closes, which is contingent upon various conditions. As at September 30, 2022, the number of shares that would be required to redeem the NCI is approximately 24,350,000. Refer to Note 10.

b)	The Company was obligated to acquire the remaining 90.5% of Varda Inc. when regulatory approval was received for the license to transfer. On June 20, 2022, regulatory approval was received and as a result the associated redeemable NCI has been reclassified to a liability and subsequently redeemed. Refer to Note 10.

c)	The Company was obligated to acquire the Class A shares of Calma when regulatory approval was received for the license to transfer. During the three months ended September 30, 2022, the Company issued 1,762,425 shares to redeem the Calma NCI.

	~~Number of common shares~~June 30,
~~Balance December 31, 2021~~2023		~~97,065,092~~December 31, 2022
~~(i) Shares issued to settle contingent consideration~~Opening gross goodwill		~~305,325~~584,745,143		607,413,242
~~(ii) Shares issued to settle contingent consideration~~Measurement period adjustment		~~264,614~~-		(22,633,099	)
Disposals		(24,351,801	)	(35,000	)
		560,393,342		584,745,143

~~Shares issued for Marketing Arrangement (Note 16)~~Opening accumulated impairment		~~4,926,165~~(584,745,143	)	(563,361,597	)
~~Shares issued for vested RSUs and PSUs (Note 19)~~Impairment		~~590,707~~-		(21,418,546	)
~~Shares issued for acquisition of Calma (Note 10)~~Disposals		~~1,762,425~~24,351,801
~~Balance, September 30, 2022~~		~~104,914,328~~35,000

	~~(I)~~	During the nine months ended September 30, 2022, the Company issued 305,325 common shares related to contingent consideration in the acquisition of Caliva. The common shares were included in shares to be issued as at December 31, 2021.
			(560,393,342	)		(584,745,143	)
	~~(ii)~~	During the nine months ended September 30, 2022, the Company issued 264,614 common shares related to contingent consideration in the acquisition of LCV. The common shares were issued as the related contingency was resolved.
Goodwill, net		$	-		$	-

		Number of Warrants				Weighted Average Exercise Price
Balance, December 31, 2021 and September 30, 2022			35,837,500			$	11.50