UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
|
For the quarterly period endedSeptember 30, 20222023
OR
☐ |
|
For the transition period from to
Commission File Number: 000-56348
|
(Exact name of registrant as specified in its charter) |
|
|
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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| |
(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, 2022,13, 2023, there were 107,443,515288,278,819 shares of common sharesstock of the registrant issued and outstanding.
Table of Contents
Page | ||||
| F-1 | |||
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| F-2 | ||
| F-3 | |||
| F-4 | |||
|
| F-6 | ||
Notes to the unaudited interim condensed consolidated financial statements | F-7 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| 4 | ||
| 31 | |||
| 32 | |||
| ||||
| 33 | |||
Unregistered Sales of Equity Securities and Use of Proceeds. |
| 57 | ||
| 57 | |||
| 57 | |||
| 57 | |||
| 58 | |||
| 59 | |||
2 |
| Table of Contents |
On July 7, 2023, the parties consummated the previously announced business combination transaction resulting in the combination of Gold Flora LLC and TPCO Holding Corp, 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) “Gold Flora Corporation”, the “Company”“Company”, “The Parent Company”“GFC”, “we”, “us” and “our”“our”) refer to Gold Flora Corporation, the Delaware corporation resulting from the Business Combination (ii) “Gold Flora” refer Gold Flora, LLC, which is now a wholly owned subsidiary of Gold Flora Corporation and (iii) “TPCO,” “The Parent Company,” “we,” “us” and “our” refer to TPCO Holding Corp. and its subsidiaries prior to the Business Combination
As a 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, joint ventures to which it isas a party. 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.
3 |
| Table of Contents |
PARTPART I-FINANCIAL INFORMATION
Item 1. Financial StatementsStatements.
Interim condensed consolidated financial statements
TPCO Holding Corp.Gold Flora Corporation
For the three and nine months ended September 30, 2023 and 2022 and 2021 (Unaudited)
| Table of Contents |
| ||
Interim Condensed Consolidated Balance Sheets | ||
As of September 30, 2023 and December 31, 2022 | ||
|
| |
| ||
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| |
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| |
| ||
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| |
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| Note |
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| September 30, 2023 |
|
| December 31, 2022 |
| |||
ASSETS |
|
|
|
| Unaudited |
|
| Audited |
| |||
|
|
|
|
|
|
|
|
|
| |||
Current Assets: |
|
|
|
|
|
|
|
|
| |||
Cash and Cash Equivalents |
|
|
|
| $ | 32,296,501 |
|
| $ | 5,217,071 |
| |
Accounts Receivable, Net |
|
| 17 |
|
|
| 2,811,753 |
|
|
| 2,186,516 |
|
Inventory |
|
| 3 |
|
|
| 15,236,142 |
|
|
| 7,819,652 |
|
Current Portion of Notes Receivable |
|
|
|
|
|
| 124,155 |
|
|
| 47,502 |
|
Assets Held For sale |
|
|
|
|
|
| 997,416 |
|
|
| - |
|
Indemnification Assets |
|
| 8 |
|
|
| 3,194,295 |
|
|
| - |
|
Prepaid Expenses and Other Current Assets |
|
| 4 |
|
|
| 3,954,236 |
|
|
| 4,399,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
|
|
|
| 58,614,498 |
|
|
| 19,670,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net |
|
| 5 |
|
|
| 39,269,693 |
|
|
| 25,979,812 |
|
Finance Lease Asset |
|
| 10 |
|
|
| 61,386,924 |
|
|
| 52,172,257 |
|
Notes Receivable, Net of Current Portion |
|
|
|
|
|
| 244,550 |
|
|
| - |
|
Investments |
|
|
|
|
|
| 1,312,846 |
|
|
| - |
|
Intangible Assets, Net |
|
| 6,8 |
|
|
| 75,625,389 |
|
|
| 37,782,500 |
|
Goodwill |
|
| 7 |
|
|
| 11,067,896 |
|
|
| 11,067,896 |
|
Operating Lease Right-of-Use Assets |
|
| 10 |
|
|
| 23,702,812 |
|
|
| 9,907,085 |
|
Deposits and other Long Term Assets |
|
|
|
|
|
| 5,909,764 |
|
|
| 5,346,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Assets |
|
|
|
|
|
| 218,519,874 |
|
|
| 142,255,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
|
|
| $ | 277,134,372 |
|
| $ | 161,925,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
|
| 9 |
|
| $ | 25,660,695 |
|
| $ | 13,220,354 |
|
Accrued Interest |
|
|
|
|
|
| 1,792,326 |
|
|
| 2,929,075 |
|
Taxes Payable |
|
|
|
|
|
| 24,925,152 |
|
|
| 4,830,803 |
|
Due to Related Party |
|
| 14 |
|
|
| 2,005,000 |
|
|
| 2,005,000 |
|
Current Portion of Consideration Payable |
|
| 8 |
|
|
| 4,632,553 |
|
|
| - |
|
Current Portion of Notes Payable |
|
| 11 |
|
|
| 15,532,272 |
|
|
| 13,846,582 |
|
Current Portion of Convertible Notes Payable |
|
| 12 |
|
|
| - |
|
|
| 15,718,424 |
|
Current Portion of Operating Lease Liabilities |
|
| 10 |
|
|
| 2,277,156 |
|
|
| 468,564 |
|
Current Portion of Finance Lease Liabilities |
|
| 10 |
|
|
| 2,847,516 |
|
|
| 161,008 |
|
Liabilities Held for Sale |
|
|
|
|
|
| 389,416 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
|
|
|
| 80,062,086 |
|
|
| 53,179,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable, Net of Current Portion |
|
| 11 |
|
|
| 13,508,595 |
|
|
| 17,672,223 |
|
Convertible Notes Payable, Net of Current Portion |
|
| 12 |
|
|
| 19,727,123 |
|
|
| 27,819,721 |
|
Operating Lease Liabilities, Net of Current Portion |
|
| 10 |
|
|
| 26,181,777 |
|
|
| 9,687,727 |
|
Finance Lease Liabilities, Net of Current Portion |
|
| 10 |
|
|
| 86,053,351 |
|
|
| 68,273,899 |
|
Preferred Distributions Payable |
|
| 13 |
|
|
| - |
|
|
| 7,728,179 |
|
Deferred Tax Liability |
|
|
|
|
|
| 17,492,109 |
|
|
| 1,124,089 |
|
Security Deposits and other Long Term Liabilities |
|
|
|
|
|
| 20,000 |
|
|
| 20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Liabilities |
|
|
|
|
|
| 162,982,955 |
|
|
| 132,325,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
|
|
|
| 243,045,041 |
|
|
| 185,505,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY (DEFICIT) |
|
| 13 |
|
|
|
|
|
|
|
|
|
Common Stock, No Par Value, 450,000,000 Common Shares Authorized, 288,290,900 and 94,797,102 Issued and Outstanding as of September 30, 2023 and December 31, 2022, Respectively. |
|
|
|
|
|
| - |
|
|
| - |
|
Additional Paid In Capital |
|
|
|
|
|
| 102,616,764 |
|
|
| 43,634,430 |
|
Accumulated Deficit |
|
|
|
|
|
| (68,656,776 | ) |
|
| (67,388,105 | ) |
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) ATTRIBUTABLE TO THE COMPANY |
|
|
|
|
|
| 33,959,988 |
|
|
| (23,753,675 | ) |
Non-Controlling Interest |
|
|
|
|
|
| 129,343 |
|
|
| 173,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
| 34,089,331 |
|
|
| (23,579,884 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
| $ | 277,134,372 |
|
| $ | 161,925,764 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| Table of Contents |
Gold Flora Corporation |
Interim Condensed Consolidated Statements of Operations (Unaudited) |
For the Three and Nine Months Ended September 30, 2023 and 2022 |
TPCO Holding Corp.
Interim condensed consolidated balance sheets
(Unaudited, 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 |
|
Commitments and contingencies (Note 26)
Subsequent events (Note 32)
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||
|
| Note |
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenues, net |
|
| 1 |
|
| $ | 31,960,179 |
|
| $ | 16,419,777 |
|
| $ | 62,568,709 |
|
| $ | 49,475,131 |
|
Cost of Goods Sold |
|
|
|
|
|
| 20,646,157 |
|
|
| 12,130,431 |
|
|
| 43,268,725 |
|
|
| 38,017,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
| 11,314,022 |
|
|
| 4,289,346 |
|
|
| 19,299,984 |
|
|
| 11,458,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Selling, General, and Administrative |
|
| 19 |
|
|
| 25,617,834 |
|
|
| 5,913,124 |
|
|
| 43,222,408 |
|
|
| 20,111,426 |
|
Change in Fair Value of Earnout Liability |
|
| 15 |
|
|
| - |
|
|
| - |
|
|
| 4,375,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
|
|
|
| 25,617,834 |
|
|
| 5,913,124 |
|
|
| 47,597,408 |
|
|
| 20,111,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
Operating Loss |
|
|
|
|
|
| (14,303,812 | ) |
|
| (1,623,778 | ) |
|
| (28,297,424 | ) |
|
| (8,653,295 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
|
|
|
| 6,831,947 |
|
|
| 5,684,408 |
|
|
| 16,373,265 |
|
|
| 15,144,412 |
|
Loss on Extinguishment of Debt |
|
| 12 |
|
|
| 1,440,207 |
|
|
| - |
|
|
| 1,440,207 |
|
|
| - |
|
Gain on Bargain Purchase |
|
| 8 |
|
|
| (49,025,606 | ) |
|
| - |
|
|
| (49,025,606 | ) |
|
| - |
|
Other Expense (Income) |
|
|
|
|
|
| (3,315,360 | ) |
|
| (214,021 | ) |
|
| (4,917,689 | ) |
|
| (762,856 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes |
|
|
|
|
|
| 29,765,000 |
|
|
| (7,094,165 | ) |
|
| 7,832,399 |
|
|
| (23,034,851 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes |
|
| 16 |
|
|
| (6,806,747 | ) |
|
| (1,343,514 | ) |
|
| (8,320,741 | ) |
|
| (3,354,711 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
|
|
|
| 22,958,253 |
|
|
| (8,437,679 | ) |
|
| (488,342 | ) |
|
| (26,389,562 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Non-Controlling Interest |
|
|
|
|
|
| 18,823 |
|
|
| (36,357 | ) |
|
| (44,448 | ) |
|
| (141,438 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Gold Flora Corp. |
|
|
|
|
| $ | 22,939,430 |
|
| $ | (8,401,322 | ) |
| $ | (443,894 | ) |
| $ | (26,248,124 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on Preferred Stock |
|
|
|
|
| $ | (30,710 | ) |
| $ | (403,614 | ) |
| $ | (824,777 | ) |
| $ | (1,197,681 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Gold Flora Corp. |
|
|
|
|
| $ | 22,908,720 |
|
| $ | (8,804,936 | ) |
| $ | (1,268,671 | ) |
| $ | (27,445,805 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share - Basic |
|
| 20 |
|
| $ | 0.08 |
|
| $ | (0.09 | ) |
| $ | (0.01 | ) |
| $ | (0.29 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share - Diluted |
|
| 20 |
|
| $ | 0.08 |
|
| $ | (0.09 | ) |
| $ | (0.01 | ) |
| $ | (0.29 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - Basic |
|
| 20 |
|
|
| 273,642,363 |
|
|
| 94,492,442 |
|
|
| 154,766,984 |
|
|
| 94,334,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - Diluted |
|
| 20 |
|
|
| 300,318,094 |
|
|
| 94,492,442 |
|
|
| 154,766,984 |
|
|
| 94,334,120 |
|
SeeThe accompanying notes to the interim condensed consolidated financial statementsare an integral part of these Condensed Consolidated Financial Statements (Unaudited).
| Table of Contents |
Gold Flora Corporation |
Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited) |
For the Three Months Ended September 30, 2023 and 2022 |
TPCO Holding Corp.
|
|
|
| Number of Units |
|
|
|
|
|
|
|
|
|
| Total Shareholders' Equity (Deficit) Attributable to |
|
|
|
| Total |
| |||||||||||||||||||||||||||
|
|
|
| Class B |
|
| Class C |
|
| Class E |
|
|
|
|
|
| Additional |
|
|
|
| Gold |
|
| Non- |
|
| Shareholders' |
| |||||||||||||||||||
|
| Note |
|
| Founder Units |
|
| Investor Units |
|
| Investor Units |
|
| Participation Units |
|
| Members' Capital |
|
| Common Stock |
|
| Paid in Capital |
|
| Accumulated Deficit |
|
| Flora Corp. |
|
| controlling Interest |
|
| Equity (Deficit) |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
BALANCE AS OF June 30, 2022 |
|
|
|
|
| 34,129,000 |
|
|
| 9,871,000 |
|
|
| 13,571,863 |
|
|
| 4,459,544 |
|
|
| 43,634,430 |
|
|
| - |
|
| $ | - |
|
| $ | (63,104,195 | ) |
| $ | (19,668,770 | ) |
| $ | 267,942 |
|
| $ | (19,400,828 | ) | |
Retroactive application of Recapitalization (1) |
|
|
|
|
| (34,129,000 | ) |
|
| (9,871,000 | ) |
|
| (13,571,863 | ) |
|
| (4,459,544 | ) |
| $ | (43,634,430 | ) |
|
| 94,492,442 |
|
| $ | 43,435,425 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| |
BALANCE AS OF June 30, 2022, After Effect of Retroactive Application of Recapitalization (1) |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| 94,492,442 |
|
| $ | 43,435,425 |
|
| $ | (63,104,195 | ) |
| $ | (19,668,770 | ) |
| $ | 267,942 |
|
| $ | (19,400,828 | ) | |
Distributions, Net |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (46,886 | ) |
|
| - |
|
|
| (46,886 | ) |
|
| - |
|
|
| (46,886 | ) | |
Accrued Preferred Distribution to Members |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (403,614 | ) |
|
| (403,614 | ) |
|
| - |
|
|
| (403,614 | ) | |
Share Based Compensation |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 47,059 |
|
|
| - |
|
|
| 47,059 |
|
|
| - |
|
|
| 47,059 |
| |
Net Loss |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8,401,323 | ) |
|
| (8,401,323 | ) |
|
| (36,356 | ) |
|
| (8,437,679 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BALANCE AS OF September 30, 2022 |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| 94,492,442 |
|
| $ | 43,435,598 |
|
| $ | (71,909,132 | ) |
| $ | (28,473,534 | ) |
| $ | 231,586 |
|
| $ | (28,241,948 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BALANCE AS OF June 30, 2023 |
|
|
|
|
| 34,129,000 |
|
|
| 9,871,000 |
|
|
| 13,571,863 |
|
|
| 4,360,535 |
|
| $ | 43,742,951 |
|
|
| - |
|
| $ | - |
|
| $ | (91,565,496 | ) |
| $ | (47,822,545 | ) |
| $ | 110,520 |
|
| $ | (47,712,025 | ) | |
Retroactive application of Recapitalization (1) |
|
|
|
|
| (34,129,000 | ) |
|
| (9,871,000 | ) |
|
| (13,571,863 | ) |
|
| (4,360,535 | ) |
| $ | (43,742,951 | ) |
|
| 94,341,622 |
|
| $ | 43,742,951 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| |
BALANCE AS OF June 30, 2023, After Effect of Retroactive Application of Recapitalization (1) |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 94,341,622 |
|
|
| 43,742,951 |
|
|
| (91,565,496 | ) |
|
| (47,822,545 | ) |
|
| 110,520 |
|
|
| (47,712,025 | ) | |
Distributions, Net |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (7,789 | ) |
|
| - |
|
|
| (7,789 | ) |
|
| - |
|
|
| (7,789 | ) | |
Acquisition Date True Up |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,235,893 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Exercise of Equity Rights on Prior Acquisition |
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,776,482 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Cancellation of Common Shares related to Earnout |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (136,019 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares Issued for Vesting of RSU's |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,011 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Accrued Preferred Distribution to Members |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (30,710 | ) |
|
| (30,710 | ) |
|
| - |
|
|
| (30,710 | ) |
Preferred Distribution Payable Converted to Equity |
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,937,247 |
|
|
| 8,552,956 |
|
|
| - |
|
|
| 8,552,956 |
|
|
| - |
|
|
| 8,552,956 |
|
Fair value of Shares Issued in a Business Combination |
|
| 8 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 132,811,589 |
|
|
| 21,318,268 |
|
|
| - |
|
|
| 21,318,268 |
|
|
| - |
|
|
| 21,318,268 |
|
Shares issued for Conversion of Debt |
|
| 12 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 39,166,191 |
|
|
| 27,460,467 |
|
|
| - |
|
|
| 27,460,467 |
|
|
| - |
|
|
| 27,460,467 |
|
Conversion of Broker Units |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 251,858 |
|
|
| 296,671 |
|
|
| - |
|
|
| 296,671 |
|
|
| - |
|
|
| 296,671 |
|
Shares issued for Contingent Consideration Amendment |
|
| 15 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,096,776 |
|
|
| 175,000 |
|
|
| - |
|
|
| 175,000 |
|
|
| - |
|
|
| 175,000 |
|
Issuance of Equity for Debt Extinguishment |
|
| 12 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,808,250 |
|
|
| 609,320 |
|
|
| - |
|
|
| 609,320 |
|
|
| - |
|
|
| 609,320 |
|
Share Based Compensation |
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 468,920 |
|
|
| - |
|
|
| 468,920 |
|
|
| - |
|
|
| 468,920 |
|
Net Income |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22,939,430 |
|
|
| 22,939,430 |
|
|
| 18,823 |
|
|
| 22,958,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF September 30, 2023 |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| 288,290,900 |
|
| $ | 102,616,764 |
|
| $ | (68,656,776 | ) |
| $ | 33,959,988 |
|
| $ | 129,343 |
|
| $ | 34,089,331 |
|
Interim condensed consolidated statements of operations and comprehensive 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 |
|
(1) | Amounts shown have been retroactively restated to give effect to the recapitalization transaction at a rate of 1 to 1.5233 Gold Flora LLC share. |
SeeThe accompanying notes to the interim condensed consolidated financial statementsare an integral part of these Condensed Consolidated Financial Statements (Unaudited)
| Table of Contents |
Gold Flora Corporation |
Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited) |
For the Nine Months Ended September 30, 2023 and 2022 |
TPCO Holding Corp.
|
|
|
| Number of Units |
|
|
|
|
|
|
|
|
|
| Total Shareholders' Equity (Deficit) Attributable to |
|
|
|
| Total |
| |||||||||||||||||||||||||||
|
|
|
| Class B |
|
| Class C |
|
| Class E |
|
|
|
|
|
| Additional |
|
|
|
| Gold |
|
| Non- |
|
| Shareholders' |
| |||||||||||||||||||
|
| Note |
|
| Founder Units |
|
| Investor Units |
|
| Investor Units |
|
| Participation Units |
|
| Members' Capital |
|
| Common Stock |
|
| Paid in Capital |
|
| Accumulated Deficit |
|
| Flora Corp. |
|
| controlling Interest |
|
| Equity (Deficit) |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
BALANCE AS OF DECEMBER 31, 2021 |
|
|
|
|
| 34,129,000 |
|
|
| 9,871,000 |
|
|
| 12,702,421 |
|
|
| 4,349,544 |
|
| $ | 40,674,409 |
|
|
| - |
|
| $ | - |
|
| $ | (44,463,327 | ) |
| $ | (3,788,918 | ) |
| $ | 373,024 |
|
| $ | (3,415,894 | ) | |
Retroactive application of Recapitalization (1) |
|
|
|
|
| (34,129,000 | ) |
|
| (9,871,000 | ) |
|
| (12,702,421 | ) |
|
| (4,349,544 | ) |
| $ | (40,674,409 | ) |
|
| 93,000,458 |
|
| $ | 40,674,409 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| |
BALANCE AS OF DECEMBER 31, 2021, After Effect of Retroactive Application of Recapitalization (1) |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| 93,000,458 |
|
| $ | 40,674,409 |
|
| $ | (44,463,327 | ) |
| $ | (3,788,918 | ) |
| $ | 373,024 |
|
| $ | (3,415,894 | ) | |
Distributions, Net |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (116,479 | ) |
|
| - |
|
|
| (116,479 | ) |
|
| - |
|
|
| (116,479 | ) | |
Equity Component of Convertible Debt |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,920,500 |
|
|
| - |
|
|
| 1,920,500 |
|
|
|
|
|
|
| 1,920,500 |
| |
Accrued Preferred Distribution to Members |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,197,681 | ) |
|
| (1,197,681 | ) |
|
| - |
|
|
| (1,197,681 | ) | |
Shares issued for Stately Penalty - Relief of Liability |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,324,421 |
|
|
| 599,915 |
|
|
| - |
|
|
| 599,915 |
|
|
| - |
|
|
| 599,915 |
| |
Share Based Compensation |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 167,563 |
|
|
| 357,253 |
|
|
| - |
|
|
| 357,253 |
|
|
| - |
|
|
| 357,253 |
| |
Net Loss |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26,248,124 | ) |
|
| (26,248,124 | ) |
|
| (141,438 | ) |
|
| (26,389,562 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BALANCE AS OF September 30, 2022 |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| 94,492,442 |
|
| $ | 43,435,598 |
|
| $ | (71,909,132 | ) |
| $ | (28,473,534 | ) |
| $ | 231,586 |
|
| $ | (28,241,948 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BALANCE AS OF DECEMBER 31, 2022 |
|
|
|
|
| 34,129,000 |
|
|
| 9,871,000 |
|
|
| 13,571,863 |
|
|
| 4,659,544 |
|
| $ | 43,634,430 |
|
|
| - |
|
| $ | - |
|
| $ | (67,388,105 | ) |
| $ | (23,753,675 | ) |
| $ | 173,791 |
|
| $ | (23,579,884 | ) | |
Retroactive application of Recapitalization (1) |
|
|
|
|
| (34,129,000 | ) |
|
| (9,871,000 | ) |
|
| (13,571,863 | ) |
|
| (4,659,544 | ) |
| $ | (43,634,430 | ) |
|
| 94,797,102 |
|
| $ | 43,634,430 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| |
BALANCE AS OF DECEMBER 31, 2022, After Effect of Retroactive Application of Recapitalization (1) |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 94,797,102 |
|
|
| 43,634,430 |
|
|
| (67,388,105 | ) |
|
| (23,753,675 | ) |
|
| 173,791 |
|
|
| (23,579,884 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Contributions, Net |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,661 |
|
|
| - |
|
|
| 2,661 |
|
|
| - |
|
|
| 2,661 |
| |
Cancellation of Common Stock related to Participation Units |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (455,480 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
| |
Acquisition Date True Up |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,235,893 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
| |
Exercise of Equity Rights on Prior Acquisition |
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,776,482 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
Cancellation of Common Shares related to Earnout |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (136,019 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
Shares Issued for Vesting of RSU's |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,011 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
Accrued Preferred Distribution to Members |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (824,777 | ) |
|
| (824,777 | ) |
|
| - |
|
|
| (824,777 | ) |
Preferred Distribution Payable Converted to Equity |
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,937,247 |
|
|
| 8,552,956 |
|
|
| - |
|
|
| 8,552,956 |
|
|
| - |
|
|
| 8,552,956 |
|
Fair value of Shares Issued in a Business Combination |
|
| 8 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 132,811,589 |
|
|
| 21,318,268 |
|
|
| - |
|
|
| 21,318,268 |
|
|
| - |
|
|
| 21,318,268 |
|
Shares issued for Conversion of Debt |
|
| 12 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 39,166,191 |
|
|
| 27,460,467 |
|
|
| - |
|
|
| 27,460,467 |
|
|
| - |
|
|
| 27,460,467 |
|
Conversion of Broker Units |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 251,858 |
|
|
| 296,671 |
|
|
| - |
|
|
| 296,671 |
|
|
| - |
|
|
| 296,671 |
|
Shares issued for Contingent Consideration Amendment |
|
| 15 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,096,776 |
|
|
| 175,000 |
|
|
| - |
|
|
| 175,000 |
|
|
| - |
|
|
| 175,000 |
|
Issuance of Equity for Debt Extinguishment |
|
| 12 |
|
| �� | - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,808,250 |
|
|
| 609,320 |
|
|
| - |
|
|
| 609,320 |
|
|
| - |
|
|
| 609,320 |
|
Share Based Compensation |
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 566,991 |
|
|
| - |
|
|
| 566,991 |
|
|
| - |
|
|
| 566,991 |
|
Net Loss |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (443,894 | ) |
|
| (443,894 | ) |
|
| (44,448 | ) |
|
| (488,342 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF September 30, 2023 |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
|
| 288,290,900 |
|
| $ | 102,616,764 |
|
| $ | (68,656,776 | ) |
| $ | 33,959,988 |
|
| $ | 129,343 |
|
| $ | 34,089,331 |
|
(1) | Amounts shown have been retroactively restated to give effect to the recapitalization transaction at a rate of 1 to 1.5233 Gold Flora LLC share. |
Interim condensed consolidated statementsThe accompanying notes are an integral part of changes in shareholders’ (deficit) equitythese Condensed Consolidated Financial Statements (Unaudited)
(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 |
|
| Table of Contents |
Gold Flora Corporation |
Interim Condensed Consolidated Statements of Cash Flows (Unaudited) |
For the Nine Months Ended September 30, 2023 and 2022 |
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 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net Loss |
|
|
|
| $ | (488,342 | ) |
| $ | (26,389,562 | ) | |
Adjustments to Reconcile Net Income (Loss) to Net Cash Used In Operating Activities: |
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and Amortization |
|
|
|
|
| 10,197,104 |
|
|
| 5,967,319 |
| |
Gain on Bargain Purchase Price |
|
| 8 |
|
|
| (49,025,606 | ) |
|
| - |
|
Loss on Extinguishment of Debt |
|
| 12 |
|
|
| 1,440,207 |
|
|
| - |
|
Noncash Operating Lease Expense |
|
|
|
|
|
| 625,373 |
|
|
| (79,545 | ) |
Noncash Interest Expense on Finance Leases Added to Principal | �� |
|
|
|
|
| 1,903,213 |
|
|
| 2,784,589 |
|
Gain on Forgiveness of Convertible Debentures |
|
|
|
|
|
| (300,922 | ) |
|
| - |
|
Change in Fair Value of Earnout Liability |
|
| 15 |
|
|
| 4,375,000 |
|
|
| - |
|
Deferred Income Taxes |
|
|
|
|
|
| 4,109,180 |
|
|
| 440,791 |
|
Debt Discount Amortization |
|
|
|
|
|
| 17,624 |
|
|
| 434,143 |
|
Debt Issue Cost Amortization |
|
|
|
|
|
| 1,477,163 |
|
|
| 3,577,837 |
|
Share-Based Compensation |
|
|
|
|
|
| 566,991 |
|
|
| 357,253 |
|
Bad Debt Expense |
|
|
|
|
|
| 327,522 |
|
|
| 30,645 |
|
Change in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
|
|
|
|
| 619,162 |
|
|
| (830,804 | ) |
Prepaid Expenses and Other Current Assets |
|
|
|
|
|
| (164,767 | ) |
|
| 1,158,788 |
|
Security Deposits |
|
|
|
|
|
| (39,414 | ) |
|
| (1,893,945 | ) |
Inventory |
|
|
|
|
|
| (1,023,874 | ) |
|
| 2,719,925 |
|
Accounts Payable and Accrued Liabilities |
|
|
|
|
|
| (5,636,355 | ) |
|
| (339,000 | ) |
Accrued Interest and Taxes Payable |
|
|
|
|
|
| 6,199,276 |
|
|
| 1,620,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
|
|
|
|
| (24,821,465 | ) |
|
| (10,440,717 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of Cash from Notes Receivable |
|
|
|
|
|
| 47,502 |
|
|
| 192,645 |
|
Issuance of Notes Receivable |
|
|
|
|
|
| (38,457 | ) |
|
| - |
|
Purchase of Property and Equipment and Construction Costs |
|
|
|
|
|
| (763,607 | ) |
|
| (6,751,404 | ) |
Cash Received from Acquisition |
|
|
|
|
|
| 55,306,235 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES |
|
|
|
|
|
| 54,551,673 |
|
|
| (6,558,759 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Convertible Notes, Net of Issue Costs |
|
|
|
|
|
| - |
|
|
| 10,300,000 |
|
Proceeds from Related Party Loan |
|
|
|
|
|
| - |
|
|
| 285,000 |
|
Payment of Convertible Notes Payable |
|
|
|
|
|
| (1,234,304 | ) |
|
| - |
|
Repayment of Notes |
|
|
|
|
|
| (4,695,562 | ) |
|
| - |
|
Proceeds from Notes |
|
|
|
|
|
| 5,000,000 |
|
|
| 1,175,799 |
|
Principal Repayments of Finance Lease Liability |
|
|
|
|
|
| (1,094,511 | ) |
|
| (44,344 | ) |
Payment of Acquisition Payable |
|
|
|
|
|
| - |
|
|
| (10,111,359 | ) |
Contributions, Net |
|
|
|
|
|
| 2,661 |
|
|
| - |
|
Distributions, Net |
|
|
|
|
|
| - |
|
|
| (116,479 | ) |
Payment of Earnout Liability |
|
|
|
|
|
| (2,000,000 | ) |
|
| - |
|
Lease Incentive Payments Received |
|
|
|
|
|
| 1,370,938 |
|
|
| 3,695,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
| (2,650,778 | ) |
|
| 5,183,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
| 27,079,430 |
|
|
| (11,815,699 | ) |
Cash and Cash Equivalents, Beginning of Period |
|
|
|
|
|
| 5,217,071 |
|
|
| 17,455,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
|
|
|
| $ | 32,296,501 |
|
| $ | 5,639,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Interest |
|
|
|
|
| $ | 14,112,014 |
|
| $ | 10,633,507 |
|
Cash Paid for Taxes |
|
|
|
|
| $ | 8,320,741 |
|
| $ | 3,354,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Obtaining Property and Equipment in Exchange for Finance Lease Liabilities |
|
|
|
|
| $ | 3,382,830 |
|
| $ | 1,953,979 |
|
Other Current Assets Reclassed to Property Plant and Equipment |
|
|
|
|
| $ | 2,175,000 |
|
| $ | - |
|
Notes Receivable Offset with Accrued Expense |
|
|
|
|
| $ | - |
|
| $ | 1,551,225 |
|
Equity Issued to offset Accrued Expense |
|
|
|
|
| $ | 471,671 |
|
| $ | 599,915 |
|
Equity Component of Convertible Debt |
|
|
|
|
| $ | - |
|
| $ | 1,920,500 |
|
Reclass of Equipment Deposits to Property and Equipment |
|
|
|
|
| $ | 1,044,202 |
|
| $ | - |
|
Conversion of Preferred Dividends Payable to Equity |
|
|
|
|
| $ | 8,552,956 |
|
| $ | - |
|
Recognition of Right-of-Use Assets and Lease Liabilities for Operating Leases |
|
|
|
|
| $ | 2,063,839 |
|
| $ | - |
|
Accretion of Dividends Payable |
|
|
|
|
| $ | 824,777 |
|
| $ | 1,197,681 |
|
Shares issued for Conversion of Debt |
|
|
|
|
| $ | 27,460,467 |
|
| $ | - |
|
Conversion of Earnout Liability to Notes Payable |
|
|
|
|
| $ | 2,200,000 |
|
| $ | - |
|
Accrued Interest Added to Principle of Convertible Notes Payable |
|
|
|
|
| $ | 2,347,526 |
|
| $ | - |
|
SeeThe accompanying notes to the interim condensed consolidated financial statementsare an integral part of these Condensed Consolidated Financial Statements (Unaudited)
| Table of Contents |
Gold Flora Corporation (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 Adjustments for items not involving cash Impairment loss 13 Interest expense Interest income Loss on disposal of assets Loss on lease termination 12 Allowance for accounts receivable and notes receivable Gain on debt forgiveness Fair value change of investments 7 Depreciation and amortization 22 Shares issued for long-term strategic contracts Share-based compensation expense, net of withholding tax settlement Non-cash marketing expense 16 Non-cash operating lease expense 12 Fair value change of contingent consideration 27 Deferred income tax recovery 21 Repayment of operating lease liabilities Net changes in non-cash working capital items 23 Net cash used in continued operating activities Net cash used in discontinued operating activities Total operating activities Financing activities Receipt of payments on notes receivable Repayment of notes payable Repayment of consideration payable Repayment of finance lease liabilities Proceeds from private placement Redemption of Class A restricted voting shares Proceeds from exercise of options Repurchase of shares Repayment of line of credit Total financing activities Investing activities Net cash paid in the Qualifying Transaction Net cash paid in business combinations 10 Purchases of property and equipment Advances for note receivable Acquisition of investments 7 Proceeds from notes receivable Proceeds from sale of property and equipment, net of selling costs Total investing activities Net change in cash during the period Cash, restricted cash and restricted cash equivalents Beginning of period End of period Cash Restricted cash and restricted cash equivalents Cash, restricted cash and restricted cash equivalents Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 1. NATURE OF OPERATIONS On October 1, 2019, the Company executed Bill of Sale. The Company’s registered office is located at On January 11, 2021, the Company entered into an asset contribution agreement to purchase substantially all assets of Stately, a Canadian based company focused on the development and acquisition of cannabis brands in the On September 30, 2021, the Company closed in one transaction the acquisition of Higher Level of Care Hollister, Inc. and Higher Level of Care, Seaside, Inc. (“Higher Level of Care”). Total consideration was $26,712,732 with $8,792,732 paid in cash, $7,328,000 paid via equity rights in Gold Flora LLC, and $10,592,000 paid via a secured note payable to the sellers of Higher Level of Care. On December 31, 2021, the Company closed on the acquisition of Captain Kirk Services, Inc. dba Airfield Supply Co. (“Airfield”). Total consideration was $36,458,879 with $10,111,359 to be paid in cash, $2,765,520 paid via Class C units issued by Gold Flora, and $9,990,000 paid via a secured note payable to the sellers of Airfield and a potential earnout of $13,592,000. On July 7, 2023, the Company completed a reverse merger with TPCO Holding Corp. In connection with the transaction, the Company was deemed to be the accounting acquirer and TPCO Holding Corp. was the legal acquirer, and for the purpose of facilitating the merger, a new entity, Gold Flora Corporation (“GFC” or “the Company”) was formed. Pursuant to the reverse merger, TPCO Holding Corp., Stately Capital Corporation and GFC, amalgamated. The surviving amalgamated company was named GFC and re-domiciled to Delaware, United States and serves as the parent entity for the Gold Flora group of 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of The All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position of the Company as of September 30, 2023 and December 31, 2022, the consolidated results of operations and cash flows for the Gold Flora Corporation Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 2. These condensed consolidated financial statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein. Going Concern Historically, the Company’s primary source of liquidity has been its operations, capital contributions made by members and debt financing. The Company is currently meeting its current operational obligations as they become due from its current working capital and from operations. However, the Company has sustained annual losses since inception and may require additional capital in As of September 30, 2023 and December 31, 2022, the accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated 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. As described in Note 8, the Company consummated a reverse merger with TPCO Holding Corp. on July 7, 2023, forming Gold 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 will allow it to operate for at least the next twelve months. 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. 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 Gold Flora Corporation Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 2. Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of acquisition. Acquisition-related transaction costs are expensed as incurred. Identifiable assets and liabilities, including intangible assets, of acquired businesses are recorded at their fair value at the date of acquisition. When the Company acquires control of a business, any previously held equity interest also is remeasured to fair value. The excess of the purchase consideration and any previously held equity interest over the fair value of identifiable net assets acquired is goodwill. If the fair value of identifiable net assets acquired exceeds the purchase consideration and any previously held equity interest, the difference is recognized in the Consolidated Statements of Operations immediately as a gain or loss on acquisition (See Note 8). The Company recognizes indemnification assets acquired in a business combination at the same time that it recognizes the indemnified item, measured on the same basis as the indemnified item, subject to the Contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with ASC 450, Contingencies, as appropriate, with the corresponding gain or loss being recognized in profit or loss. When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date. Revenue Recognition Revenue is recognized by the Company in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In order to recognize revenue under ASU 2014-09, the Company applies the following five (5) steps: · Identify a customer along with a corresponding contract; · Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer; · Determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods or services to a customer; · Allocate the transaction price to the performance obligation(s) in the contract; and · Recognize revenue when or as the Company satisfies the performance obligation(s). Revenues consist of wholesale and retail operations of cannabis, which are generally recognized at a point in time when control over the goods have been transferred to the customer and is recorded net of sales discounts. Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under the Company’s credit policy. Revenue is recognized upon the satisfaction of the performance obligation. The Company satisfies its performance obligation and transfers control upon delivery and acceptance by the customer. Revenues, net, are disaggregated for the three and nine months ended September 30, 2023 and 2022 as follows: Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Wholesale Retail Gold Flora Corporation Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 2. The Company has a customer loyalty program whereby customers are awarded points with instore and online delivery purchases. Once a customer achieves a certain point level, points can be used to pay for the purchase of product, up to a maximum number of points per transaction. Points expire after six months of no activity in a customer’s account. Unredeemed awards are recorded as deferred revenue. At the time customers redeem points, the redemption is recorded as an increase to revenue. Deferred revenue is included in other accrued expenses within accounts payable and accrued liabilities. The Company’s return policy conforms to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), which was signed into law in September 2017 and creates the general framework for the regulation of commercial medicinal and adult-use cannabis in California. The Company determined that no provision for returns or refunds was necessary at September 30, 2023 and December 31, 2022. Earnings (Loss) Per Share Basic earnings (loss) per share (“Basic EPS”) is calculated by dividing the net earnings available to members by the weighted average number of member units outstanding during the period. Diluted earnings per member units is calculated using the treasury method of calculating the weighted average number of member units outstanding. The treasury method assumes that outstanding options with an average exercise price below the market price of the underlying units are exercised, and the assumed proceeds are used to repurchase member units of the Company at the average price of the member units for the period. After adjustments as defined in ASC 260, if the Company is in a net loss position, diluted loss per share is the same as basic loss per share when the issuance of shares on the exercise of convertible debentures, warrants, and share options are anti-dilutive. New and Revised Standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) effective from December 15, 2022 for non-public business entities, which replaces the incurred loss model with a current expected credit loss (“CECL”) model and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The Company adopted this ASU Effective January 1, 2023. The Adoption did not have a material effect on its condensed consolidated financial TPCO Holding Corp.Interim condensed consolidated statements of cash flows$ (196,663,830 ) $ (450,389,837 ) 130,244,837 560,500,228 3,694,798 3,739,340 (75,758 ) (993,639 ) 317,787 3,656,707 (114,458 ) 3,438,664 796,403 - (3,358,686 ) 421,974 418,818 23,755,099 14,174,789 - 25,000,000 4,284,916 16,765,238 3,311,454 3,803,030 5,402,936 3,029,654 (642,153 ) (220,997,087 ) (27,771,859 ) (13,714,716 ) (5,276,778 ) (3,403,629 ) (2,659,682 ) (39,995,798 ) (58,332,053 ) (100,969,185 ) (2,565,934 ) (5,528,420 ) (60,897,987 ) (106,497,605 ) 1,759,318 - (4,680,000 ) - (1,150,000 ) (872,021 ) (3,342,761 ) (3,429,846 ) - 51,635,000 - (264,318,686 ) - 12,972 - (4,454,571 ) - (1,000,000 ) (7,413,443 ) (222,427,152 ) - (28,143,886 ) - (1,402,337 ) (2,733,218 ) (8,725,860 ) - (5,650,000 ) (350,000 ) (1,000,000 ) - 187,954 6,253,157 11,068,537 3,169,939 (33,665,592 ) (65,141,491 ) (362,590,349 ) $ 174,892,298 $ 582,622,025 $ 109,750,807 $ 220,031,676 107,111,075 206,677,145 2,639,732 13,354,531 $ 109,750,807 $ 220,031,676 Supplemental cash-flow information (Note 23)See accompanying notes to the interim condensed consolidated financial statements10Table of ContentsTPCO 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 20211. Nature of operationsTPCO Holding Corp.Gold Flora, LLC (“TPCO”Gold Flora” or the “Company”) is a California limited liability company that was formed on November 15, 2016 and is a special purpose acquisition corporation incorporated on June 17, 2019vertically integrated single-state operator that, through various subsidiaries, has cultivation, manufacturing, distribution and retail operations in California. While the nature of the Company’s operations is legalized and approved by the State of California, it is considered to be an illegal activity under the lawsControlled Substances Act of the ProvinceUnited States of British Columbia forAmerica (the “CSA”). Accordingly, certain additional risks and uncertainties are present as discussed in 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 involvingfollowing notes.(a “Qualifying Transaction”and GF Distribution LLC, a subsidiary, entered into an asset purchase and contribution agreement to purchase substantially all assets of Shelf Life Inc. (“SLI”). As more fully describedSLI sold its assets to GF Distribution in exchange to GF Distribution’s obligation to pay up to $5.2 million in cash and SLI contributed the Company’s Annual Reportgoodwill related to the assets in exchange for a 3.1% membership interest in GF Distribution (represented by 31 Class B membership interests of GF Distribution LLC). The transaction closed on Form 10-K forOctober 1, 2019 as evidenced by 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.595 Burrard Street, Suite 2600, P.O. Box 49314, Vancouver, BC, V7X 1L3, Canada,3165 Red Hill Avenue, Costa Mesa, CA 92626.Company’s head office is located at 1550 Leigh Avenue, San Jose, California, 95125,U.S. Stately contributed primarily cash and a note receivable for an aggregate total of $8,314,456, net of issuance costs. In exchange, the Company issued 8,694,421 Class C units along with a warrant to purchase 2,741,359 Class C units.America. Commencing on the datecompanies. GFC acquired all of the Qualifying Transaction,issued and outstanding membership units of the Company became integratedGold Flora, LLC as a cultivator, retailer, manufacturerwell as all of the outstanding shares of Blocker and distributorBlocker2. See Note 8 for further information.adult use cannabis products through the sale to omni-channel retailPreparation and wholesale customers under the “Medical Marijuana Programs Act” and the proposition 64 “The Adult UseStatement of Marijuana Act”.Compliancecommon shares of the Company are listed on the Aequitas NEO Exchange (“NEO”) and the OTCQX Best Market tier of the electronic over-the-counter marketplace operated by OTC Markets Groups Inc. (“OTCQX”) under the trading symbols “GRAM.U” and “GRAMF”, respectively. The warrants of the Company are listed on the NEO under the trading symbol “GRAM.WT.U”.2. Basis of presentationThese accompanying interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).These interim condensed consolidated financial statements are presented in U.S. dollars, which is also the Company’s andits 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 thatin accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect the accounts and operations of the Company will continueand those of the Company’s subsidiaries in operationwhich the Company has a controlling financial interest. Investments in entities in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method.foreseeable futurenine months ended September 30, 2023 and accordingly, will be able to realize its assets2022 have been included. The accompanying condensed consolidated financial statements do not include all of the information required for full annual financial statements. Accordingly, certain information, footnotes and discharge its liabilities in the normal course of operations as they come due.Certain information and footnote disclosures normally included in the audited annual consolidated financial statements, prepared in accordance with GAAP, have been omittedcondensed or condensed. These interim condensed consolidatedomitted. The financial statementsdata presented herein should be read in conjunction with the Company’s audited consolidated financial statements includedfor the year ended December 31, 2022 as published in the Company’s 10-KManagement Information Circular for TPCO Holdings, Corp. on May 15, 2023, and the related notes thereto, and have been prepared on a basis consistent withusing the same accounting policies as described in the 10-K.i) Basis of consolidationThese 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 estimatesThe 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.therein. 11F-7Table of Contents SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) TPCO Holding Corp.Notes to the interimBasis of Measurement(Unaudited,United States dollars)For the threefuture. As of September 30, 2023 and December 31, 2022, the Company had a total members’ equity (deficit) attributable to the Company of $33,959,988 and ($23,753,675), respectively, a net loss attributable to the Company of $443,894 and $26,248,124 for the nine months ended September 30, 2023 and 2022, respectively and 2021net cash used in operating activities of $24,821,465 and $10,440,717, for the nine months ended September 30, 2023 and 2022. Because of these factors, there is substantial doubt about the Company’s ability to continue as a going concern.2. Basis of presentation (continued)iii) Emerging growth companyGrowth CompanyAct 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 backFrom 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 operationsThe 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. 12F-8Table of Contents SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) TPCO Holding Corp.Business CombinationsNotesinterimneed for the valuation allowance for uncollectible amounts.$ 3,716,729 $ 2,270,104 $ 9,480,500 $ 6,303,418 28,243,450 14,149,673 53,088,209 43,171,713 $ 31,960,179 $ 16,419,777 $ 62,568,709 $ 49,475,131 F-9 Table of Contents SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) statements
(Unaudited,
On March 27, 2023, the FASB issued ASU 2023-01, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. Specifically, the ASU 2023-01 offers private companies, as well as not-for-profit entities that are not conduit bond obligors, a practical expedient that gives them the option of using the written terms and conditions of a common-control arrangement when determining whether a lease exists and the subsequent accounting for the lease, including the lease’s classification and amends the accounting for leasehold improvements in United States dollars)common-control arrangements for all entities. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any annual or interim period as of the beginning of the related fiscal year. The Company is currently evaluating the adoption date and impact, if any, adoption will have on the Company’s consolidated financial statements.
3. | INVENTORY |
Inventory consists of the following as of:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Raw Materials |
| $ | 1,716,946 |
|
| $ | 324,192 |
|
Work in Progress |
|
| 5,847,005 |
|
|
| 3,430,249 |
|
Finished Goods |
|
| 7,672,191 |
|
|
| 4,065,211 |
|
|
|
|
|
|
|
|
|
|
Total Inventory |
| $ | 15,236,142 |
|
| $ | 7,819,652 |
|
| F-10 |
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following as of:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Prepaid Expenses |
| $ | 1,322,288 |
|
| $ | 1,958,821 |
|
Prepaid Insurance |
|
| 1,183,154 |
|
|
| 167,345 |
|
Prepaid Inventory |
|
| 305,939 |
|
|
| 98,170 |
|
Prepaid Rent |
|
| 10,720 |
|
|
| - |
|
Prepaid Deposits |
|
| 1,132,135 |
|
|
| 2,175,000 |
|
|
|
|
|
|
|
|
|
|
Total Prepaid Expenses and Other Current Assets |
| $ | 3,954,236 |
|
| $ | 4,399,336 |
|
5. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consist of the following as of:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Machinery and Equipment |
| $ | 14,475,041 |
|
| $ | 4,459,776 |
|
IT Equipment |
|
| 3,697,329 |
|
|
| 3,472,158 |
|
Vehicle |
|
| 823,623 |
|
|
| 607,783 |
|
Leasehold Improvements |
|
| 30,245,643 |
|
|
| 14,380,141 |
|
Furniture and Fixtures |
|
| 957,390 |
|
|
| 472,734 |
|
Assets Under Construction |
|
| 1,882,607 |
|
|
| 11,530,767 |
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment, Gross |
|
| 52,081,633 |
|
|
| 34,923,359 |
|
Less: Accumulated Depreciation and Amortization |
|
| (12,811,940 | ) |
|
| (8,943,547 | ) |
|
|
|
|
|
|
|
|
|
Total Property and Equipment, Net |
| $ | 39,269,693 |
|
| $ | 25,979,812 |
|
Assets under construction represent construction in progress related to both cultivation, distribution and extraction facilities not yet completed or otherwise not ready for use.
Depreciation and amortization expense for the three and nine months ended September 30, 2023 totaled $1,873,857 and $4,074,979, respectively of which $1,056,035 and $2,454,763 respectively, is included in cost of goods sold. Depreciation and amortization expense for the three and nine months ended September 30, 2022 totaled $696,290 and $2,077,468, respectively of which $341,372 and $1,016,047 respectively, is included in cost of goods sold.
6. | INTANGIBLE ASSETS |
Intangible assets consist of the following as of:
|
| September 30, 2023 | �� |
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Trade Name |
| $ | 14,175,000 |
|
| $ | 5,800,000 |
|
Licenses |
|
| 68,647,000 |
|
|
| 35,000,000 |
|
Non-Compete |
|
| 450,000 |
|
|
| 450,000 |
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets, Gross |
|
| 83,272,000 |
|
|
| 41,250,000 |
|
Less: Accumulated Amortization |
|
| (7,646,611 | ) |
|
| (3,467,500 | ) |
|
|
|
|
|
|
|
|
|
Total Intangible Assets, Net |
| $ | 75,625,389 |
|
| $ | 37,782,500 |
|
For the three and nine months ended September 30, 2022 and 2021
3. Significant accounting policies(continued)
(iii) Accounting standards adopted
Debt with conversion options and other options
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion 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. The Company adopted ASU 2020-06 effective January 1, 2022, and such 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 as2023, 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 expensesrecorded amortization expense related to intangible assets of $2,635,778 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$4,179,111 respectively. For the three and nine months ended September 30, 2022, the Company recorded write-downsamortization expense related to intangible assets of $1,239,545$771,666 and $3,545,232, respectively,$2,336,250, respectively. Additionally, during the nine months ended September 30, 2023, management noted no indications of impairment on inventory which is included in cost of sales.its intangible assets.
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 |
|
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
7. | GOODWILL |
Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment. Goodwill arises when the purchase price for acquired businesses exceeds the fair value of tangible and intangible assets acquired less assumed liabilities. Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount. The amount by which the carrying amount exceeds the reporting unit’s fair value is recognized as a goodwill impairment loss. The Company conducts its annual goodwill impairment assessment as of the last day of the fiscal year. As of September 30, 2023 and December 31, 2022, goodwill was $11,067,896. Additionally, as of September 30, 2023, management noted no indications of impairment on its goodwill.
8. | BUSINESS ACQUISITION |
On July 7, 2023, the Company completed a reverse merger with TPCO Holding Corp.
Notes for the purpose of expanding its retail footprint and to obtain synergies between the two companies. In connection with the transaction, the Company was deemed to be the accounting acquirer and TPCO Holding Corp. was the legal acquirer, and for the purpose of facilitating the merger, a new entity, GFC, was formed. Pursuant to the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
Forreverse merger, TPCO Holding Corp., Stately Capital Corporation and GFC, amalgamated pursuant to a court-approved plan of arrangement under the threeBusiness Corporations Act (British Columbia) and nine months ended September 30, 2022pursuant to the plan of arrangement continued from British Columbia into the State of Delaware as GFC, and 2021
7. 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 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 |
|
8. PropertyGFC acquired all of the issued and equipmentoutstanding membership units of the Company by way of a merger pursuant to the terms and conditions of an agreement and plan of merger as well as all of the outstanding shares of Blocker and Blocker2 by way of mergers pursuant to the terms and conditions of separate agreements and plan of merger Under the terms of the reverse merger, the former holders of common shares of TPCO Holding Corp. at the time of merger, owned approximately 46%, and the former holders of membership units of the Company owned approximately 54%, of the outstanding common equity of GFC. In addition, the former members of the Company also obtained control of GFC’s board of directors. As a result, the Company was considered to be the accounting acquirer. Transaction costs incurred associated with this merger are approximately $1,800,000.
|
| 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 Company recorded depreciation expense related to continuing operationsacquisition noted above was accounted for in accordance with ASC 805 “Business Combinations”, accordingly, the preliminary allocation of $747,765 and $2,510,132 for the three and nine months ended September 30, 2022 ($841,959 and $2,011,802 for the three and nine months ended September 30, 2021, respectively).purchase price of business acquisition completed on July 7, 2023 is as follows:
|
| July 7, 2023 |
| |
|
|
|
| |
Fair Value of Equity Issued and Replacement Equity Awards |
| $ | 21,318,268 |
|
Cash Consideration - Cash payout of dissenting TPCO Holding Corp. Shareholders |
|
| 3,047,205 |
|
Settlement of Pre-Existing Relationships - Working Capital Loan |
|
| (5,125,114 | ) |
|
|
|
|
|
Total Consideration |
| $ | 19,240,359 |
|
|
|
|
|
|
Net Assets Acquired (Liabilities Assumed) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ | 55,306,235 |
|
Accounts Receivable, Net |
|
| 1,571,921 |
|
Inventory |
|
| 6,392,616 |
|
Prepaid Expenses and Other Current Assets |
|
| 1,565,133 |
|
Assets Held for Sale |
|
| 997,416 |
|
Investments |
|
| 1,312,846 |
|
Indemnification Assets |
|
| 3,194,295 |
|
Deposits and other Long Term Assets |
|
| 1,568,415 |
|
Promissory Note Receivable |
|
| 330,248 |
|
Property and Equipment |
|
| 13,382,050 |
|
Right-of-Use Assets - Operating |
|
| 12,813,509 |
|
Right-of-Use Assets - Finance |
|
| 7,774,852 |
|
Intangible Assets |
|
| 42,022,000 |
|
Accounts Payable and Accrued Liabilities |
|
| (15,326,162 | ) |
Accrued Interest |
|
| (330,001 | ) |
Taxes Payable |
|
| (15,067,461 | ) |
Deferred Tax Liability |
|
| (12,258,840 | ) |
Liabilities Held for Sale |
|
| (389,416 | ) |
Consideration Payable |
|
| (4,995,150 | ) |
Operating Lease Liabilities |
|
| (16,695,051 | ) |
Finance Lease Liabilities |
|
| (14,903,490 | ) |
|
|
|
|
|
Total Identifiable Net Assets |
|
| 68,265,965 |
|
Gain on Bargain Purchase |
|
| (49,025,606 | ) |
|
|
|
|
|
Total Purchase Price |
| $ | 19,240,359 |
|
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
8. | Business Acquisition (Continued) |
The estimated cash amount to be paid to the dissenting TPCO Holding Corp.
Notes shareholders was calculated based on the TPCO closing share price of $0.17696 on June 14, 2023 (being the last trading date prior to the interimdate of the TPCO shareholders meeting held to authorize the arrangement involving TPCO and Gold Flora) and recorded as a component of accounts payable and accrued liabilities in the accompanying condensed consolidated financial statementsbalance sheet. Certain of the dissenting TPCO shareholders have asserted that the fair value of their shares is higher than the trading price, at least US$0.9847 per share. However, the ultimate amount required to be paid by the Company is subject to determination by the Supreme Court of British Columbia.
The resulting preliminary bargain purchase price is a result of the net asset value acquired as compared to the fair value of the total consideration issued.
9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable and accrued liabilities consist of the following as of:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Accounts Payable |
| $ | 12,593,229 |
|
| $ | 8,093,543 |
|
Accrued Payroll and Related |
|
| 3,454,693 |
|
|
| 326,612 |
|
Accrued Purchases |
|
| 2,001 |
|
| 54,398 |
| |
Other Accrued Expenses |
|
| 9,610,772 |
|
|
| 4,745,801 |
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable and Accrued Liabilities |
| $ | 25,660,695 |
|
| $ | 13,220,354 |
|
10. | LEASES |
Operating Leases
(Unaudited,
The Company leases certain business facilities from related parties and third parties under non-cancellable operating lease agreements that specify minimum rentals. The operating leases require monthly payments ranging from $2,000 to $77,500 and expire through November 2037. Certain lease monthly payments may escalate up to 5.0% each year. In such cases, the variability in United States dollars)lease payments is included within the current and noncurrent operating lease liabilities.
For
Finance Leases
The Company has certain finance leases from third parties and related parties as of September 30, 2023 and December 31, 2022 for property Desert Hot Springs, CA, Long Beach, CA, Commerce, CA, Corona, CA, and certain vehicle finance leases, with up to 30 years terms.
During the three and nine months ended September 30, 20222023, the Company entered into a lease agreement for property in Corona, CA with a related party. The lease was determined to be a finance lease, as such the Company recorded a finance lease asset and 2021finance lease liability of $3,382,830.
9. Goodwill and intangibleROU 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 represent the Company’s right to continuing operations of $10,420,607 and $20,772,458use an underlying asset for the threelease term and nine months ended September 30, 2022 ($3,271,209 and $11,806,979 forlease liabilities represent the three and nine months ended September 30, 2021, respectively).
DuringCompany’s obligation to make lease payments arising from 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 months ended June 30, 2022, approval for the transfer of the Varda Inc. license was received and the associated redeemable NCI was redeemed. Refer to Note 15.lease.
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
TPCO Holding Corp.
10. | LEASES (Continued) |
Notes toThe below are the interim condensed consolidated financial statements
(Unaudited, in United States dollars)
Fordetails of the lease cost and other disclosures regarding the Company’s leases for the three and nine months ended September 30, 20222023 and 20212022:
10. Business combinations (continued)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Finance Lease Cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of Finance Lease Right-of-Use Assets |
| $ | 1,410,900 |
|
| $ | 565,780 |
|
| $ | 2,398,539 |
|
| $ | 1,553,601 |
|
Interest on Lease Liabilities |
|
| 3,372,722 |
|
|
| 2,285,239 |
|
|
| 8,548,565 |
|
|
| 6,764,213 |
|
Sublease (Income) |
|
| (608,670 | ) |
|
| (582,689 | ) |
|
| (1,840,245 | ) |
|
| (1,735,156 | ) |
Operating Lease Cost |
|
| 1,678,533 |
|
|
| 514,788 |
|
|
| 2,861,198 |
|
|
| 1,544,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease Expenses |
| $ | 5,853,485 |
|
| $ | 2,783,118 |
|
| $ | 11,968,057 |
|
| $ | 8,127,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Amounts Included in the Measurement of Lease Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Cash Flows from Finance Lease, Principal Payment |
| $ | 406,338 |
|
| $ | 15,972 |
|
| $ | 1,094,511 |
|
| $ | 44,344 |
|
Financing Cash Flows from Finance Lease, Interest Payment |
| $ | 2,939,045 |
|
| $ | 1,364,640 |
|
| $ | 6,633,083 |
|
| $ | 3,268,897 |
|
Operating Cash Flows from Operating Leases, Gross |
| $ | 1,237,409 |
|
| $ | 419,747 |
|
| $ | 2,210,878 |
|
| $ | 1,270,565 |
|
Cash Received for Lease Incentive Payments |
| $ | 1,370,938 |
|
| $ | - |
|
| $ | 1,370,938 |
|
| $ | 3,695,160 |
|
Non-Cash Additions to Right-of-Use Assets and Lease Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of Right-of-Use Assets for Finance Lease |
| $ | - |
|
| $ | 1,725,737 |
|
| $ | 3,382,830 |
|
| $ | 1,953,979 |
|
Right-of-Use Assets for Finance Lease Assumed on Business Acquisition |
| $ | 7,774,852 |
|
| $ | - |
|
| $ | 7,774,852 |
|
| $ | - |
|
Recognition of Right-of-Use Assets for Operating Leases |
| $ | 118,873 |
|
| $ | - |
|
| $ | 2,063,839 |
|
| $ | - |
|
Right-of-Use Assets for Operating Leases Assumed on Business Acquisition |
| $ | 12,813,509 |
|
| $ | - |
|
| $ | 12,813,509 |
|
|
|
|
|
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:
|
During the three months ended September 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:
|
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.
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)
(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 1 to 15.25 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 |
|
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)
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Weighted-Average Remaining Lease Term (Years) - Finance Leases |
|
| 23.37 |
|
|
| 26.91 |
|
Weighted-Average Remaining Lease Term (Years) - Operating Leases |
|
| 7.78 |
|
|
| 9.85 |
|
Weighted-Average Discount Rate - Finance Leases |
|
| 16.00 | % |
|
| 14.58 | % |
Weighted-Average Discount Rate - Operating Leases |
|
| 14.00 | % |
|
| 12.57 | % |
The maturity of the contractual undiscounted lease liabilities as of SeptemberJune 30, 2022:2023:
|
| Operating Lease |
|
| Finance Lease |
| ||
|
|
|
|
|
|
| ||
Remainder of 2022 |
| $ | 1,441,432 |
|
| $ | 1,147,681 |
|
2023 |
|
| 4,826,896 |
|
|
| 4,625,156 |
|
2024 |
|
| 4,552,956 |
|
|
| 4,763,910 |
|
2025 |
|
| 4,518,781 |
|
|
| 4,906,828 |
|
2026 |
|
| 4,370,472 |
|
|
| 5,054,033 |
|
Thereafter |
|
| 22,192,154 |
|
|
| 64,884,898 |
|
Total undiscounted lease liabilities |
|
| 41,902,691 |
|
|
| 85,382,506 |
|
Interest on lease liabilities |
|
| 16,559,013 |
|
|
| 48,589,146 |
|
Total present value of minimum lease payments |
|
| 25,343,678 |
|
|
| 36,793,360 |
|
Lease liability – current portion |
|
| 2,423,413 |
|
|
| 62,783 |
|
Lease liability |
| $ | 22,920,265 |
|
| $ | 36,730,577 |
|
Year Ending December 31, |
| Operating Leases |
|
| Finance Leases |
| ||
2023 (Remaining) |
| $ | 1,658,932 |
|
| $ | 3,717,118 |
|
2024 |
|
| 6,693,749 |
|
|
| 14,981,400 |
|
2025 |
|
| 6,738,199 |
|
|
| 15,373,987 |
|
2026 |
|
| 6,766,344 |
|
|
| 15,769,161 |
|
2027 |
|
| 5,786,609 |
|
|
| 14,802,040 |
|
2028 and Thereafter |
|
| 21,460,001 |
|
|
| 348,240,740 |
|
|
|
|
|
|
|
|
|
|
Total Future Minimum Lease Payments |
|
| 49,103,834 |
|
|
| 412,884,446 |
|
|
|
|
|
|
|
|
|
|
Less: Interest |
|
| (20,644,901 | ) |
|
| (323,983,579 | ) |
|
|
|
|
|
|
|
|
|
Present Value of Lease Liabilities |
|
| 28,458,933 |
|
|
| 88,900,867 |
|
|
|
|
|
|
|
|
|
|
Less: Current Portion of Lease Liabilities |
|
| (2,277,156 | ) |
|
| (2,847,516 | ) |
|
|
|
|
|
|
|
|
|
Lease Liabilities, Net of Current Portion |
| $ | 26,181,777 |
|
| $ | 86,053,351 |
|
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 |
|
The Company capitalized $nil and $704,732 of depreciation to inventory for the three and nine months ended September 30, 2022, respectively (three and nine months ended September 30, 2021 - $491,273 and $1,262,130, 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 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.
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
TPCO Holding Corp.
11. | NOTES PAYABLE |
Notes topayable consist of the interim condensed consolidated financial statementsfollowing as of:
(Unaudited, in United States dollars)
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Promissory note, dated October 1, 2019, related to the acquisition of Shelf Life Inc which matured on December 31, 2022 and bears no interest. |
| $ | 5,200,000 |
|
| $ | 5,200,000 |
|
|
|
|
|
|
|
|
|
|
Airfield acquisition note payable, bearing interest at 8% per year, with twelve quarterly payments of principal and interest beginning on the fifteenth month following December 31, 2021 and maturing on December 31, 2025. |
|
| 9,011,247 |
|
|
| 10,813,497 |
|
|
|
|
|
|
|
|
|
|
Equipment loan, bearing interest at 9.5% per year plus the Secured Overnight Financing Rate but not less than 2.99% or more than 5.5% ("SOFR"), plus a service fee of 2%, and secured by substantially all assets of the Company. Principal and interest is to be paid monthly of $140,462 plus the SOFR payment with the balance of principal due on maturity, December 14, 2025. |
|
| 2,961,691 |
|
|
| 4,000,000 |
|
|
|
|
|
|
|
|
|
|
Higher Level of Care acquisition note payable, bearing interest at 8% per year, with twelve quarterly payments of principal and interest beginning on the fifteenth month following September 30, 2021 and maturing on September 30, 2025. |
|
| 8,420,476 |
|
|
| 10,291,694 |
|
|
|
|
|
|
|
|
|
|
Promissory issued in July 2023 related to an earn-out liability, bears interest at 8.0%, with twelve equal quarterly payments beginning on the 15 month and matures in July 2027 |
|
| 2,200,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Promissory notes, dated in May 2020, related to the Paycheck Protection Program ("PPP") which matured in May 2022 and bear 1% interest with interest and principal payments due monthly. |
|
| 1,294,221 |
|
|
| 1,294,221 |
|
|
|
|
|
|
|
|
|
|
| Other |
|
| 54,143 |
|
|
| 37,928 |
|
|
|
|
|
|
|
|
|
|
Total Notes Payable |
| $ | 29,141,778 |
|
| $ | 31,637,340 |
|
Less: Unamortized Discount Due to Imputed Interest |
|
| (100,911 | ) |
|
| (118,535 | ) |
|
|
|
|
|
|
|
|
|
|
|
| 29,040,867 |
|
|
| 31,518,805 |
|
Less: Current Portion of Notes Payable |
|
| (15,532,272 | ) |
|
| (13,846,582 | ) |
|
|
|
|
|
|
|
|
|
Notes Payable, Net of Current Portion |
| $ | 13,508,595 |
|
| $ | 17,672,223 |
|
ForDuring 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) Right2023, TPCO Holding Corp. entered into an arrangement to provide funding to the Company with principal amounts of use assets – up to $5,000,000. During the three and nine months ended September 30, 2022,2023, the Company recorded impairmentadvanced $5,000,000 of $2,694,999the committed funding and $3,985,590, respectively related to properties which are no longer being usedaccrued interest of $125,114. The note was secured by the Company.
(ii)Impairmentcertain assets 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. Basedbore interest at 10% per annum and is payable in full on maturity, which is 90 days from the softeningtermination of the California cannabis market and cost pressures due to higher US inflation duringreverse merger agreement. On July 7, 2023, this note was settled through 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 goodwillmerger, see Note 8.
The Company conducts goodwill impairment testing annually duringentered into the third quarter, or more often if events, changes or circumstances indicated thatPaycheck Protection Program (“PPP”) loans based on information available at the time. Subsequent to the receipt of funds, 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 Companywas determined that the existenceCompany may not be eligible under the related program. The Company is in the process of impairment on certain long-lived assets, togetherevaluating options regarding the PPP loans.
The Company is currently in active litigation with the softening of the California cannabis market, cost pressures due to higher US inflation and changes in market expectations of cash flows sinceShelf Life Inc. (“SLI”). At this time, the Company acquireddoes not believe that any amounts are due under the goodwill, indicatednote to SLI. The Company believes the fair valuelitigation will be resolved in the first half of its reporting unit might be lower than the carrying value.2024.
As at September 30, 2022, the Company identified one reporting unit and allocated the carrying valueSee discussion of goodwill to the reporting unit:related party loans in Note 14.
|
(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.
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
12. | CONVERTIBLE NOTES PAYABLE |
As of September 30, 2023 and December 31, 2022, convertible notes payable consists of the following:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Convertible Notes Payable |
| $ | 19,727,123 |
|
| $ | 47,786,487 |
|
Less: Unamortized Discount Due to Imputed Interest |
|
| - |
|
|
| (4,248,342 | ) |
|
|
|
|
|
|
|
|
|
|
|
| 19,727,123 |
|
|
| 43,538,145 |
|
|
|
|
|
|
|
|
|
|
Less: Current Portion of Convertible Notes Payable |
|
| - |
|
| (15,718,424 | ) | |
|
|
|
|
|
| . |
| |
Convertible Notes Payable, Net of Current Portion |
| $ | 19,727,123 |
|
| $ | 27,819,721 |
|
TPCO Holding Corp.1st Financing Round
Notes
On June 14, 2019, the Company completed a private placement with investors for up to $15,000,000 of unsecured convertible debenture units (“CD Units”). Each CD Unit is comprised of (i) one US$1,000 principal amount unsecured convertible debenture (a “CD”) which is automatically convertible into Class C membership interest units of the Company (“LLC Units”) or the securities of a resulting issuer upon the completion of a Liquidity Event; and (ii) a warrant (an “LLC Warrant”) of the Company to purchase that number of LLC Units equal to the interim condensed consolidated financial statements
(Unaudited,issued CDs divided by the CDs conversion price. Otherwise, the CDs mature on the second anniversary of issuance. A Liquidity Event means a transaction such as a public offering by the Company with minimum gross proceeds of $20,000,000 or a merger or similar transaction with a concurrent financing with minimum gross proceeds of $20,000,000 in United States dollars)
Foreach case that results in the three and nine months ended September 30, 2022 and 2021
13. Impairment (continued)Company’s LLC Units or the securities of the resulting issuer being listed on a recognized stock exchange. A Liquidity Event also includes transactions such as the sale of the Company’s assets or a tender offer whereby the holders of the LLC Units receive case or publicly listed securities on a recognized securities exchange.
The CompanyCDs conversion price (the “Conversion Price”) is the lesser of (i) the price that is a 25% discount of the Liquidity Event price or (ii) the price determined the fairbased on a pre-money enterprise 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$65,000,000 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 resultfully-diluted in-the-money membership units of the impairment test, goodwill impairmentCompany measured immediately prior to the time of $21,418,546the Liquidity Event (which has been recognized during the threean indicative price of $1.48). The CDs bear interest of 8% which is payable semi -annually and nine months ended September 30, 2022.
14. Assets held for sale and discontinued operationsmatures two years from issuance. Any accrued but unpaid interest is to be paid in cash.
The following table outlinesLLC Warrants have an exercise price to acquire each LLC unit that is 35% greater than the carrying amountsCD conversion price. The LLC Warrants will be exercisable commencing on the date of major classesa Liquidity Event and through the subsequent 24 months subject to customary anti-dilution and change of assets and liabilities included in disposal groups:control provisions. Additionally, the LLC Warrants expire on the second anniversary date of the CDs if a Liquidity Event has not occurred.
|
| 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 |
The Company’s international investors indirectly invest in CD Units through a direct investment in units (the “Blocker Unit”) of a special purpose U.S. finance corporation (the “Blocker”). Each Blocker Unit consisted of (i) one share of the Blocker (a “Blocker Share”), and (ii) one warrant (a “Blocker Warrant”) to purchase that number of shares of the Blocker equal to the dollar amount issued divided by the Conversion Price. The Blocker and its related Blocker Share and Blocker Warrant are not consolidated into the Company’s financial statements.
Additionally, as part of the fees paid to the broker for the financing, broker warrants (“Broker Warrants”) were issued which consisted of an LLC Unit and an LLC Warrant (collectively, “Broker Unit”). The number of Broker Warrants issued is equal to 7.0% of the gross proceeds of CDs with an exercise price equal to the Conversion Price.
If a Liquidity Event does not occur 12 months after the issuance, 10% additional CD Units or Blocker Units, as applicable, are issued to original investor for no additional consideration (the “Additional Securities”). The Additional Securities were issued on June 14, 2020.
In July and August of 2020, the Company offered to the holders of the CDs a debenture exchange whereby $15,418,000 convertible debentures with the exact same terms as the CDs except with a maturity date of June 13, 2022 (the “Exchanged CD”) were exchanged for $15,418,000 of CDs. The exchange was effective January 1, 2021. The warrants were not exchanged or extended.
Pursuant to ASC 480 – Distinguishing Liabilities from Equity and ASC 815 – Derivatives and Hedging, the Company classified the LLC Warrants and Broker Warrants within equity.
In June 2021, all of the issued warrants expired unexercised.
| Table of Contents |
Gold Flora Corporation Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 12. During the year ended December 31, 2022, the Company offered to the TPCO Holding Corp.CONVERTIBLE NOTES PAYABLE (Continued) interim condensed consolidated financial statements
(Unaudited, in United States dollars)
Forholders of the three and nine months endedExchanged CDs a debenture exchange whereby $9,213,000 convertible debentures with the exact same terms as the Exchanged CDs except with a maturity date of September 30, 2023, and the addition of 6% additional interest per year payable in kind, and $6,205,000 convertible debentures with the exact same terms as the Exchanged CDs except with a maturity date of December 31, 2023, and the addition of a conversion feature at a conversion price of $1.48 at the option of the holder prior to maturity and a liquidity event. As of September 30, 2023 and December 31, 2022, the related unamortized debt discount was nil and 2021
14. Discontinued operations (continued)
(a) Discontinued operationsnil, respectively.
As at September 30 2022,a result of the reverse merger with TPCO Holding Corp., on July 7, 2023, the principal balances of the 1st financing round convertible notes automatically converted into equity of GFC.
2nd Financing Round
Between February 2021 through April 2021, the Company determinedentered into unsecured convertible debenture units (“CD2 Units”) agreements with investors for up to $12,000,000. Each CD2 Unit is comprised of (i) one US$1,000 principal amount unsecured convertible debenture (“CD2”) which is automatically convertible into LLC Units upon completion of a liquidity event or convertible at the holder’s option immediately prior to maturity; and (ii) a warrant (“LLC Warrant2”) to purchase that its wholly owned subsidiary, SISU Extractions LLC (“SISU”), met the criteria as held for sale. The dispositionnumber of units equal to one-half of the operations representeddollar amount issued divided by the conversion price of LLC Units. Otherwise, the CD2s mature on the 3rd anniversary of issuance. The total CD2s issued were $11,755,000 and warrants to purchase an aggregate of 4,778,455 Class C Units.
The CD2s conversion price (the “Conversion Price2”) is the lessor of (i) the price that is a major strategic shift25% discount of the liquidity event price and (ii) $1.64 per LLC unit. The CD2s bear interest of 8% which is payable semi-annually and matures February 24. 2024. The CD2s also contain a conversion feature at the option of the holder with a conversion price of $1.64 per LLC unit. A Liquidity Event means a transaction such as a public offering by the Company with minimum gross proceeds of $20,000,000 or a merger or similar transaction with a concurrent financing with minimum gross proceeds of $20,000,000 in each case that results in the businessCompany’s LLC Units or the securities of the resulting issuer being listed on a recognized stock exchange. A liquidity event also includes transactions such as the sale of the Company’s assets or a tender offer whereby the holders of the LLC Units receive case or publicly listed securities on a recognized securities exchange. Any accrued but unpaid interest is to be paid in cash. However, in the event of an optional conversion, the Company may, in its sole discretion, determine if the accrued and metunpaid interest will be paid in cash or is considered part of the criteriaamount eligible to be converted in the optional conversion.
The LLC Warrant2s have an exercise price to acquire each LLC unit that is 35% greater than the CD2 conversion price. The LLC Warrant2s are adjusted for certain events specified in the LLC Warrant2 agreement. The LLC Warrant2s will be exercisable on the date of discontinued operations.a Liquidity Event for 24 months subject to customary anti-dilution and change of control provisions. The LLC Warrant2s expire on the maturity date of the CD2s if a Liquidity Event has not occurred.
The Company’s international investors indirectly invest in CD2 Units through a direct investment in units (the “Blocker2 Units”) of GF Investco2 Inc., a special purpose Nevada finance corporation (the “Blocker2”).
Each Blocker2 Unit will consist of (i) one share of the Blocker2 (a “Blocker2 Share”), and (ii) one warrant (a “Blocker2 Warrant”) to purchase that number of shares of the Blocker2 equal to one-half the dollar amount issued divided by the Conversion Price. The Blocker2 and its related Blocker2 Share and Blocker2 Warrant are not consolidated into the Company’s financial statements.
Since a Liquidity Event did not occur 12 months after the issuance, 10% additional CD2s or Blocker2 Shares, as applicable, and 10% additional LLC Warrant2s and Blocker2 Warrants, as applicable, are issued to the original investor for no additional consideration (“Additional Security2”). The Additional Security2s were issued on February 24, 2022, consisting of an aggregate of $1,155,500 of CD2s or Blocker2 Shares, as applicable, and 628,494 LLC Warrant2s and Blocker2 Warrants, as applicable.
Pursuant to ASC 480 – Distinguishing Liabilities from Equity and ASC 815 – Derivatives and Hedging, the Company has classified the assetsLLC Warrants and liabilitiesBroker Warrants within equity. The relative fair value of SISUthe Warrant2s and Blocker2 Warrants was $2,937,702 and was recognized within members’ capital and as held for salea reduction in the value of the CD2s and Blocker2s as a debt discount on the Company’s condensed consolidated balance sheet. As of September 30, 2022. The Company has also re-presented the2023 and December 31, 2021 interim condensed consolidated balance sheet2022, unamortized debt discount related to the Warrant2s, Blocker2 Warrants, and threeAdditional Security2 was nil 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$1,328,324, respectively, with $1,034,497 and $700,010 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
Duringinterest expense during the nine months ended September 30, 2023 and 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. respectively.
As a result the cost bases of the asset groups were written down to $571,245 resulting in an impairment lossreverse merger with TPCO Holding Corp., on July 7, 2023, the principal balances of $6,815,904 on intangible assets included in net loss from continuing operations.the 2nd financing round convertible notes automatically converted into equity of GFC.
| 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 |
|
| |
| |
|
|
|
|
|
16. Long term strategic contractsHigher Level of Care Financing
Marketing AgreementOn November 5, 2021, the Company entered into unsecured convertible debenture units (“MA”CDH Units”) agreements with investors for $8,200,000. Each CDH Unit is comprised of (i) one $1,000 principal amount unsecured convertible debenture (“CDH”) which is automatically converted into the Company’s Class F LLC Units upon completion of a liquidity event (“Auto Conversion”) or convertible at the holder’s option immediately prior to maturity (“Optional Conversion”); and (ii) a warrant (“LLC WarrantH”) to purchase that number of Class F units. Otherwise, the CDHs mature on the third anniversary of issuance. The total LLC WarrantHs issued was 4,969,200 as part of the CDH Units.
The CDHs conversion price is the lessor of (i) the price that is a 25% discount of the Liquidity Event price and (ii) $1.65 per Class F LLC unit. Under the Optional Conversion feature, the CDHs conversion price is $1.65 per Class F LLC unit. The CDH bear interest of 8% which is payable semi -annually in cash or Class F LLC units and matures November 5. 2024. Any accrued but unpaid interest is to be paid in cash. However, in the event of an Optional Conversion, the Company has engagedmay, in its sole discretion, determine if the accrued and unpaid interest will be paid in cash or is considered part of the amount eligible to be converted in the Optional Conversion.
The LLC WarrantHs have an exercise price of $2.00 each. The LLC WarrantHs will be exercisable from issuance through the 4th anniversary, November 5, 2025, subject to customary anti-dilution and change of control provisions. The Company may accelerate the expiration date of the Warrants, if the LLC Class F units are listed on an exchange and its 10-day VWAP is greater than $4.00 for 20 consecutive trading days (“Accelerated Expiration Trigger”), to be 90-days following the Accelerated Expiration Trigger. The exercise price of the LLC Warrants are adjusted if the Company issues LLC Units at less than 95% of the fair market value of such LLC Class F units, the WarrantHs exercise price will be multiplied by the fraction where the numerator shall be the total number of Class F Units outstanding on such record date plus the number of Class F Units equal to the number arrived at by dividing the aggregate price of the total number of additional Class F Units offered by the fair market value, and the denominator shall be the total number of Class F Units outstanding on such record date plus the total number of additional Class F Units offered for subscription or purchase (“Adjustment Provision”).
If a third-partyliquidity event does not occur 12 months after the issuance, 10% additional CDHs and LLC Warrants (“Additional SecurityH”), are issued to original investor for strategicno additional consideration. The Additional SecurityHs were issued in November 2022 and promotional services. Duringwas recorded as additional debt discount.
Pursuant to ASC 480 – Distinguishing Liabilities from Equity and ASC 815 – Derivatives and Hedging, the three months ended March 31, 2021 and nine months endedCompany classified the LLC WarrantHs within equity. As of September 30, 2021,2023 and December 31, 2022, the Company issued 2,376,425 common shares in settlement ofunamortized debt discount related to the initial $25,000,000. As the shares vested immediately, the full amount of the $25,000,000LLC WarrantHs and Additional SecuriiyH was nil and $229,921, respectively, with $113,215 and $825,656 recognized as aninterest expense in operating expenses during the nine months ended September 30, 2021.2023 and 2022, respectively.
Airfield Financing
On February 8, 2022 and February 23, 2022, the Company entered into unsecured convertible debenture units (“CDA Units”) agreements with investors for $10,100,000 in aggregate. Each CDA Unit is comprised of (i) one $1,000 principal amount unsecured convertible debenture (“CDH”) which is automatically converted into the Company’s Class F LLC Units upon completion of a liquidity event (“Auto Conversion”) or convertible at the holder’s option immediately prior to maturity (“Optional Conversion”); and (ii) a warrant (“LLC WarrantA”) to purchase that number of Class F units. Otherwise, the CDAs mature on the third anniversary of issuance. The total LLC WarrantAs issued was 6,120,600 as part of the CDA Units.
The CompanyCDAs conversion price is obligated to issue shares to the valuelessor of $1,875,000 quarterly over(i) the second and third yearprice that is a 25% discount of the contract. DuringLiquidity Event price and (ii) $1.65 per Class F LLC unit. Under the nine months ended September 30, 2022,Optional Conversion feature, the CDAs conversion price is $1.65 per Class F LLC unit. The CDAs bear interest of 8% which is payable semi -annually in cash or Class F LLC units and matures February 2025. Any accrued but unpaid interest is to be paid in cash. However, in the event of an Optional Conversion, the Company issued 4,926,165 common shares to settlemay, in its sole discretion, determine if the first, secondaccrued 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)unpaid interest will be paid in operating expenses as a sales and marketing expense. As at September 30, 2022, the cash-settled liabilitycash or 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 controlconsidered part of the Company. In that case,amount eligible to be converted in 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.Optional Conversion.
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.
| 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
| ||||
| Consolidated Financial Statements (Unaudited) | |||
| ||||
| ||||
| ||||
| ||||
| ||||
|
| |||
12. | CONVERTIBLE NOTES PAYABLE (Continued) |
The LLC WarrantAs have an exercise price of $2.00 each or 90% of the 10-day VWAP of the Company’s publicly traded shares, if a liquidity event occurs and if an earnout-payment related to its acquisition of Airfield is made in the Company’s publicly traded shares. The LLC WarrantAs will be exercisable from issuance through the fourth anniversary, February 2026, subject to customary anti-dilution and change of control provisions. The Company may accelerate the expiration date of the Warrants, if the LLC Class F units are listed on an exchange and its 10-day VWAP is greater than $4.00 for 20 consecutive trading days (“Accelerated Expiration Trigger”), to be 90-days following the Accelerated Expiration Trigger. The exercise price of the LLC WarrantAs are adjusted if the Company issues LLC Units at less than 95% of the fair market value of such LLC Class F units, the WarrantAs exercise price will be multiplied by the fraction where the numerator shall be the total number of Class F Units outstanding on such record date plus the number of Class F Units equal to the number arrived at by dividing the aggregate price of the total number of additional Class F Units offered by the fair market value, and the denominator shall be the total number of Class F Units outstanding on such record date plus the total number of additional Class F Units offered for subscription or purchase (“Adjustment Provision”).
If a liquidity event does not occur 12 months after the issuance, 10% additional CDAs and LLC WarrantAs (“Additional SecurityA”), are issued to original investor for no additional consideration. Additional SecurityHs were issued in February 2023, which consist of $1,010,00 of CDAs and 612,060 LLC WarrantAs and was recorded as additional debt discount.
Pursuant to ASC 480 – Distinguishing Liabilities from Equity and ASC 815 – Derivatives and Hedging, the Company classified the LLC WarrantAs within equity. At September 30, 2023 and December 31, 2022, the unamortized debt discount related to the LLC WarrantAs and Additional SecurityA was nil and $647,831, respectively, with $113,500 and $916,358 recognized as interest expense during the nine months ended September 30, 2023 and 2022, respectively.
On July, 6, 2023, prior to the reverse merger with TPCO Holding Corp., the Company entered into a debt modification with certain convertible debt holders above, representing approximately $22,515,000 in convertible debt. As consideration for the debt modification and voting support agreement, the Company issued 2,500,000 Class C member units to these convertible debt holders which were ultimately converted to common shares of the Company upon the merger. Management determined the debt modification was considered an extinguishment of debt and recorded a loss on extinguishment of debt in the amount of approximately $1,440,000. The modified convertible debt bear interest at 8 percent per annum, unsecured, matures on December 31, 2025 and convertible at the option of the debt holders at $0.7549 per GFC common shares. The mandatory conversion feature, that was previously contained in the agreements, were removed and replaced with the Company’s optional conversion feature in the event the Company’s common stock exceeds a 20-day VWAP of $1.0175. In the event the 20-day VWAP price is met, the Company may elect to have the holders of the convertible debt convert at a price of $0.7549.
|
| |
|
|
On January 28, 2022,Authorized Units
Prior to the merger, each member’s interest in the Company, announced a voluntary extension ofincluding the lock-up agreements with certain members of the Company’s leadership teammember’s interest in income, gains, losses, deductions 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 consentexpenses of the Company, was represented by units (“LLC Units”), which are further divided by Class from A through F. Upon a liquidation event, LLC Units were generally entitled to their pro-rata portion of net assets based on total equity instruments then outstanding to reduce the holders invested capital to zero and any remaining was shared pro rata share among other things, assign or disposethe member LLC units holders. The Company was authorized to issue unlimited LLC Units.
There was an 8% simple non-compounded return to the holders of anyClass B Units. The Company had determined it was obligated to pay such amount, and accordingly accrued the return on the basis of outstanding investment amount quarterly.
In conjunction with the merger, all LLC Units were converted to common shares of the Company on a 1 to 1.5233 basis and has a total authorized common share limit of 450,000,000.
In conjunction with the merger, holders of the preferred distributions payable related to the holders of Class B Units and equity rights holders related to the Airfield acquisition in 2021 converted/exercised their locked-uppreferred distribution payable and rights to 8,937,247 and 6,776,482 common shares until January 28, 2023.of the Company, respectively.
18. WarrantsEmployee Profits Interest
The following table reflectsPrior to 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 expireacquisition, see Note 8, the Company issued Class E Units to new or existing Members in exchange for services performed or to be performed on January 14, 2026. The Company has the right to accelerate expirybehalf 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”(“Profits Interest Units”), 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; The Profits Interest Units were not allowed 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 beconstitute more than 15% of the common sharestotal outstanding from timeLLC Units. Members receiving Profits Interest Units were not entitled to time, subjectmake capital contributions with respect 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.Profits Interest Units.
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
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. | SHAREHOLDERS’ EQUITY (Continued) |
19. Share-basedShare based compensation (continued)
The following table reflects the continuity of the share optionsexpense was $566,991 and $357,253 during the nine months ended September 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 at2023 and 2022, respectively. The Class E Units had accelerated vesting upon a liquidity event. Accordingly, the previously unrecognized compensation expense for Profits Interests Units were recognized in July 2023 and all Profit Interest Units were converted to common shares, see Note 8. Grant date fair value was $1.21 and $1.49 per unit as of September 30, 2023 and December 31, 2022, there was $299,767 of total unrecognized compensation cost related to non-vested replacement options. That cost is expected to berespectively and had no intrinsic value. The Company recognized over a weighted average period of 0.86 years.
(b) Equity-settled RSUs and PSUsforfeitures when they occurred.
The following table reflectssummarizes the continuity of RSUsissued and PSUsoutstanding Profits Interest Units:
|
| Issued and Outstanding |
|
| Vested |
| ||
|
|
|
|
|
|
| ||
Balance as of December 31, 2022 |
|
| 6,642,403 |
|
|
| 4,675,754 |
|
|
|
|
|
|
|
|
|
|
Vested |
|
| - |
|
|
| 1,966,649 | |
Converted to Common Shares |
|
| (6,642,403 | ) |
|
| (6,642,403 | ) |
�� |
|
|
|
|
|
|
|
|
Balance as of September 30, 2023 |
|
| - |
|
|
| - |
|
There were no profit interest granted during the nine months ended September 30, 2022:
|
| 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 |
|
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.2023.
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.Restricted Stock Units
The range of grant date fair values related to RSUsfollowing table summarizes the issued and PSUs granted during the nine months ended September 30, 2022 was $0.65 - $1.41.restricted stock units:
|
| Issued and Outstanding |
|
| Weighted Average Grant Date Fair Value |
| ||
|
|
|
|
|
|
| ||
Balance as of December 31, 2022 |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Assumed in Acquisition |
|
| 427,588 |
|
|
| 3.63 |
|
Vested |
|
| (24,011 | ) |
|
| 0.87 |
|
Forfeited |
|
| (121,706 | ) |
|
| 5.79 |
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2023 |
|
| 281,871 |
|
|
| 19.73 |
|
Options
The Company estimates forfeitures based on historical forfeiture trends. If actual forfeiture rates are not consistent with the Company's estimates, the Company mayoptions outstanding relate to legacy options from prior acquisitions. No further options will be required to increase or decrease compensation expenses in future periods.issued under those legacy plans.
DuringThe following table summarizes the threeissued and nine months ended September 30, 2022 and 2021, the Company recognized the following total compensation expense, net of estimated forfeitures:outstanding Options:
|
| 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 |
|
|
| Number of Options Outstanding |
|
|
| |||||||||||
|
| Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of December 31, 2022 |
|
| - |
|
|
| - |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Assumed in Acquisition |
|
| 225,940 |
|
|
| 7.79 |
|
|
|
|
|
|
| ||
Expired |
|
| (66,429 | ) |
|
| 6.71 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (8,874 | ) |
|
| 7.63 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance as of September 30, 2023 |
|
| 150,637 |
|
|
| 8.28 |
|
|
| 4.02 |
|
|
| - |
|
Vested and Expected to Vest |
|
| 150,637 |
|
|
| 8.28 |
|
|
| - |
|
|
| - |
|
Exercisable |
|
| 139,083 |
|
|
| 8.22 |
|
|
| 4.01 |
|
|
| - |
|
20. Loss per shareWarrants
|
| 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) |
The following table summarizes the issued and outstanding warrants:
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.
|
| Number of Warrants Outstanding |
|
|
| |||||||||||
|
| Class C LLC Units |
|
| Class F LLC Units |
|
| Common Shares |
|
| Weighted - Average Exercise Price |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of December 31, 2022 |
|
| 9,784,803 |
|
|
| 11,586,720 |
|
|
| - |
|
| $ | 1.74 |
|
Issued |
|
| - |
|
|
| 612,060 |
|
|
|
|
|
| $ | 2.00 |
|
Expired |
|
| (264,765 | ) |
|
| - |
|
|
| - |
|
| $ | 1.64 |
|
Exchanged upon Merger |
|
| (9,520,038 | ) |
|
| (12,198,780 | ) |
|
| 33,084,276 |
|
| $ | 1.15 |
|
Acquired upon Merger |
|
| - |
|
|
| - |
|
|
| 35,837,500 |
|
| $ | 11.50 |
|
Balance as of September 30, 2023 |
|
| - |
|
|
| - |
|
|
| 68,921,776 |
|
| $ | 7.59 |
|
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
13. | SHAREHOLDERS’ EQUITY (Continued) |
At September 30, 2023 and December 31, 2022, the weighted-average remaining term and aggregate intrinsic value for the outstanding warrants was 2.0 years and nil, and 2.4 years and nil, respectively.
14. | RELATED PARTIES |
Expenses incurred and contributions received from related parties, and amounts due to and (due from) related parties, which are included as components of accounts payable and accrued liabilities or (accounts receivables) in the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 and the condensed consolidated statements of operations for the nine months ended September 30, 2023 and 2022 are as follows:
|
|
|
| Incurred (Received) |
|
| Due To (From) |
| ||||||||||||
Related Party Name |
| Relationship |
| Nature of Transactions |
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
127 Radio Road Partners, LLC |
| Co-owned by a shareholder of the Company |
| Facility Rent |
| $ | 389,462 |
|
| $ | 63,327 |
|
| $ | 6,410 |
|
| $ | - |
|
BlackStar Contractors Inc. |
| Co-owned by a shareholder of the Company |
| Construction of Facilities |
| $ | 11,628 |
|
| $ | 5,567,591 |
|
| $ | (1,251,956 | ) |
| $ | (847,156 | ) |
BlackStar Financial Inc. |
| Co-owned by a shareholder of the Company |
| Shared Services |
| $ | 150,007 |
|
| $ | 204,652 |
|
| $ | 75,559 |
|
| $ | 74,407 |
|
BlackStar Industrial Properties LLC |
| Co-owned by a shareholder of the Company |
| Facility Rent and Advances |
| $ | 5,000 |
|
| $ | 29,160 |
|
| $ | 2,638,153 |
|
| $ | 2,638,153 |
|
GF 5630 Partners LLC |
| Managed by Directors and officers of Gold Flora Corporation |
| Facility Rent |
| $ | 404,479 |
|
| $ | 332,235 |
|
| $ | 307,699 |
|
| $ | 525,302 |
|
GF Investco 2, Inc. |
| Managed by Directors and officers of Gold Flora Corporation |
| Interest Expense |
| $ | 188,410 |
|
| $ | 508,200 |
|
| $ | - |
|
| $ | 374,374 |
|
GF Invesco, Inc. |
| Managed by Directors and officers of Gold Flora Corporation |
| Interest Expense |
| $ | 240,382 |
|
| $ | 713,190 |
|
| $ | - |
|
| $ | 187,455 |
|
Gold Flora Capital LLC |
| Managed by Directors and officers of Gold Flora Corporation |
| Interest Expense |
| $ | 4,449 |
|
| $ | 13,200 |
|
| $ | 15,800 |
|
| $ | 15,800 |
|
MasterCraft Homes Group LLC |
| Co-owned by a shareholder of the Company |
| Shared Services |
| $ | 6,927 |
|
| $ | 51,224 |
|
| $ | 29,371 |
|
| $ | 24,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 1,400,744 |
|
| $ | 7,482,779 |
|
| $ | 1,821,036 |
|
| $ | 2,993,035 |
|
In addition, to the above transactions, the Company entered into a promissory note with Skyfall Partners, LLC, an entity majority owned by a shareholder of the Company, dated December 31, 2020, which matured on December 22, 2021 and bears interest at an interest rate of 10% with principal and unpaid interest due at maturity. The balance of the note payable at September 30, 2023 and December 31, 2022 was $425,000 and $425,000, respectively. The note was amended to extend the maturity date to April 2023. The Company is currently in negotiations to extend the maturity date. Amounts due to Skyfall Partners, LLC is included as a component of due to related parties in the accompanying condensed consolidated balance sheets.
In addition, to the above transactions, the Company entered into a promissory note with BlackStar Capital Partners, LLC, an entity majority owned by a shareholder of the Company, dated December 15, 2021, which matured on June 14, 2023 and bears interest at an interest rate of 10% with principal and unpaid interest due at maturity. The Company is currently in negotiations to extend the maturity date. The balance of the note payable at September 30, 2023 and December 31, 2022 was $1,580,000 and $1,580,000, respectively. Amounts due to Black Star Capital Partners, LLC is included as a component of due to related parties in the accompanying condensed consolidated balance sheets.
A former director of the Company is a close family member to an owner of R&C Brown Associates, LP (“R&C”). The Company has two operating leases and one finance lease with R&C. R&C ceased to be a related party on July 7, 2023.
15. | COMMITMENTS AND CONTINGENCIES |
Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable, and the amount can be reliably estimated, such amounts are recognized in other liabilities.
Contingent liabilities are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value when the effect is material. The Company performs evaluations to identify onerous contracts and, where applicable, records contingent liabilities for such contracts.
Contingent consideration is measured upon acquisition and is estimated using probability weighting of potential payouts. Subsequent changes in the estimated contingent consideration from the final purchase price allocation are recognized in the Company’s condensed consolidated statements of operations.
| F-21 |
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
15. | COMMITMENTS AND CONTINGENCIES (Continued) |
21. Income taxesCommitments
In June 2023, the Company and the sellers of Airfield informally discussed amending the acquisition agreement for Airfield as it relates to the earn-out. As a result of the informal discussions, on July 5, 2023, the Company amended the acquisition agreement with the sellers of Airfield whereby the parties agreed to an earn-out amount to be paid as follows: $2,000,000 is to be paid out in cash, of which $1,000,000 was paid on July 14, 2023 and another $1,000,000 was paid on or before August 14, 2023. Another payment through the issuance of 720,000 Class C units of the Company’s equity, which converted into shares of GFC on July 7, 2023, the fair value of which was approximately $175,000. The last payment of $2,200,000 is to be paid via a promissory note, which is due one year after entering into this amendment. As a result, the Company recorded an increase in the change in fair value of an earnout liability in the accompanying condensed consolidated statement of operations.
Contingencies
The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations in that specific state or local jurisdiction. While management of the Company believes that the Company is in compliance with applicable local and state regulations at December 31, 2021, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.
The Company has a loyalty program whereby customers accumulate points through purchases, and the earned points can be used to reduce the price of future purchases. The points do not expire and are recorded as a component of accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets for amounts customers have earned but have not yet used.
Due to the merger, certain TPCO Holding Corp. shareholders dissented from the vote for the merger. An amount was calculated based on the TPCO closing share price of $0.17696 on June 14, 2023 (being the last trading date prior to the date of the TPCO shareholders meeting held to authorize the arrangement involving TPCO and Gold Flora and recorded as a component of accounts payable and accrued liabilities in the accompanying consolidated balance sheet. Certain of the dissenting TPCO shareholders have asserted that the fair value of their shares is higher than the trading price, at least US$0.9847 per share. However, the ultimate amount required to be paid by Gold Flora is subject to determination by the Supreme Court of British Columbia.
Claims and Litigation
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. At September 30, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.
16. | PROVISION FOR INCOME TAXES |
The following table summarizes the Company’s income tax expense and effective tax rates for the three and nine months ended September 30, 20222023 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 |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) Before Income Taxes |
|
| 29,765,000 |
|
|
| (7,094,165 | ) |
|
| 7,832,399 |
|
|
| (23,034,851 | ) |
Income Taxes |
|
| (6,806,747 | ) |
|
| (1,343,514 | ) |
|
| (8,320,741 | ) |
|
| (3,354,711 | ) |
Effective Tax Rate |
|
| (22.9 | %) |
|
| 18.9 | % |
|
| (106.2 | %) |
|
| 14.6 | % |
TheFor the nine months ended September 30, 2023 and 2022, the Company has computedcalculated its provision for income taxes underby applying the discrete method which treatsdue to the year-to-date period as if it wereinability to rely on forecasts. The Company believes the annual perioddiscrete method to calculate the interim tax provision is more appropriate. For the three and determines thenine months ended September 30, 2023, 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 methodincreased as the estimated annual effective tax rate method is not reliable duecompared to the high degree of uncertaintysame periods in estimating annual pre-tax income due to the industry within whichprior year resulting from the Company operates.business combination that occurred on July 7, 2023, see Note 8 for further information.
Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E. Under IRC Section 280E, under which the Company is only allowed to deduct expenses directly related to sales of product.its cannabis products. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.280E for the Company's expenses related to its plant-touching cannabis operations.
| F-22 |
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
16. | PROVISION FOR INCOME TAXES (Continued) |
The effective tax rate for the nine months ended September 30, 20222023 varies widely from the nine months ended September 30, 2021,2022 primarily due to the reductionchange in non-deductiblenondeductible expenses under IRC Section 280E as a proportion of total expenses inpre-tax loss during the current year.period. The Company incurs expenses that are not deductible due to IRC Section 280E limitations which results in significant permanent book-to-tax differences that may not necessarily correlate with pre-tax income tax expense.or loss.
The Company operatesfiles income tax returns in a number of taxthe US and various state jurisdictions and areis subject to examination of its income tax returns by tax authorities in thosethese jurisdictions who may challenge any item on thosethese returns. Significant judgment is required in evaluatingThe corporate statute of limitations for these jurisdictions remains open for the Company’s uncertain2019 tax positionsyear to the present.
17. | FINANCIAL INSTRUMENTS |
Credit Risk
Credit risk arises from deposits with banks, accounts receivable, security deposits and determiningnotes receivable. As of September 30, 2023, the provision for income taxes.balances were as follows:
|
| Gross |
|
| Allowance |
|
| Net |
| |||
|
|
|
|
|
|
|
|
|
| |||
Cash and Cash Equivalents |
| $ | 32,296,501 |
|
| $ | - |
|
| $ | 32,296,501 |
|
Accounts Receivable |
|
| 3,298,190 |
|
|
| (486,437 | ) |
|
| 2,811,753 |
|
Deposits and other Long Term Assets |
|
| 5,909,764 |
|
|
| - |
|
|
| 5,909,764 |
|
Notes Receivables |
|
| 368,705 |
|
|
| - |
|
|
| 368,705 |
|
|
| $ | 41,873,160 |
|
| $ | (486,437 | ) |
| $ | 41,386,723 |
|
18. | SEGMENT REPORTING |
The Company’s unrecognized tax assets were approximately $61,907,748Company operates in three segments: wholesale, retail, and $42,459,208management. The below table presents financial information by type as atof September 30, 20222023 and December 31, 2021, respectively.2022 and for the three and nine months ended September 30, 2023 and 2022:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Total Assets |
|
|
|
|
|
| ||
Wholesale |
| $ | 77,559,501 |
|
| $ | 34,027,773 |
|
Retail |
| $ | 73,898,705 |
|
|
| 33,139,253 |
|
Management |
| $ | 143,054,422 |
|
|
| 191,528,246 |
|
Less: Intercompany |
|
| (17,378,256 | ) |
|
| (96,769,508 | ) |
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 277,134,372 |
|
| $ | 161,925,764 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Revenues, net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale |
| $ | 3,716,729 |
|
| $ | 2,270,104 |
|
| $ | 9,480,500 |
|
| $ | 6,303,418 |
|
Retail |
|
| 28,243,450 |
|
|
| 14,149,673 |
|
|
| 53,088,209 |
|
|
| 43,171,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
| $ | 31,960,179 |
|
| $ | 16,419,777 |
|
| $ | 62,568,709 |
|
| $ | 49,475,131 |
|
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
18. | SEGMENT REPORTING (Continued) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Depreciation and Amortization Expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale |
| $ | 2,023,532 |
|
| $ | 259,087 |
|
| $ | 4,152,510 |
|
| $ | 1,454,618 |
|
Retail |
|
| 782,911 |
|
|
| 380,706 |
|
|
| 1,721,252 |
|
|
| 1,142,072 |
|
Management |
|
| 2,658,566 |
|
|
| 1,393,943 |
|
|
| 4,323,342 |
|
|
| 3,370,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation and Amortization |
| $ | 5,465,009 |
|
| $ | 2,033,736 |
|
| $ | 10,197,104 |
|
| $ | 5,967,319 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale |
| $ | 718,149 |
|
| $ | 64,608 |
|
| $ | 1,106,531 |
|
| $ | 1,139,084 |
|
Retail |
|
| 310,391 |
|
|
| 101,823 |
|
|
| 698,495 |
|
|
| 304,385 |
|
Management |
|
| 5,803,407 |
|
|
| 5,517,977 |
|
|
| 14,568,239 |
|
|
| 13,700,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense |
| $ | 6,831,947 |
|
| $ | 5,684,408 |
|
| $ | 16,373,265 |
|
| $ | 15,144,412 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Income Tax Expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Retail |
| $ | 53,980 |
|
| $ | 1,343,514 |
|
| $ | 1,567,974 |
|
| $ | 3,354,711 |
|
Management |
|
| 6,752,767 |
|
|
| - |
|
|
| 6,752,767 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense |
| $ | 6,806,747 |
|
| $ | 1,343,514 |
|
| $ | 8,320,741 |
|
| $ | 3,354,711 |
|
19. | OPERATING EXPENSES |
The below table presents operating expenses for the three and nine months ended September 30, 2023 and 2022:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and Administrative |
| $ | 12,978,397 |
|
| $ | 2,653,875 |
|
|
| 23,269,352 |
|
|
| 8,170,093 |
|
Allowance for Accounts Receivable and Notes Receivable |
|
| 4,125 |
|
|
| 4,168 |
|
|
| 327,522 |
|
|
| 30,645 |
|
Sales and Marketing |
|
| 1,150,830 |
|
|
| 179,195 |
|
|
| 1,738,308 |
|
|
| 398,248 |
|
Salaries and Benefits |
|
| 5,883,431 |
|
|
| 1,387,454 |
|
|
| 8,659,711 |
|
|
| 6,213,151 |
|
Share-Based Compensation |
|
| 468,920 |
|
|
| 47,059 |
|
|
| 566,991 |
|
|
| 357,253 |
|
Lease Expense |
|
| 1,678,533 |
|
|
| 514,788 |
|
|
| 2,861,198 |
|
|
| 1,544,365 |
|
Depreciation of Property and Equipment and Amortization of Right-of-Use Assets under Finance Leases |
|
| 817,821 |
|
|
| 354,918 |
|
|
| 1,620,215 |
|
|
| 1,061,421 |
|
Amortization of Intangible Expenses |
|
| 2,635,778 |
|
|
| 771,666 |
|
|
| 4,179,111 |
|
|
| 2,336,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Selling, General and Administrative Expenses |
| $ | 25,617,834 |
|
| $ | 5,913,124 |
|
| $ | 43,222,408 |
|
| $ | 20,111,426 |
|
| F-24 |
| Table of Contents |
Gold Flora Corporation |
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
20. | INCOME (LOSS) PER SHARE |
The following is a reconciliation for the calculation of basic and diluted income (loss) per share for the three and nine months ended September 30, 2023 and 2022:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) Attributable to Gold Flora Corp. |
| $ | 22,939,430 |
|
| $ | (8,401,322 | ) |
| $ | (443,894 | ) |
| $ | (26,248,124 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on Preferred Stock |
| $ | (30,710 | ) |
| $ | (403,614 | ) |
| $ | (824,777 | ) |
| $ | (1,197,681 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Gold Flora Corp. |
| $ | 22,908,720 |
|
| $ | (8,804,936 | ) |
| $ | (1,268,671 | ) |
| $ | (27,445,805 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - Basic |
|
| 273,642,363 |
|
|
| 94,492,442 |
|
|
| 154,766,984 |
|
|
| 94,334,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - Diluted |
|
| 300,318,094 |
|
|
| 94,492,442 |
|
|
| 154,766,984 |
|
|
| 94,334,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share - Basic |
| $ | 0.08 |
|
| $ | (0.09 | ) |
| $ | (0.01 | ) |
| $ | (0.29 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share - Diluted |
| $ | 0.08 |
|
| $ | (0.09 | ) |
| $ | (0.01 | ) |
| $ | (0.29 | ) |
For the three and nine months ended September 30, 2022, diluted loss per share is the same as basic loss per share as the issuance of shares on the exercise of convertible notes payable, employee profit interests, RSUs, warrants and share options are anti-dilutive. For the three and nine months ended September 30, 2023, approximately 69,343,000, of potentially dilutive securities at September 30, 2023 were excluded in the calculation of diluted income per share as their impact would have been anti-dilutive.
| F-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 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 |
|
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
24. Related party transactions and balances
The following table outlines the amounts paid to a related party:
|
| 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 |
|
|
|
In addition to the items described above, the Company entered into the following transaction with a related party:
|
|
25. 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 months ended September 30, 2022 and 2021 and all property and equipment, right-of-use assets and intangible assets were located in the State of California.
26. Commitments and contingencies
a) California operating licenses
The 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). The 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 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. Due to the uncertainty surrounding the 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.
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
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 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 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 with $10,000,000 and contribute 2% of its net income to allow SEV to make further social equity investments. During the nine months ended September 30, 2022, SEV made two social equity investments totalling $350,000 (Nine months ended September 30, 2021 -– SEV made two social equity investments totalling $1,000,000).
27. Financial instruments
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 contingent consideration is classified as level 3 in the fair value hierarchy as volatility is a key input into the valuation models and volatility is an unobservable input.
The following provides a breakdown of contingent consideration as at September 30, 2022 and 2021:
|
| 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 |
|
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
27. 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, 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 and $21.00 within three years of closing, with one-third issuable upon the achievement of each price threshold, respectively.
The fair value of the trading price consideration was determined using a Monte Carlo simulation methodology that included simulating the share price using a risk-neutral Geometric Brownian Motion-based pricing model over 500,000 iterations.
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 |
| |||
Key unobservable inputs |
|
|
|
|
|
|
|
|
| |||
Expected volatility |
|
| 70 | % |
|
| 65 | % |
|
| 62 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Key observable inputs |
|
|
|
|
|
|
|
|
|
|
|
|
Share price |
| $ | 0.59 |
|
| $ | 1.39 |
|
| $ | 3.19 |
|
Risk-free interest rate |
|
| 4.06 | % |
|
| 0.79 | % |
|
| 0.35 | % |
Dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Number of shares |
|
| 22,001,711 |
|
|
| 21,850,404 |
|
|
| 21,836,190 |
|
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 | ) | |
(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
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 |
|
(i) For trade receivables, the Company does not hold any collateral 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.
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
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. 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 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 |
|
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
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.
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. 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. Subsequent events
Shares issued
Subsequent to September 30, 2022, the Company issued 99,899 shares for RSUs and PSUs vested.
Disposal of SISU
On October 31, 2022, 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 the acquisition of 100% of the equity of Coastal Holding Company, LLC ("Coastal") by issuing 25,000,000 shares of Coast L Acquisition Corp., a wholly 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.
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 ability to grow revenue and reach | |
| ||
| ||
| ||
· | the expected | |
· | expected future sources of financing; | |
· | the implementation and effectiveness of the Company’s | |
cost-cutting initiatives; | ||
· | ||
| 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 and Adjusted EBITDA of the Company’s operations; | |
· | ||
| ||
| ||
| 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 | |
· | the uncertainty related to the outcome of litigation | |
· | the uncertainty related to the resolution of the PPP loans; | |
· | general economic trends. |
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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| Table of Contents |
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 thingsthings: (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- LookingForward-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.
ResultsPart 1—Business Overview
Gold Flora is a single state operator ("SSO") in California and operates as a vertically integrated, licensed, group of cannabis companies. Gold Flora's operations consist of:
Cultivation: operated through Gold Flora's wholly-owned subsidiary, Black Lion Farms, LLC ("BLF"), BLF operates a 105,300 square foot facility at the DHS Campus (as defined below) dedicated to indoor cultivation, which includes a 62,000 square feet of canopy. Gold Flora has an additional 10,000 square feet of canopy at its San Jose Airfield location.
Manufacturing: operated through Gold Flora's wholly-owned subsidiary, Black Lion Labs, LLC ("BLL"), BLL operates a 10,000 square foot facility at the DHS Campus dedicated to manufacturing.
Distribution: operated through Gold Flora's majority held subsidiary, GF Distribution, LLC d/b/a RYL Distribution ("GFD"), GFD operates a California state wide distribution network with three core hubs in Desert Hot Springs, California, Costa Mesa, California and San Jose, California.
Retail: operated through a number of Gold Flora's wholly-owned subsidiaries, Gold Flora operates dispensaries in California. These retail operations include 4 dispensaries currently operating in Long Beach, San Jose, Hollister and Seaside. Gold Flora acquired 11 (net) additional dispensaries to bring the total to 15 retail locations as part of its TPCO acquisition discussed subsequently. The Company anticipates opening a 16th dispensary in Corona before the end of November 2023.
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| Table of Contents |
Regulation
We are subject to the local and federal laws in the jurisdictions in which we operate. We hold all required licenses for First nine Monthsthe production and distribution of 2021 Do Not Reflect Complete Periodour products in the jurisdictions in which we operate and continuously monitor changes in laws, regulations, treaties and agreements. We are licensed to cultivate, manufacture, distribute and sell wholesale and retail cannabis and cannabis products. We operate in, and/or have ownership interests in businesses operating in, California, pursuant to the California Medicinal and Adult-Use Cannabis Regulation and Safety Act.
Product Innovation and Consumer Trends
Our financial resultsbusiness is subject to changing consumer trends and preferences, which is dependent, in part, on continued consumer interest in existing and new products. The success of new product offerings depends upon a number of factors, including our ability to: (i) accurately anticipate customer needs; (ii) develop new products that meet these needs; (iii) successfully commercialize new products; (iv) price products competitively; (v) produce and deliver products in sufficient volumes and on a timely basis; and (vi) differentiate product offerings from those of our competitors.
Gold Flora and The Parent Company Transformational Merger
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”). 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.
Gold Flora Corporation is a female-led, vertically-integrated cannabis leader that owns and operates a robust portfolio of 9 cannabis brands, 15 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, with the opportunity to expand to a further approximately 240,000 square feet. Its 200,000 square-foot cannabis campus located in Desert Hot Springs, California (the “DHS Campus”) – 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 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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| Table of Contents |
Holders of the Common Shares of TPCO received one share of common stock of the Resulting Issuer (such shares, the “Resulting Issuer Shares”) for each TPCO 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 & 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, 9 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 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. 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. | ||
| 7 |
| Table of Contents |
Gold Flora Corporation is a vertically integrated single-state operator that, through various subsidiaries, has cultivation, manufacturing, distribution and retail operations in California. While the nature of the Company’s operations is legalized and approved by the State of California, it is considered to be an illegal activity under the Controlled Substances Act of the United States of America (the “CSA”). Accordingly, certain additional risks and uncertainties are present as discussed in this Form 10-Q.
As of September 30, 2023, we operated fifteen retail locations including the following: Caliva, Coastal, Calma, Airfield Supply Company, King's Crew, Varda, Higher Level, and Deli.
The Company operates in three segments: wholesale, retail, and management.
We continue to actively evaluate additional cost reductions and business optimization to reduce our cash burn in the near term, accelerate market share growth, improve our gross margin profile and work toward generating sustained free cash flow.
Third Quarter Highlights
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.
While the overall cannabis market in California declined 2% in the two months ending in August 2023, Stately Distribution grew 33%, growing share in a declining market. We have completed the on-boarding of all TPCO brands and sales onto the Stately Distribution platform, adding $400,000 in revenue to the Stately platform in the quarter ending September 30, 2023.
In addition, Stately has doubled the sales volume of Cruisers in third party dispensaries in September of 2023 compared to July of 2023.
Restructuring Activities
The Company has diligently and successfully accomplished targeted measures to streamline and integrate legacy operations into Gold Flora's vertically-integrated platform. Integration includes significant reductions in marketing expenses, professional services, personnel expenses, and G&A expenses. In addition, the Company has nearly eliminated its reliance on third-party vendors for biomass, manufacturing, and distribution. Gold Flora has closed several non-profitable delivery locations and has optimized its real-estate footprint by exiting leases or, where attractive, subleasing underutilized space.
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| Table of Contents |
The tangible outcomes of these initial changes translate into substantial annualized cost savings of approximately $30 million, surpassing the Company's initial cost-savings target of $20-$25 million. Annualized payroll savings make up approximately half of the achieved savings. Other areas where savings were found included: ceasing using Nabis for wholesale distribution, real estate optimizations/lease re-negotiation, and insurance.
The Company is in the process of integrating its back-office infrastructure and has identified other synergies and cost-saving initiatives, which should yield additional significant savings. Overall, the Company is on plan and ahead of schedule with respect to targeted cost savings.
As part of the restructuring, the Company closed its Ceres retail location and Brisbane delivery depot during the third quarter.
Company-Owned Branded Product (“1P”) Growth
With the addition of retail locations, we have expanded our company-owned branded product (“1st Party Product”) presence between Gold Flora and TPCO, now representing Mirayo, Caliva, Cruisers, Monogram, Gold Flora, Roll Bleezy, JetFuel, Sword and Stoned and Aviation, which represents 21% of total retail revenue.
Cultivation
Our cultivation capacity has increased significantly during Q3 2023 at our Desert Hot Springs (“DHS”) Campus. We have turned on an additional approximate 40,0000 square feet of canopy, more than tripling our productive capacity of quality, indoor flower. We estimate annual flower production of almost 30,000 pounds when all flower rooms are operating optimally.
A majority of this flower will be utilized to produce our first party branded packaged products for sale in our retail stores and to third party stores through distribution. This represents a significant shift in capacity and fulfilling first party product demand in the combined entity.
Manufacturing
We continue to integrate all first party (“1P”) product production into the Gold Flora operation at the DHS Campus. Overall, 1P product SKUs have increased over 2.5 times since the merger, amounting to almost 200 SKUs moving through the operation.
We have successfully moved all TPCO outsourced vape production to the DHS Campus, representing an additional ~$4mm in annualized wholesale revenue over the same fixed cost footprint.
Flower packaging, including automated lines for bagging and jarring, is operational. Productivity has more than doubled as a result of these changes.
In addition, we have launched our concentrates products in the Roll Bleezy brand, an affordable, quality smokables brand focusing on preserving the essence of each strain in the finished product. In the first two months, sales haveincreased over $100,000 and Roll Bleezy concentrates are now being sold in over 90 accounts statewide.
Distribution
We have terminated outsourced distribution services that TPCO utilized and integrated this into our internal Stately Distribution operations and sales, amounting to annualized savings of approximately $3 million in distribution fees and overhead.
The number of units moving through our distribution operations and the number of orders processed has increased over 50% since the merger, with costs to process and move these units only increasing by 7%.
Supply Chain Management
We have integrated company-wide centralized planning, purchasing and sourcing of non-cannabis and cannabis related inventory and consolidated into one ERP system, yielding improved efficiencies in inventory management.
Subsequent Events
On October 5, 2023, the Company announced the launch of its premium flower brand CURRENT, celebrating cannabis flavor and genetic expression. Current was developed to meet a market demand for curated craft flower that is flavor-focused.
Crafted in four distinct flavor classes included Rare Gas, Rare Fruit, Rare Haze, and Rare Dessert, CURRENT is now available at all 15 Gold Flora retail locations, including Airfield Supply Company, Caliva, Coastal, Calma, King's Crew, Varda, Higher Level, and Deli. To celebrate the launch, Gold Flora will be giving away branded swag and hosting in-store activations at select locations. Statewide third-party retail distribution is expected to commence in November 2023.
| 9 |
| Table of Contents |
Results of Operations
(Unaudited, in United States dollars)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues, net |
| $ | 31,960,179 |
|
| $ | 16,419,777 |
|
| $ | 62,568,709 |
|
| $ | 49,475,131 |
|
Cost of Goods Sold |
|
| 20,646,157 |
|
|
| 12,130,431 |
|
|
| 43,268,725 |
|
|
| 38,017,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 11,314,022 |
|
|
| 4,289,346 |
|
|
| 19,299,984 |
|
|
| 11,458,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General, and Administrative |
|
| 25,617,834 |
|
|
| 5,913,124 |
|
|
| 43,222,408 |
|
|
| 20,111,426 |
|
Change in Fair Value of Earnout Liability |
|
| - |
|
|
| - |
|
|
| 4,375,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
| 25,617,834 |
|
|
| 5,913,124 |
|
|
| 47,597,408 |
|
|
| 20,111,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
| (14,303,812 | ) |
|
| (1,623,778 | ) |
|
| (28,297,424 | ) |
|
| (8,653,295 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
| 6,831,947 |
|
|
| 5,684,408 |
|
|
| 16,373,265 |
|
|
| 15,144,412 |
|
Loss on Extinguishment of Debt |
|
| 1,440,207 |
|
|
| - |
|
|
| 1,440,207 |
|
|
| - |
|
Gain on Bargain Purchase |
|
| (49,025,606 | ) |
|
| - |
|
|
| (49,025,606 | ) |
|
| - |
|
Other Expense (Income) |
|
| (3,315,360 | ) |
|
| (214,021 | ) |
|
| (4,917,689 | ) |
|
| (762,856 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Taxes |
|
| 29,765,000 |
|
|
| (7,094,165 | ) |
|
| 7,823,399 |
|
|
| (23,034,851 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes |
|
| (6,806,747 | ) |
|
| (1,343,514 | ) |
|
| (8,320,741 | ) |
|
| (3,354,711 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
| 22,958,253 |
|
|
| (8,437,679 | ) |
|
| (488,342 | ) |
|
| (26,389,562 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Non-Controlling Interest |
|
| 18,823 |
|
|
| (36,357 | ) |
|
| (44,448 | ) |
|
| (141,438 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Gold Flora Corp. |
| $ | 22,939,430 |
|
| $ | (8,401,322 | ) |
| $ | (443,894 | ) |
| $ | (26,248,124 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend on Preferred Stock |
| $ | (30,710 | ) |
| $ | (403,614 | ) |
| $ | (824,777 | ) |
| $ | (1,197,681 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Gold Flora Corp. |
| $ | 22,908,720 |
|
| $ | (8,804,936 | ) |
| $ | (1,268,671 | ) |
| $ | (27,445,805 | ) |
Sales Revenue
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Revenues, net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale |
| $ | 3,716,729 |
|
| $ | 2,270,104 |
|
| $ | 9,480,500 |
|
| $ | 6,303,418 |
|
Retail |
|
| 28,243,450 |
|
|
| 14,149,673 |
|
|
| 53,088,209 |
|
|
| 43,171,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
| $ | 31,960,179 |
|
| $ | 16,419,777 |
|
| $ | 62,568,709 |
|
| $ | 49,475,131 |
|
The Company’s revenue for the three and nine month periodmonths ended September 30, 2021 did not include operating results from January 1, 20212023 was $31,960,179 and $62,568,709 compared to January 15,2021 due to$16,419,777 and $49,475,131 in 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 thethree and nine months ended September 30, 2022 representing increases of $15,540,402 (94.6%) and the nine months ended September 30, 2021.
Part 1—Business Overview
The Company is a consumer-focused cannabis company based in the United States focused on the recreational and wellness markets. The Company’s operations in California are focused on building winning brands supported by its omni-channel ecosystem. The Company’s platform was designed to create one of the most socially responsible and culturally impactful companies 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 delivery service and strategically located storefront retail locations across California. A 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 caliber of quality through integrated cultivation and manufacturing. The Company believes its delivery and storefront retail outlets will allow it to achieve high gross-margins on many of its products, forge one-on-one relationships between its brands and consumers and collect proprietary consumer data and insights.$13,093,578 (26.5%) respectively.
| Table of Contents |
The Company’s operational footprint spans cultivation, manufacturing, brands, retail and delivery. The 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 to leverage the collective industry experience of its management and directors.
As at September 30, 2022, the Company views its business as having one sales 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 currently operates twelve omni-channel retail locations and four consumer delivery hubs.
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. 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 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. The bulk wholesale business generated revenue from the sale of bulk flower and oil produced in-house.
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 to set the example globally as a best-in-class cannabis operation. The Company is actively evaluating cost reductions and business optimization to reduce its cash burn in the near term.
Beginning in 2022, the Company changed its mergers & acquisitions strategy going forward to be more opportunistic and selective rather than as a core function to achieve rapid growth.
Third Quarter Highlights
Cost Reduction Initiatives
1)Cultivation Pause
Our operations continue 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 proposed 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 in the fourth quarter of 2022, delivery vehicles will be able to carry significantly more product than currently allowed. This increase is also expected 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 margin improvement in stores, the Company:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
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.
Results of Operations
(Unaudited, in United States dollars)
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 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 |
|
| 127,815,307 |
|
|
| 485,601,121 |
|
|
| 130,244,837 |
|
|
| 560,500,228 |
|
Operating expenses |
|
| 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 |
|
| (388,878 | ) |
|
| (768,030 | ) |
|
| (421,974 | ) |
|
| (418,818 | ) |
Change in fair value of contingent consideration |
|
| 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) |
|
| 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 |
|
| (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 | ) |
|
| - |
|
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 |
|
| (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 |
| $ | (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 |
|
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, 20222023 was $3,716,729 and $9,480,500 compared to a discontinued operations loss of $83,578,124$2,270,104 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$6,404,418 in the three and nine months ended September 30, 2022 comparedrepresenting increases of $1,446,625 (63.7%) and $3,177,082 (50.4%) respectively. The increases are due 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 (bothadditional cultivation rooms coming online during the fourth quarter of 2021).
The Company considers itself post the exit of theperiods allowing for higher bulk wholesale business to have one sales 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.
As of September 30, 2022, the Company operated twelve retail locations and four consumer delivery hubs. Subsequent to quarter-end, one delivery hub was closed. We operate four store brands, Caliva, Deli by Caliva, Coastal and Calma.sales.
The Company’s continuing operations revenueretail revenues for the three and nine months ended September 30, 20222023 was $19,560,190$28,243,450 and $63,674,204$53,088,209 compared to $18,894,135$14,149,673 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$43,171,713 in the three and nine months ended September 30, 2022 offset a decreaserepresenting increases of $14,093,777 (99.6%) and $9,916,496 (23.0%) respectively. The increases are due to primarily due to the consolidation of the Company’s TPCO acquisition from July 7, 2023 to September 30, 2023 which added 11 (net of one closure) additional retail locations. At September 30, 2023, GFC operated 15 retail locations. GFC expects to add an additional retail location in same store revenue and average order volume at severalQ4 2023 to bring the total number of operated retail locations that are presented in the three and nine months ended September 30, 2021.to 16.
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.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 31,960,179 |
|
| $ | 16,419,777 |
|
| $ | 62,568,709 |
|
| $ | 49,475,131 |
|
Cost of Goods Sold |
|
| 20,646,157 |
|
|
| 12,130,431 |
|
|
| 43,268,725 |
|
|
| 38,017,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 11,314,022 |
|
|
| 4,289,346 |
|
|
| 19,299,984 |
|
|
| 11,458,131 |
|
|
|
| 35 | % |
|
| 26 | % |
|
| 31 | % |
|
| 23 | % |
Adjustments to Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
| 1,056,035 |
|
|
| 341,372 |
|
|
| 2,454,763 |
|
|
| 1,016,047 |
|
Operating Expenses related to 280E adjustments |
|
| 5,717,144 |
|
|
| 1,468,129 |
|
|
| 8,848,706 |
|
|
| 3,634,068 |
|
Non-Reoccurring Inventory Adjustments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,200,000 |
|
Adjusted Gross Profit |
| $ | 18,087,201 |
|
| $ | 6,098,847 |
|
| $ | 30,603,453 |
|
| $ | 17,308,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Profit % |
|
| 57 | % |
|
| 37 | % |
|
| 49 | % |
|
| 35 | % |
Non-GAAP Measures - Adjusted Gross Profit
We believe Adjusted Gross Profit 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. We define “Adjusted Gross Profit” as Gross Profit adjusted to exclude operating expenses (including depreciation and amortization) related to U.S. tax code 280E adjustments and non-recurring inventory adjustments.
The Company’s continuing operations gross profit for the three and nine months ended September 30, 20222023 was $6,618,122 (33.8%$11,314,022 (35%) and $19,358,170 (30.4%$19,299,984 (31%) compared with $5,000,492 (26.5%$4,289,346 (26%) and $11,610,696 (21%)$11,458,131 (23 %) in the three and nine months ended September 30, 2021. 2022.
The improvedCompany adjusted gross profit (adjusting for depreciation & amortization, operating expensed related to U.S. tax code 280E adjustments and non-recurring inventory adjustments) for the three and nine months ended September 30, 2023 was $18,087,201 (57%) and $30,603,543 (49%) compared with $6,098,847 (37%) and $17,308,247 (35%) in the three months ended September 30, 2022. The significant improvement in Adjusted Gross Margin is primarily due to: vertical integration efficiencies, bringing distribution in-house, and reduction of third party costs through supply chain optimization.
Since the merger, retail has focused on centralizing resources to increase proficiencies in retail operations and store profitability. In July 2023, we closed non profitable delivery services in Coastal, Varda, Calma and Brisbane, saving $655,000 (combined) in annualized net cash burn.
| 11 |
| Table of Contents |
With our expanded presence in California we have negotiated with our key vendors to optimize our gross margins representacross the resultsorganization. With the broader retail footprint, we have been able to negotiate more advantageous promotional commitments from our partners.
As a result of the various margin enhancing initiatives the Company implemented during 2022 as describedmerger, we centralized resources, revisited tactics, reduced headcount significantly, and reduced marketing spend. We have a more disciplined approach in the highlights section of this MD&A.our spend and ROI thresholds with programs and programmatic ad spend. We have placed more attention on lower funnel marketing tactics i.e. SEO, loyalty and email.
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 doubtful amounts |
|
| 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 |
|
| 1,061,119 |
|
|
| 3,612,656 |
|
|
| 4,764,289 |
|
|
| 17,450,820 |
|
Lease expense |
|
| 1,940,550 |
|
|
| 1,035,901 |
|
|
| 5,807,447 |
|
|
| 3,165,803 |
|
Depreciation and amortization |
|
| 1,139,282 |
|
|
| 909,111 |
|
|
| 2,982,641 |
|
|
| 2,367,810 |
|
Amortization of intangible assets |
|
| 10,420,607 |
|
|
| 3,271,209 |
|
|
| 20,772,458 |
|
|
| 11,806,979 |
|
|
| $ | 36,838,444 |
|
| $ | 30,936,988 |
|
| $ | 108,036,813 |
|
| $ | 128,763,201 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and Administrative |
| $ | 12,978,397 |
|
| $ | 2,653,875 |
|
|
| 23,269,352 |
|
|
| 8,170,093 |
|
Allowance for Accounts Receivable and Notes Receivable |
|
| 4,125 |
|
|
| 4,168 |
|
|
| 327,522 |
|
|
| 30,645 |
|
Sales and Marketing |
|
| 1,150,830 |
|
|
| 179,195 |
|
|
| 1,738,308 |
|
|
| 398,248 |
|
Salaries and Benefits |
|
| 5,883,431 |
|
|
| 1,387,454 |
|
|
| 8,659,711 |
|
|
| 6,213,151 |
|
Share-Based Compensation |
|
| 468,920 |
|
|
| 47,059 |
|
|
| 566,991 |
|
|
| 357,253 |
|
Lease Expense |
|
| 1,678,533 |
|
|
| 514,788 |
|
|
| 2,861,198 |
|
|
| 1,544,365 |
|
Depreciation of Property and Equipment and Amortization of Right-of-Use Assets under Finance Leases |
|
| 817,821 |
|
|
| 354,918 |
|
|
| 1,620,215 |
|
|
| 1,061,421 |
|
Amortization of Intangible Expenses |
|
| 2,635,778 |
|
|
| 771,666 |
|
|
| 4,179,111 |
|
|
| 2,336,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Selling, General and Administrative Expenses |
| $ | 25,617,834 |
|
| $ | 5,913,124 |
|
| $ | 43,222,408 |
|
| $ | 20,111,426 |
|
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.
ForGeneral & Administrative expenses were $12,978,397 and $23,269,352 for the three and nine months ended September 30, 2022, the Company recorded operating expenses of $36,838,444 and $108,036,813,2023, respectively, compared with $30,936,988$2,653,875 and $128,763,201$8,170,093 in the three and nine months ended September 30, 2021 comparative periods.2022. The significant increase in general & administrative expenses is due to non-recuring transaction costs associated with GFC’s acquisition of TPCO and the assumption of other TPCO related general & administrative costs that supported its twelve retail location network. During the nine months ended September 30, 2023, both TPCO and GFC incurred a total of $12,680,616 non-recuring transaction costs. GFC management is reviewing all assumed TPCO general & administrative costs in detail and reducing/eliminating as possible.
GeneralThe allowance for doubtful accounts was $4,125 and administrative costs were $9,717,296$327,522 for three and $31,554,670nine months ended September 30, 2023, respectively, compared with $4,168 and $30,645 in the three and nine months ended September 30, 2022 compared with $11,260,510 and $29,798,2502022. The changes 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.
The allowance for doubtful accounts was $722,456 and $3,303,791 in the three and nine months ended September 30, 2022 compared with $460,358 and $546,975 in the three and nine months ended September 30, 2021. The increased allowance reflects management’s estimates for credit losses on various trade receivables and the Mosaic.Ag matter as described later in this MD&A.receivables.
SalariesSales and benefitsmarketing totaled $9,149,250$1,150,830 and $29,039,258$1,738,308 for the three and nine months ended September 30, 2023, respectively, compared with $179,195 and $398,248 in the three and nine months ended September 30, 20222022. The increase reflects the more retail focus of the business post the TPCO acquisition.
Salaries and $8,455,719benefits totaled $5,883,431 and $26,271,625$8,659,711 in the three and nine months ended September 30, 2021. The increases of $693,531 (8.2%)2023, respectively, compared with $1,387,454 and $2,767,633 (10.5%)$6,213,151 in the three and nine months ended September 30, 20222022. The increase in salaries and benefit expenses reflects TPCO compensation costs assumed with the acquisition. TPCO as a public company with a significant retail footprint incurred significantly higher operating compensation costs than Gold Flora previously as a cultivation focused private company. During the nine months ended September 30, 2023, GFC and TPCO incurred $3,515,041 of non-recurring management level severances. GFC management is the result of the consolidation of additional head count acquired via the Coastal, Martian, Kasereviewing all assumed TPCO salary and Calma acquisitions, severances of $409,128 net of restructuring efficiencies.benefit costs in detail and reducing/eliminating as possible.
Share basedShare-based compensation totaled $1,061,119$468,920 and $4,764,289$566,991 in the three and nine months ended September 30, 20222023, respectively, as compared with $3,612,656to $47,059 and $17,450,820$357,253 in the three and nine months ended September 30, 2021.2022. Share based compensation is a non-cash expense and fluctuates with the number of restricted stock units (“RSUs”RSUs”) granted and vested in a period and the stock price. 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 lower in 2022 than it was in 2021.Common Shares.
| 12 |
| Table of Contents |
Lease expense totaled $1,940,550$1,678,533 and $5,807,447 in the three months and nine ended September 30, 2022 and $876,285 and $3,165,803$2,861,198 in the three and nine months ended September 30, 2021. The increases reflect the numerous acquisitions made during 2021 which are consolidated2023, respectively, compared with $514,788 and $1,544,365 in the financial results for the three and nine months ended September 30, 2022 whereby2022. The increase is primarily the Company increasedresult of the numberacquisition of lease propertieseleven (net of one closure) retail locations during the quarter ended September 30, 2023. GFC closed the Brisbane delivery depot and its California footprint, as well asCeres retail locations acquired from TPCO during the Pullman property sale and lease back arrangement as previously disclosed.quarter ended September 30, 2023 in order to streamline costs.
Depreciation of property, plant & equipment totaled $1,139,282$817,821 and $2,982,641$1,620,215 in the three and nine months ended September 30, 20222023, respectively, as compared with $876,285to $354,918 and $3,165,803$1,061,421 in the three and nine months ended September 30, 2021.2022. Depreciation is a non-cash expense and increased as a result of the slight expense increases inTPCO acquisition which brought 11 (net) retail locations and the periods represents the higherassociated property, plant &and equipment asset base owned by the Companylocated at September 30, 2022 compared to September 30, 2021 due to the various acquisitions made in 2021.those locations.
Amortization of intangible assets totaled $10,420,607$2,635,778 and $20,772,458$4,179,111 in the three and nine months ended September 30, 20222023, respectively, as compared with $3,271,209to $771,666 and $11,806,979.$2,336,250 in the three and nine months ended September 30, 2022. Amortization is a non-cash expense. The increase in amortization expense is due to additionalthe TPCO acquisition at the $42,630,000 of definite life (i.e. amortizing) intangible assets acquired as part ofasset additions that came with 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 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.transaction.
Other Items
Interest (expense)
Interest expense totaled $1,183,968$6,831,497 and $3,694,798$16,373,265 for the three and nine months ended September 30, 2022 compared with $1,093,562 and $3,757,176 in the three and nine months ended September 30, 2021. The interest expense is primarily incurred on lease accounting for the Company’s right-of-use assets.
Discontinued Operations
The Company recorded a loss from discontinued operations (its bulk wholesale business) of $2,327,414 and $4,302,730 for the three and nine months ended September 30, 20222023, respectively, as compared to $83,578,124$5,684,408 and $86,074,460 in the three and nine months ended September 30, 2021. The much larger losses in the comparative period ended September 30, 2021 is primarily due to larger impairment losses recorded in this period. The Company further recorded a loss from classification to discontinued operations, net of income tax of $11,082,725$15,144,412 in the three and nine months ended September 30, 2022, respectively. The interest expense is incurred on lease accounting for the Company’s right-of-use assets, notes payable and convertible loans.
Gain on bargain purchase
Gain on bargain purchase totaled $49,025,606 and $49,025,606 for the three and nine months ended September 30, 2023, respectively, as compared with $nilto $Nil and $Nil in the three and nine months ended September 30, 2021.2022. The gain on bargain purchase is a non-cash gain realized on the acquisition of TPCO due to the net assets acquired being higher than the consideration paid.
Net loss and Comprehensive LossIncome / (loss) Attributable to Gold Flora, Corp
The Company recorded net lossesincome of $148,030,068$22,958,253 and $212,049,285a net loss of $488,342 in the three and nine months ended September 30, 20222023, respectively, as compared to $561,350,050net losses of $8,437,679 and $536,464,297$26,389,562 in the comparative periodthree and nine month periods ended September 30, 2021.2022, respectively. The reductionnet income realized in lossesthe three and nine months ended September 30, 2023 is due primarilypredominately to lower impairment charges in the current periods and to a lesser extent due to higherlarge non-cash $49,025,606 non-recurring gain on bargain purchase realized margins and some operating cost efficiencies.on the TPCO acquisition.
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.
| 13 |
| Table of Contents |
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-basedshare-based compensation expense, (ii) fair value change in contingent consideration and investments measured at Fair Value Through Profit and Loss (“FVPL”)fair values of earn out liability, (iii) non-recurring legal and professional fees, human-resources, inventory and bad debt / collections-related expenses, (iv) intangible and goodwill impairments and loss on disposal of assets / debts, and (v) transaction costs related to merger and acquisition activities.
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 |
| ||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss and comprehensive loss from continuing |
| $ | (134,619,929 | ) |
| $ | (477,771,926 | ) |
| $ | (196,663,830 | ) |
| $ | (450,389,837 | ) |
Income taxes from continuing operations |
|
| (24,460,758 | ) |
|
| 3,935,160 |
|
|
| (24,418,531 | ) |
|
| (6,541,380 | ) |
Depreciation and amortization from continuing operations |
|
| 11,559,889 |
|
|
| 4,180,320 |
|
|
| 23,755,099 |
|
|
| 14,174,789 |
|
Interest expense from continuing operations |
|
| 1,183,968 |
|
|
| 1,093,562 |
|
|
| 3,694,798 |
|
|
| 3,757,176 |
|
EBITDA |
|
| (146,336,830 | ) |
|
| (468,562,884 | ) |
|
| (193,632,464 | ) |
|
| (438,999,252 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation expense |
|
| 1,061,119 |
|
|
| 3,612,656 |
|
|
| 4,764,289 |
|
|
| 17,450,820 |
|
Other non-recurring items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value change of contingent consideration |
|
| (3,558 | ) |
|
| (38,178,321 | ) |
|
| (642,153 | ) |
|
| (220,997,087 | ) |
Change in fair value of investments at fair value through profit or loss |
|
| 388,878 |
|
|
| 768,030 |
|
|
| 421,974 |
|
|
| 418,818 |
|
Loss on disposal of assets |
|
| - |
|
|
| 137,042 |
|
|
| 317,787 |
|
|
| 3,656,707 |
|
Impairment loss |
|
| 127,815,307 |
|
|
| 485,601,121 |
|
|
| 130,244,837 |
|
|
| 560,500,228 |
|
Other taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,243,441 |
|
De-SPAC costs |
|
| - |
|
|
| 500,000 |
|
|
| - |
|
|
| 4,121,807 |
|
Restructuring costs |
|
| 1,139,128 |
|
|
| 1,500,000 |
|
|
| 1,139,128 |
|
|
| 3,878,782 |
|
Sales and marketing expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,151,147 |
|
Adjusted EBITDA |
| $ | (15,935,956 | ) |
| $ | (14,622,356 | ) |
| $ | (57,386,602 | ) |
| $ | (37,574,589 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) |
| $ | 22,958,253 |
|
| $ | (8,437,679 | ) |
| $ | (488,342 | ) |
| $ | (26,389,562 | ) |
Interest Expense |
|
| 6,831,947 |
|
|
| 5,684,408 |
|
|
| 16,373,265 |
|
|
| 15,144,412 |
|
Taxes |
|
| 6,806,747 |
|
|
| 1,343,514 |
|
|
| 8,320,741 |
|
|
| 3,354,711 |
|
Depreciation and Amortization |
|
| 5,465,009 |
|
|
| 2,033,736 |
|
|
| 10,197,104 |
|
|
| 5,967,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | 42,061,956 |
|
| $ | 623,979 |
|
| $ | 34,402,768 |
|
| $ | (1,923,120 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addback for Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Operating Lease Expense |
|
| 333,500 |
|
|
| (65,079 | ) |
|
| 625,373 |
|
|
| (79,545 | ) |
Change in Fair Value of Earnout Liability |
|
| - |
|
|
| - |
|
|
| 4,375,000 |
|
|
| - |
|
Loss on Extinguishment of Debt |
|
| 1,440,207 |
|
|
| - |
|
|
| 1,440,207 |
|
|
| - |
|
Gain on Bargain Purchase |
|
| (49,025,606 | ) |
|
| - |
|
|
| (49,025,606 | ) |
|
| - |
|
Share-Based Compensation |
|
| 468,920 |
|
|
| 47,059 |
|
|
| 566,991 |
|
|
| 357,253 |
|
Bad Debt Expense |
|
| 4,125 |
|
|
| 4,168 |
|
|
| 327,522 |
|
|
| 30,645 |
|
Transaction Fees and Legal Fees |
|
| 2,634,434 |
|
|
| 62,007 |
|
|
| 4,180,208 |
|
|
| 464,392 |
|
Transaction Related Expenses |
|
| 367,748 |
|
|
| - |
|
|
| 367,748 |
|
|
| - |
|
Non-Reocurring Inventory Adjustments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,200,000 |
|
Adjusted EBITDA |
| $ | (1,714,716 | ) |
| $ | 672,134 |
|
| $ | (2,739,789 | ) |
| $ | 49,625 |
|
(1) | Item incurred in either Gold Flora or in TPCO post July 7, 2023. Transaction expenses and severance incurred in TPCO prior to July 7, 2023 are netted off the bargain purchase gain. Total transaction expenses incurred by both GFC and TPCO totaled $12,680,616. Total management level severances expenses incurred by both GFC and TPCO totaled $3,515,041. |
The Company’s EBITDA loss was $146,336,830$42,061,956 and $193,632,464$34,402,768 for the three and nine months ended September 30, 20222023, respectively, as compared with $468,403,268to $623,979 and $438,999,252 in the comparative periods ended September 30, 2021. The lower EBITDA losses are due to primarily lower impairment charges recorded$1,923,120 (loss) in the three and nine months ended September 30, 2022, comparedrespectively. The higher EBITDA is due to non-cash gain on the bargain purchase $49,025,606 being included in EBITDA in the three and nine months ended September 30, 2021.2023.
Adjusted EBITDA
The Company’s Adjusted EBITDA loss was $15,935,956 and $57,386,602 for the three and nine months ended September 30, 2022 compared with $14,462,740 and $37,574,589 in the comparative periods ended September 30, 2021. The increased Adjusted EBITDA losses are due to the increased size of the Company with its numerous acquisitions made during 2021, which are still being integrated. 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.
The Company’s Adjusted EBITDA loss was $1,714,716 and $2,739,789 for the three and nine months ended September 30, 2023, as compared to positive EBITDA of $672,134 and $49,625 in the three and nine months ended September 30, 2022. The Adjusted EBITDA losses are due to the acquisition of TPCO during the third quarter and the associated transaction and integration costs incurred. The Company believes that it will realize synergies over the coming twelve months from the TPCO acquisition and generate positive EBITDA.
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Cash Flow
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
|
|
|
|
|
|
| ||
NET CASH USED IN OPERATING ACTIVITIES |
|
| (24,821,465 | ) |
|
| (10,440,717 | ) |
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES |
|
| 54,551,673 |
|
|
| (6,558,759 | ) |
|
|
|
|
|
|
|
|
|
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES |
|
| (2,650,778 | ) |
|
| 5,183,777 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 27,079,430 |
|
|
| (11,815,699 | ) |
Cash and Cash Equivalents, Beginning of Period |
|
| 5,217,071 |
|
|
| 17,455,239 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 32,296,501 |
|
| $ | 5,639,540 |
|
Operating Activities
Cash used in operating activities was $24,821,465 in the nine months ended September 30, 2023 as compared to $10,440,717 in the nine months ended September 30, 2022. The average cash burn for the first nine months of 2023 was $2,757,941 per month. The higher average monthly cash use is a result of the TPCO acquisition which closed on July 7, 2023 and its associated transaction costs. Gold Flora’ monthly average cash burn for the six months ended June 30, 2023 was $795,273. The higher cash burn in the nine months ended September 30, 2023 includes the payment of transaction costs and severances associated with the TPCO acquisition. Total transaction costs incurred by both TPCO and Gold Flora was $12,680,616 for the nine months ended September 30, 2023.
Investing Activities
Cash provided by / (used in) investing activities was $54,551,672 in the nine months ended September 30, 2023 as compared to and $6,558,759 (used in) in the nine months ended September 30, 2022. GFC acquired $55,306,235 of cash from TPCO on July 7, 2023. In nine months ended September 30, 2022, GFC used cash primarily for purchase of property, plant and equipment.
Financing Activities
Cash provided by / (used in) financing activities was $2,650,778 (used in) in the nine months ended September 30, 2023 as compared to $5,183,777 cash provided by in the nine months ended September 30, 2022. The change in cash financing cash flows is reflective of Gold Flora issuing and repaying notes. In the nine months ended September 30, 2022, Gold Flora paid $10.1 million related to an acquisition.
Liquidity and Capital Resources
We manage liquidity risk by reviewing, on an ongoing basis, our sourcesGold Flora is currently meeting its current operational obligations as they become due from its current working capital and from operations. Historically, Gold Flora’s primary source of liquidity has been its operations, capital contributions made by equity investors, debt issuances and capital requirements.most recently $55,306,235 of cash acquired as part of the TPCO acquisition which closed on July 7, 2023. As ata result of the merger with TPCO, $28,328,000 in principal balances of the convertible notes automatically converted into equity of Gold Flora Corporation. 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. Gold Flora plans to reduce operating expenses through various strategic initiatives and aggressive cost-cutting measures and raise additional debt financing if needed to help fund operations.
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As of September 30, 2022, The Parent Company2023, Gold Flora had cash and cash equivalents of $107,111,075$32,296,501 compared with cash and cash equivalents of $165,310,609$5,217,071 as at December 31, 2021.2022. Cash and cash equivalents are predominately invested in liquid securities issued by the United States government.
In evaluating ourGold Flora Corporation’s capital requirements including the impact, if any, on our business from the COVID-19 pandemic, and ourits ability to fund the execution of ourits strategy, we believe we haveGold Flora Corporation believes it has adequate available liquidity to enable usit to meet ourits working capital and other operating requirements, fund growth initiatives and capital expenditures, settle ourits liabilities and repay scheduled principal and interest payments on debt for at leastover the nextcoming twelve months.
Our objective is to generate sufficient cash to fund our operating requirements and expansion plans. Since Gold Flora has assumed it will realize significant synergies post-closing the closing ofBusiness Combination. To the Qualifying Transactionextent these synergies are not achieved or not achieved on January 15, 2021, we have incurred net operating losses. However, management is confident inthe timeframe expected, additional capital will be required which if not available as required would raise substantial doubt about the Company’s ability to grow revenuecontinue as a going concern. We continue to actively evaluate additional cost reductions and reach long- term profitability. We also expectbusiness optimization to reduce our cash burn, accelerate market share growth, improve our gross margin profile and work toward generating sustained free cash flow over the longer term.
If additional capital is required, Gold Flora Corporation expects to have access to public capital markets through ourits listing 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 sharesGold Flora Common Stock or other equity or debt instruments; and (iii) obtaining debt financing with lending terms that more closely match ourGold Flora Corporation’s business model and capital needs. There can be no assurance that weGold Flora Corporation will gain adequate market acceptance for ourits products or be able to generate sufficient positive cash flow to achieve ourits 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 CompanyGold 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 to continue funding operating losses as we ramp up our operations with our available cash. Therefore, we are subject to risks including, butGold Flora does not limited to, our inability to raise additional funds through debt and/or equity financing to support our continued development, includinghave any expected material commitments for 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.expenditures.
Off-Balance Sheet Arrangements
As of the date hereof, the CompanyGold 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 ObligationsCommitments
TheIn June 2023, the Company leases real estate usedand the sellers of Airfield informally discussed amending the acquisition agreement for dispensaries, production plants,Airfield as it relates to the earn-out. As a result of the informal discussions, on July 5, 2023, the Company amended the acquisition agreement with the sellers of Airfield whereby the parties agreed to an earn-out amount to be paid as follows: $2,000,000 is to be paid out in cash, of which $1,000,000 was paid on July 14, 2023 and corporate offices. Lease terms for real estate generally range from 1another $1,000,000 is to 16.5 years. Most leases include options to renew for varying terms atbe paid on or before August 14, 2023. Another payment through the issuance of 720,000 Class C units of the Company’s sole discretion. Lease terms for these assets generally range from 1 to 2 years. Certain leases include escalation clauses orequity, which converted into shares of GFC on July 7, 2023, the fair value of which was approximately $175,000. The last payment of executory costs such as property taxes, utilities, or insurance and maintenance. Rent expense$2,200,000 is to be paid via a promissory note, which is due one year after entering into this amendment. As a result, the Company recorded an increase in the change in fair value of an earnout liability in the condensed consolidated statement of operations 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 maturity of the contractual undiscounted lease liabilities as of September 30, 2022:
|
| Operating Lease |
|
| Finance Lease |
| ||
|
|
|
|
|
|
| ||
Remainder of 2022 |
| $ | 1,441,432 |
|
| $ | 1,147,681 |
|
2023 |
|
| 4,826,896 |
|
|
| 4,625,156 |
|
2024 |
|
| 4,552,956 |
|
|
| 4,763,910 |
|
2025 |
|
| 4,518,781 |
|
|
| 4,906,828 |
|
2026 |
|
| 4,370,472 |
|
|
| 5,054,033 |
|
Thereafter |
|
| 22,192,154 |
|
|
| 64,884,898 |
|
Total undiscounted lease liabilities |
|
| 41,902,691 |
|
|
| 85,382,506 |
|
Interest on lease liabilities |
|
| 16,559,013 |
|
|
| 48,589,146 |
|
Total present value of minimum lease payments |
|
| 25,343,678 |
|
|
| 36,793,360 |
|
Lease liability – current portion |
|
| 2,423,413 |
|
|
| 62,783 |
|
Lease liability |
| $ | 22,920,265 |
|
| $ | 36,730,577 |
|
Marketing Agreement (“MA”)
The Company has engaged a third-party for strategic and promotional services. During the three months ended March 31, 2021 and the 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 has been recognized as an expense in operating expenses during the nine months ended September 30, 2021.2023.
Contingencies
The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company is obligated to issue shares to the value of $1,875,000 quarterly over the second and third yearceasing operations in that specific state or local jurisdiction. While management 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. Inbelieves that case, the Company is requiredin compliance with applicable local and state regulations, cannabis regulations continue to settle the agreement inevolve and are subject to differing interpretations. As a lump sum payment that consists of all unpaid amounts. As at September 30, 2022, the amount thatresult, the Company wouldmay be liable for ifsubject to regulatory fines, penalties, or restrictions in the contract is terminated is $9,375,000.future.
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Brand Strategy Agreement (“BSA”)
The Company is partyhas a loyalty program whereby customers accumulate points through purchases, and the earned points can be used to reduce the BSA, whereby the Company receives the servicesprice of Shawn C. Carter p/k/future purchases. The points do not expire and are recorded as a JAY-Z’s related promotion and advertising for the remaining non-cancellable periodcomponent 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). Duringon the nine months ended September 30, 2022, the Company made a cash payment of $3,000,000 (September 30, 2021 - $nil).accompanying condensed consolidated balance sheets for amounts customers have earned but have not yet used.
The agreement canDue to the merger, certain TPCO Holding Corp. shareholders dissented from the vote for the merger. Ane amount was calculated based on the TPCO closing share price of $0.17696 on June 14, 2023 (being the last trading date prior to the date of the TPCO shareholders meeting held to authorize the arrangement involving TPCO and Gold Flora and recorded as a component of accounts payable and accrued liabilities in the accompanying consolidated balance sheet. Certain of the dissenting TPCO shareholders have asserted that the fair value of their shares is higher than the trading price, at least US$0.9847 per share. However, the ultimate amount required to be terminatedpaid by Gold Flora is subject to determination by the counterparty in certain circumstances, including a change in controlSupreme Court 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.British Columbia.
Mosaic.Ag
On May 16, 2021, the Company entered into a membership interest purchase agreement (the “Membership Interest Purchase 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 Grow Properties”). On May 21, 2021 (the “Effective Date”), the Company entered into series of cultivationClaims and supply agreements with each of the leaseholders of the Outdoor Grow Properties and Mosaic. AG, Inc. (“Mosaic.Ag”), pursuant to which Mosaic.Ag agreed to cultivate cannabis on each of the Outdoor Grow Properties on the Company’s 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 and Supply Agreements”). Under the terms of the Membership Interest Purchase Agreement, as of the Effective Date, the Company 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 payable on the closing date (with the number of shares issued based on the volume-weighted average price per common share for the ten consecutive trading days prior to the closing date) and up to 1,309,263 common shares of the Company 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 delivered to Mosaic on June 30, 2022, notice of its exercise of its contractual rights to terminate each of the Cultivation and Supply Agreements and the Membership Interest Purchase Agreement effective on such date. Pursuant to the terms of the Membership Interest Purchase Agreement, on the Effective Date, the Company 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 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 of approximately $1,500,000. There can be no assurance the promissory note and/or the overpayment amount will be repaid in full, or at all. The Company expects to pursue repayment of such debts through appropriate legal actions.
Other Legal MattersLitigation
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business, the Company 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 anybusiness. At September 30, 2023, there were no pending or threatened litigation or claimslawsuits that could reasonably be expected to have a material adverse effect on our business, operatingthe results cash flowsof the Company’s consolidated operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the Company’s interest.
Lease Obligations, Notes Payable and Convertible Notes Payable
The Company has material lease obligations payable which are detailed in Note 10 of the interim condensed consolidated financial condition should such litigation or claim be resolved unfavorably.statements included in this Form 10-Q. The Company has material notes and convertible notes payable which are detailed in Notes 11 and 12 of the interim condensed consolidated financial statements included in this Form 10-Q.
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.
Critical Accounting Policiesdespite cost inflation through market pricing, greater cost efficiencies, advantageous vendor partnerships, and Estimates
For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Estimates in our 2021 Form 10-K. There have been no material changes to our critical accounting estimates from the information provided in our 2021 Form 10-K.other measures.
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Critical Accounting Policies and Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires our management to make judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may differ from those estimates. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that management considers to be reasonable.
Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Consolidation
Judgment is applied in assessing whether Gold Flora exercises control and has significant influence over entities in which Gold Flora directly or indirectly owns an interest. Gold Flora has control when it has the power over the subsidiary, has exposure or rights to variable returns, and has the ability to use its power to affect the returns. Significant influence is defined as the power to participate in the financial and operating decisions of the subsidiaries. Where Gold Flora is determined to have control, these entities are consolidated. Additionally, judgment is applied in determining the effective date on which control was obtained.
Business Combinations
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of acquisition. Acquisition-related transaction costs are expensed as incurred. Identifiable assets and liabilities, including intangible assets, of acquired businesses are recorded at their fair value at the date of acquisition. When Gold Flora acquires control of a business, any previously held equity interest also is remeasured to fair value. The excess of the purchase consideration and any previously held equity interest over the fair value of identifiable net assets acquired is goodwill. If the fair value of identifiable net assets acquired exceeds the purchase consideration and any previously held equity interest, the difference is recognized in the Consolidated Statements of Operations immediately as a gain or loss on acquisition.
Contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with ASC 450, Contingencies, as appropriate, with the corresponding gain or loss being recognized in profit or loss.
Each of the Airfield and Higher Level of Care acquisitions is a business combination accounted for using the acquisition method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 Business Combinations (“ASC 805”).
Leases
Gold Flora accounts for its leases in accordance with ASU 2016-02, “Leases (Topic 842)” (“ASC 842”). In addition, Gold Flora elected accounting policy elections to exclude from the consolidated balances the right-of-use (“ROU”) assets and lease liabilities related to short-term leases, which are those leases with a lease term of twelve months or less that do not include an option purchase the underlying lease asset that Gold Flora is reasonably certain to exercise and to not separate leases and non-lease components. Gold Flora determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and accrued obligations under operating lease (current and non-current) liabilities in the Consolidated Balance Sheets. Finance lease ROU assets are included in property and equipment, net and finance lease obligations are included under finance lease (current and non-current) liabilities in the Consolidated Balance Sheets. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and are expensed in the Consolidated Statements of Operations on the straight-line basis over the lease term.
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| Table of Contents |
ROU assets represent Gold Flora’s right to use an underlying asset for the lease term and lease liabilities represent Gold Flora’s obligation to make lease payments arising from the lease. ROU assets are classified as a finance lease or an operating lease. A finance lease is a lease in which 1) ownership of the property transfers to the lessee by the end of the lease term; 2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise; 3) the lease is for a major part of the remaining economic life of the underlying asset; or 4) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already included in the lease payments equals or exceeds substantially all of the fair value; or 5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Gold Flora classifies a lease as an operating lease when it does not meet any one of these criteria. Refer to “Note 7 – Leases” for further discussion.
Gold Flora applies judgment in determining whether a contract contains a lease and if a lease is classified as an operating lease or a finance lease. Gold Flora applies judgement in determining the lease term as the non-cancellable term of the lease, which may include options to extend or terminate the lease when it is reasonably certain that Gold Flora will exercise that option. All relevant factors that create an economic incentive for it to exercise either the renewal or termination are considered. Gold Flora reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate. It considers whether Gold Flora can benefit from the ROU asset either on its own or together with other resources and whether the asset is highly dependent on or highly interrelated with another ROU asset.
Sale lease back
From time to time, Gold Flora may enter into sale-leaseback transactions pursuant to which Gold Flora 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, Gold Flora 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, Gold Flora 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. Gold Flora 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, Gold Flora accounts for the transaction as a financing arrangement, and accordingly no sale is recognized. Gold Flora 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.
Convertible Notes Payable
Gold Flora evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815”). ASC 815 generally provide three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the embedded features meet the criteria of contracts in an entity’s own equity in ASC 815-40. Gold Flora’s convertible notes payable met the exception described above.
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Gold Flora accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance ASC470, “Accounting for Convertible Securities with Beneficial Conversion Features”, as those professional standards pertain to “Certain Convertible Instruments”. Accordingly, Gold Flora records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. Gold Flora also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815 provides that generally, if an event that is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Goodwill
Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill may have been impaired. In order to determine that the value of goodwill may have been impaired, we perform a qualitative assessment to determine whether it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value, indicating the potential for goodwill impairment. A number of factors, including historical results, business plans, forecasts and market data are used to determine the fair value of the reporting unit. Changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.
Long-lived assets
Depreciation and amortization of property and equipment, right-of-use assets and finite-lived intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that consider factors such as economic and market conditions and the useful lives of assets. We use judgment in: (i) assessing whether there are impairment triggers affecting long-lived assets, (ii) determining the asset groups and(iii) determining the recoverable amount and if necessary, estimating the fair value.
Fair value measurement
We use valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with how market participants would price the instrument. We base our assumptions on observable data as far as possible, but this is not always available. In that case, we use the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date.
Revenue Recognition
Revenue is recognized by Gold Flora in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Through application of the standard, Gold Flora recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which Gold Flora expects to be entitled in exchange for those goods or services.
In order to recognize revenue under ASU 2014-09, Gold Flora applies the following five (5) steps:
· | Identify a customer along with a corresponding contract; |
· | Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer; |
· | Determine the transaction price Gold Flora expects to be entitled to in exchange for transferring promised goods or services to a customer; |
· | Allocate the transaction price to the performance obligation(s) in the contract; and |
· | Recognize revenue when or as Gold Flora satisfies the performance obligation(s). |
Revenues consist of wholesale and retail operations of cannabis, which are generally recognized at a point in time when control over the goods have been transferred to the customer and is recorded net of sales discounts. Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under Gold Flora’s credit policy.
Revenue is recognized upon the satisfaction of the performance obligation. Gold Flora satisfies its performance obligation and transfers control upon delivery and acceptance by the customer.
Recent and Anticipated Changes to Critical Accounting Policies
None.
| 20 |
| Table of Contents |
Cash Flow
The table below highlights our cash flows for the periods indicated:
(Unaudited, in United States dollars) |
| Nine months ended |
| |||||
|
| 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 |
|
| 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 |
|
| (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 |
|
| 421,974 |
|
|
| 418,818 |
|
Depreciation and amortization |
|
| 23,755,099 |
|
|
| 14,174,789 |
|
Shares issued for long-term strategic contracts |
|
| - |
|
|
| 25,000,000 |
|
Share-based compensation expense, net of tax |
|
| 4,284,916 |
|
|
| 16,765,238 |
|
Non-cash marketing expense |
|
| 3,311,454 |
|
|
| 3,803,030 |
|
Non-cash operating lease expense |
|
| 5,402,936 |
|
|
| 3,029,654 |
|
Fair value change of contingent consideration |
|
| (642,153 | ) |
|
| (220,997,087 | ) |
Deferred income tax recovery |
|
| (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 |
|
| (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 |
|
| - |
|
|
| (1,402,337 | ) |
Purchases of property and equipment |
|
| (2,733,218 | ) |
|
| (8,725,860 | ) |
Advances for note receivable |
|
| - |
|
|
| (5,650,000 | ) |
Acquisition of investments |
|
| (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 |
|
Operating Activities
Cash used in continued operating activities in the nine months ended September 30, 2022 totaled $58,332,053 as compared to cash used in continued operating activities of $100,854,966 in the comparative nine month period ended September 30, 2021. In the nine months ended September 30, 2022, the cash used in operating activities represents an average operating cash burn rate of $6,481,339 per month compared to $11,206,107 per month in the comparative period. The Company is evaluating a number of options to improve operating results including: 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 months ended September 30, 2022 totaled $2,565,934 compared with cash used in discontinued operating activities of $5,528,420 in the comparative nine month period ended September 30, 2021.
Financing Activities
Cash used in financing activities totaled $7,413,443 in the nine months ended September 30, 2022 compared with cash used of $222,427,152 in the comparative nine month period ended September 30, 2021. In the nine months ended September 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 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.
Investing Activities
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 month period ended September 30, 2021. In the nine months ended September 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 of proceeds from the sale of property, plant and equipment primarily associated with the sale and leaseback transaction at its Pullman property invested $2,733,218 of property plant and equipment to support its operations. The comparative nine month period ended September 30, 2021 includes $29,546,223 of cash paid for acquisitions as the major use of cash.
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 agenciesagencies. 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 monitormonitors 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- day90-day increments by the State upon submission of an annual license application. All temporary licenses had been granted extensions by the State during 2018.
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 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 30, 2022, the Company has invested approximately $1,300,000 in three investments being Stanton Brands (dba Josephine & Billie’s), Peakz LLC and Digistrains.
Share Capital and Capital Management
As of September 30, 2022,2023, the Company had 104,914,328 common shares288,290,900 Common Shares and 35,837,500 common share68,921,776 Common Share purchase warrants (the “Warrants”) issued and outstanding. The Warrants35,837,500 warrants were assumed as part of the TPCO acquisition and are exercisable at an exercise price of $11.50$11.50. 33,084,276 warrants were previously Gold Flora warrants were exchanged on the July 7, 2023 transaction to become GFC warrants 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 closinghave a weighted average exercise price of $1.15. As at September 30, 2023, the Company’s common shares equals or exceeds $18.00 per 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.weighted average remaining term of all the warrants was 2 years.
The Company hasTPCO had an equity incentive plan (the “Equity“TPCO 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 30, 2022,2023, a total of 3,694,392281,871 RSUs and 2,448,750 PSUs were outstanding under the TPCO Equity Incentive Plan.Plan which was assumed in the Business Combination.
| 21 |
| Table of Contents |
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 willwould entitle the holder to receive Common Shares. There are currently 510,363As of September 30, 2023, there were 141,532 options to purchase up to 510,363141,532 Common Shares under the Caliva EIP outstanding.outstanding with a weighted average exercise price of $7.09 per share. No further awards will be granted under the Caliva EIP.
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 willwould entitle the holder to receive Common Shares. There are currently 9,206At September 30, 2023, there were 9,105 options to purchase up to 9,2069,105 Common Shares under the LCV Equity Plan outstanding.outstanding with a weighted average exercise price of $26.77 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 |
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 months ended September 30, 20222023 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.
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 ActivitiesActivities) (“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’sour existing operations in California, the Company iswe are providing the following disclosure pursuant to Staff Notice 51-352.
The Company derivesWe derive a substantial portion of itsour 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 isfederal law. We are directly involved (through itsour 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.
| 22 |
| Table of Contents |
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.
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- UseMedical-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’sour 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 Companyus 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 thatWhile 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, 38July 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 sixfour 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 expectedlikely to commence in 2023.
Eleven2025. 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.
| 23 |
| Table of Contents |
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 believesWe 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- scalelarge-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/BlumenauerThe 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 befiscal year 2023 spending package included in a subsequent omnibus appropriations package or a continuing budget resolution. Should the Rohrabacher/BlumenauerJoyce-Blumenauer rider, which extended the rider until fiscal year 2024.
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 Statestate 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 faceswe face the risk of federal enforcement and other risks associated with the Company’sour 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’sOur 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 theour 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 hasWe have received and continuescontinue 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/BlumenauerJoyce-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.
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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.
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 operatesWe 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’sour business was directly derived from U.S. cannabis-related activities. As such, a majority of the Company’sour balance sheet and operating statement for periods following closing of the Qualifying Transaction will reflects exposure to U.S. cannabis related activities.
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- designationsA-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, onlyCalifornia. 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.
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:
· | 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; | |
· | 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:
· | 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. | |
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· | 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 taketook 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.
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- relatedcannabis-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 Companywe currently hashave bank accounts, itsour 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 Companyus to operate itsour business, increase itsour 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 CompanyGold 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’sGold 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 itsGold Flora Corporation employees with those of the CompanyGold Flora Corporation’s goals and helps the Company’sour operations run smoothly. The Company focusesWe focus on upholding policies and procedures that ensure the organization and itsour employees comply with applicable laws and regulations.
Employee Training
The Company is in the process ofGold Flora Corporation provides ongoing employee training, employees, and in completinghas completed development of and institutinginstituted a robust online training center for employees, in connection with itsthe 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 Companyus 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. |
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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 quarterlymonthly in the normal course.course across all active licenses. These audits allow usGold Flora Corporation to identify and monitor the Company’sour 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’sGold 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.
Big Data Analysis
The CompanyGold Flora Corporation has invested in a highly scalable data architecture and platform built using leading technologies and tools. By extracting data from itsGold Flora Corporation’s ERP software, point-of-sales software, and the California METRC track and trace system and subsequently organizing it in itsour data warehouse, the CompanyGold Flora Corporation has enabled critical data and insights for its compliance efforts. The Company’sGold 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 CompanyGold 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 CompanyGold 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 CompanyGold 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 CompanyGold Flora Corporation employs fiveseveral individuals whose job function includes some aspect of compliance. Further, the CompanyGold 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 currentlyGold Flora Corporation implements and maintainsmaintain 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 CompanyGold 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 CompanyGold Flora Corporation regarding compliance with state and local laws and regulation and the Company’sits 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 30, 2022,2023, our management, including the ChiefPrincipal Executive Officer and ChiefPrincipal 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 2021TPCO’s Annual Reports on Form 10-K wefor the years ended December 31, 2022 and our then2021, TPCO and its 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.
WeTPCO did not design or maintain an effective control environment commensurate with financial reporting requirements. Specifically, we lackTPCO 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.
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 workingcontinue 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, wereporting. We are taking appropriate and reasonable steps to remediate thisthe 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, we restructured the responsibilities of several members our senior finance team to help improve our financial reporting.
During the third quarter of 2022,2023, we added additional resources.implemented a new ERP system and integrated our TPCO acquisition. 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 businessthat these changes will over time improve ourGold Flora Corporation’s internal control over financial reporting.
Management expects to continue to review and make necessary changes to the overall design of ourGold Flora Corporation’s internal control environment, as well as policies and procedures to improve the overall effectiveness of ourGold 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
ThereExcept as noted above, there has been no change in our internal control over financial reporting during the quarter ended September 30, 2022,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PARTPART 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.
NotRisks Related to the Business Combination
Each of Gold Flora and TPCO have a history of losses, and Gold Flora Corporation may never achieve profitability or generate positive cash flow.
TPCO had an operating loss of $242,938,219 (including an impairment loss of $130,566,825) for the year ended December 31, 2022 and an operating loss of US$733,885,024 (including an impairment loss of $575,498,897) for the year ended December 31, 2021. Gold Flora had operating loss of $28,297,424 for the nine months ended September 30, 2023, an operating income of $ 3,175,185 (including an impairment loss of $Nil) for the year ended December 31, 2022, and an operating loss of $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.
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.
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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.
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.
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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.
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.
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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”.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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 September 30, 2023, there were 288,290,900 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. 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.
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.
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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.
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.
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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.
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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. |
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.
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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.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds.Proceeds, and Issuer Purchases of Equity Securities.
None.Pursuant to the plan of arrangement, as previously disclosed in the Business Combination Agreement, (the “Plan of Arrangement”) the RSU awards underlying the TPCO Holding Corp. Equity Incentive Plan (the “TPCO RSUs”) were exchanged in the Plan of Arrangement pursuant to Section 3(a)(10) of the Securities Act for awards in Gold Flora Corporation (the “GFC Awards”). Following the completion of the Plan of Arrangement, a portion of the GFC Awards were converted upon vesting into 24,011 shares of common stock of Gold Flora Corporation pursuant to their terms and by virtue of Section 3(a)(9) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.No officers or directors, as defined in Rule 16a-1(f), adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement as defined in item 408 of Regulation S-K, during the three months ended September 30, 2023.
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Item 6. Exhibits.
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| Incorporated by Reference From | ||||||
Exhibit No. |
| Title of Document |
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| Date Filed |
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| Filed Herewith |
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| 10-12G |
| 9/30/2021 |
| 2.1 |
| X | ||
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| 10-12G |
| 9/30/2021 |
| 2.2 |
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| 10-12G |
| 9/30/2021 |
| 2.3 |
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| 10-12G |
| 9/30/2021 |
| 2.4 |
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| 10-12G/A |
| 10/27/2021 |
| 2.5 |
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| 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. |
| — |
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| X |
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| — |
| X | ||
| Notice of Articles of Subversive Capital Acquisition Corp.. dated July 15, 2019 |
| 10-12G |
| 9/30/2021 |
| 3.1 |
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| Articles of Subversive Capital Acquisition Corp., dated July 15, 2019 |
| 10-12G/A |
| 10/01/2021 |
| 3.2 |
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| Certificate of Change of Name. dated January 15, 2021 by Subversive Capital Acquisition Corp. |
| 10-12G |
| 9/30/2021 |
| 3.3 |
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| 10-12G |
| 9/30/2021 |
| 4.1 |
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| Warrant Agency Agreement between the Company and Odyssey Trust Company dated July 16, 2019 |
| 10-12G |
| 9/30/2021 |
| 4.2 |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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| x |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| — |
| x |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
| — |
| — |
| — |
| x |
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| Incorporated by Reference From |
| Exhibit |
| Filed/Furnished | ||
Exhibit No. |
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|
|
| 8-K |
| 2/27/2023 |
| 2.1 |
| - | ||
|
| 8-K |
| 7/13/2023 |
| 3.1 |
| - | ||
|
| 8-K |
| 7/13/2023 |
| 3.2 |
| - | ||
|
| 8-K |
| 7/13/2023 |
| 4.1 |
| - | ||
|
| 8-K |
| 7/13/2023 |
| 10.1 |
| - | ||
|
| - |
| - |
| - |
| X | ||
|
| - |
| - |
| - |
| X | ||
|
| - |
| - |
| - |
| X | ||
|
| - |
| - |
| - |
| 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 |
* |
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Schedules and exhibits to this Exhibit |
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† | Certain identified portions of this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. | ||||||||||
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| 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. | ||||||||||
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* 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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| Table of Contents |
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.
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Date: November 14, | By: | /s/ |
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| Chief Executive Officer |
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| (Principal Executive Officer) |
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Date: November 14, | By: | /s/ |
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| Chief Financial Officer (Principal Financial Officer) |
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