flora_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended March 31, 2023

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

	For the transition period from _____________ to _____________

Commission file number 000-52776

Flora Growth Corp.

(Exact name of registrant as specified in its charter)

Province of Ontario		Not Applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3406 SW 26th Terrace, Suite C-1
Fort Lauderdale, Florida		33132
(Address of principal executive offices)		(Zip Code)

(954) 842-4989

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Shares, no par value

FLGC

Nasdaq Capital Market

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 Act). Yes ☐ No ☒

As of May 8, 2023, the registrant had 138,839,644 shares of its common shares, no par value (“Common Shares”) outstanding.

Table of Contents

		Page

Cautionary Statement Regarding Forward-Looking Statements		3

PART I
Item 1. Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		33
Item 4. Controls and Procedures		33

PART II
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3. Defaults Upon Senior Securities		34
Item 4. Mine Safety Disclosures		34
Item 5. Other Information		34
Item 6. Exhibits		35

Signatures		36

Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward- looking statements by terms such as “may”, “will”, “should”, “believe”, “expect”, “could”, “intend”, “plan”, “anticipate”, “estimate”, “continue”, “predict”, “project”, “potential”, “target,” “goal” or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this Quarterly Report, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this Quarterly Report. Risks and uncertainties, the occurrence of which could adversely affect our business, include, but are not limited to, the following:

	·	our limited operating history and net losses;
	·	changes in cannabis laws, regulations and guidelines;
	·	decrease in demand for cannabis and derivative products due to certain research findings, proceedings, or negative media attention;
	·	our ability to continue as a going concern absent access to sources of liquidity;
	·	damage to our reputation as a result of negative publicity;
	·	exposure to product liability claims, actions and litigation;
	·	risks associated with product recalls;
	·	product viability;
	·	continuing research and development efforts to respond to technological and regulatory changes;
	·	shelf life of inventory;
	·	our ability to successfully integrate businesses that we acquire;
	·	maintenance of effective quality control systems;
	·	changes to energy prices and supply;
	·	risks associated with expansion into new jurisdictions;
	·	regulatory compliance risks;
	·	opposition to the cannabinoid industry;
	·	unpredictable events, such as the COVID-19 outbreak, and associated business disruptions;
	·	risks related to our operations in Colombia;
	·	potential delisting resulting in reduced liquidity of our Common Shares; and
	·	the other risks described under Part I, Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (as amended, the “2022 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023, as amended on April 28, 2023, as well as described from time to time in our other filings with the SEC.

Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this Quarterly Report. The forward-looking statements contained in this Quarterly Report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this Quarterly Report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of this Quarterly Report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report.

Table of Contents

PART I

Item 1. Financial Statements

Flora Growth Corp.

Table of Contents

Unaudited Condensed Consolidated Financial Statements:		Page

Unaudited Condensed Consolidated Statements of Financial Position as of March 31, 2023 and December 31, 2022		5

Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022		6

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2023 and 2022		7

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022		8

Notes to Unaudited Condensed Consolidated Financial Statements		9

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Flora Growth Corp.
Condensed Interim Consolidated Statements of Financial Position
(in thousands of United States dollars, except share amounts which are in thousands of shares)
As at:	March 31, 2023			December 31, 2022

ASSETS
Current
Cash	$	5,259		$	9,537
Trade and amounts receivable, net of $3,024 allowance ($2,988 at December 31, 2022)		6,729			6,851
Loans receivable and advances		273			271
Prepaid expenses and other current assets		1,875			978
Indemnification receivables		3,432			3,429
Inventory		10,311			10,089
Total current assets		27,879			31,155
Non-current
Property, plant and equipment		4,968			4,810
Operating lease right of use assets		2,345			2,537
Intangible assets		17,470			18,096
Goodwill		23,372			23,372
Investments		730			730
Other assets		276			287
Total assets	$	77,040		$	80,987
LIABILITIES
Current
Trade payables	$	6,322		$	7,748
Contingencies		4,998			5,044
Current portion of debt		1,086			1,086
Current portion of operating lease liability		1,241			1,188
Other accrued liabilities		1,852			2,381
Total current liabilities		15,499			17,447
Non-current
Non-current operating lease liability		1,614			1,869
Deferred tax		1,616			1,712
Contingent purchase considerations		4,699			3,547
Total liabilities		23,428			24,575
SHAREHOLDERS’ EQUITY
Share capital, no par value, unlimited authorized, 136,938 issued and outstanding (135,573 at December 31, 2022)		-			-
Additional paid-in capital		150,403			150,420
Accumulated other comprehensive loss		(2,375	)		(2,732	)
Deficit		(93,976	)		(90,865	)
Total Flora Growth Corp. shareholders’ equity		54,052			56,823
Non-controlling interest in subsidiaries		(440	)		(411	)
Total shareholders’ equity		53,612			56,412
Total liabilities and shareholders’ equity	$	77,040		$	80,987

The accompanying notes are an integral part of these condensed interim consolidated financial statements. Commitments and contingencies – see Note 14.

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Flora Growth Corp.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
(in thousands of United States dollars, except per share amounts which are in thousands of shares)
	For the three months ended March 31, 2023			For the three months ended March 31, 2022
Revenue	$	20,107		$	4,946
Cost of sales		14,630			2,276
Gross profit		5,477			2,670
Operating expenses
Consulting and management fees		4,040			2,444
Professional fees		33			1,249
General and administrative		528			922
Promotion and communication		1,314			2,549
Travel expenses		139			242
Share based compensation		654			1,526
Research and development		16			210
Operating lease expense		366			207
Depreciation and amortization		942			454
Bad debt expense		29			1
Other expenses (income), net		493			528
Total operating expenses		8,554			10,332
Operating loss		(3,077	)		(7,662	)
Interest expense (income)		23			(21	)
Foreign exchange (gain) loss		(12	)		(11	)
Unrealized loss from changes in fair value		883			-
Net loss before income taxes		(3,971	)		(7,630	)
Income tax recovery		(66	)		-
Net loss for the period	$	(3,905	)	$	(7,630	)
Other comprehensive gain (loss)
Exchange differences on foreign operations, net of income taxes of $nil ($nil in 2021)	$	357		$	(577	)
Total comprehensive loss for the period	$	(3,548	)	$	(8,207	)

Net loss attributable to:
Flora Growth Corp.	$	(3,876	)	$	(7,566	)
Non-controlling interests in subsidiaries		(29	)		(64	)
Comprehensive loss attributable to:
Flora Growth Corp.	$	(3,519	)	$	(8,143	)
Non-controlling interests in subsidiaries		(29	)		(64	)
Basic and diluted loss per share attributable to Flora Growth Corp.	$	(0.03	)	$	(0.11	)
Weighted average number of common shares outstanding - basic and diluted		132,868			69,604

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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Flora Growth Corp.
Condensed Interim Consolidated Statement of Shareholders’ Equity (Deficiency)
(in thousands of United States dollars, except for share amounts which are in thousands of shares)
	Common shares				Additional paid-in capital			Accumulated other comprehensive (loss) income			Accumulated deficit			Non-controlling interests in subsidiaries (deficiency)			Shareholders’ equity (deficiency
	#
Balance, December 31, 2021		65,517	$	-	$	116,810		$	(1,108	)	$	(38,536	)	$	(225	)	$	76,941

Common shares issued for business combinations		9,500		-		14,697			-			-			-			14,697
Common shares issued for other agreements		111		-		272			-			-			-			272
Acquisition of noncontrolling interest		131		-		283			-			(365	)		28			(54	)
Options issued		-		-		1,443			-			-			-			1,443
Options exercised		333		-		50			-			-			-			50
Warrants exercised		51		-		28			-			-			-			28
Share issuance costs		-		-		(79	)		-			-			-			(79	)
Other comprehensive loss – exchange differences on foreign operations (net of income taxes of $nil)		-		-		-			(577	)		-			-			(577	)
Net loss		-		-		-			-			(7,566	)		(64	)		(7,630	)
Balance, March 31, 2022		75,643	$	-	$	133,504		$	(1,685	)	$	(46,467	)	$	(261	)	$	85,091

Balance, December 31, 2022		135,573	$	-	$	150,420		$	(2,732	)	$	(90,865	)	$	(411	)	$	56,412

Equity issued for other agreements		325		-		95			-			-			-			95
Options issued		-		-		119			-			-			-			119
Options cancelled		-		-		(765	)		-			765			-			-
Restricted units granted		1,040		-		534			-			-			-			534
Other comprehensive loss – exchange differences on foreign operations (net of income taxes of $nil)		-		-		-			357			-			-			357
Net loss		-		-		-			-			(3,876	)		(29	)		(3,905	)
Balance, March 31, 2023		136,938	$	-	$	150,403		$	(2,375	)	$	(93,976	)	$	(440	)	$	53,612

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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Flora Growth Corp.
Condensed Interim Consolidated Statement of Cash Flows
(in thousands of United States dollars)
	For the three months ended March 31, 2023			For the three months ended March 31, 2022
Cash flows from operating activities:
Net loss	$	(3,905	)	$	(7,630	)
Adjustments to net loss:
Depreciation and amortization		942			454
Share based compensation		654			1,715
Changes in fair value of investments and liabilities		883			-
Bad debt expense		29			1
Interest expense (income)		23			(21	)
Interest paid		(23	)		(17	)
Income tax recovery		(66	)		-
		(1,463	)		(5,498	)
Net change in non-cash working capital:
Trade and other receivables		91			707
Inventory		(113	)		192
Prepaid expenses and other assets		(920	)		58
Trade payables and accrued liabilities		(1,919	)		(2,020	)
Net cash used in operating activities		(4,324	)		(6,561	)

Cash flows from financing activities:
Equity issue costs		-			(79	)
Exercise of warrants and options		-			78
Loan borrowings		-			212
Loan repayments		(19	)		(18	)
Net cash (used) provided by financing activities		(19	)		193

Cash flows from investing activities:
Purchases of property, plant and equipment and intangible assets		(102	)		(187	)
Business and asset acquisitions, net of cash acquired		-			(15,457	)
Net cash used in investing activities		(102	)		(15,644	)

Effect of exchange rate on changes on cash		167			(359	)

Change in cash during the period		(4,278	)		(22,371	)
Cash and restricted cash at beginning of period		9,537			37,616
Cash and restricted cash at end of period	$	5,259		$	15,245
Supplemental disclosure of non-cash investing and financing activities
Common shares issued for business combinations	$	-		$	14,917
Assets acquired for contingent consideration		303			-
Common shares issued for other agreements		95			272
Operating lease additions to right of use assets		97			-

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Table of Contents

Flora Growth Corp.

Notes to the condensed interim consolidated financial statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States dollars, except shares and per share amounts)

1. NATURE OF OPERATIONS

Flora Growth Corp. (the “Company” or “Flora”) was incorporated under the laws of the Province of Ontario, Canada on March 13, 2019. The Company is manufacturer, distributor and an all-outdoor cultivator of global cannabis and pharmaceutical products and brands, building a connected, design-led collective of plant-based wellness and lifestyle brands. The Company’s registered office is located at 365 Bay Street, Suite 800, Toronto, Ontario, M5H 2V1, Canada and its principal place of business in the United States is located at 3406 SW 26th Terrace, Suite C-1, Fort Lauderdale, Florida 3312.

2. BASIS OF PRESENTATION

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ( "U.S. GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2022. These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

These interim condensed consolidated financial statements have been prepared on a going concern basis, meaning that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations.

Prior to January 1, 2023, Flora was a foreign private issuer reporting its financial statements under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Boards. These consolidated financial statements, for all periods, are presented in accordance with U.S. GAAP.

Going concern

The accompanying interim condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue one year after the date these condensed interim consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

The Company had cash of $5.3 million at March 31, 2023, net loss of $3.9 million for the three months ended March 31, 2023, and an accumulated deficit of $94.0 million at March 31, 2023. Current economic and market conditions have put pressure on the Company’s growth plans. The Company’s ability to continue as a going concern is dependent on its ability to obtain additional capital. The Company believes that its current level of cash is not sufficient to continue investing in growth, while at the same time meeting its obligations as they become due. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these interim condensed consolidated financial statements. To alleviate these conditions, management is currently evaluating various cost reductions and other alternatives and may seek to raise additional funds through the issuance of equity, debt securities, through arrangements with strategic partners, through obtaining credit from financial institutions or otherwise. The actual amount that the Company may be able to raise under these alternatives will depend on market conditions and other factors. As it seeks additional sources of financing, there can be no assurance that such financing would be available to the Company on favorable terms or at all. The Company’s ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, the Company’s performance and investor sentiment with respect to it and its industry. The condensed interim consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of consolidation

These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. The Company’s subsidiaries and respective ownership percentage have not changed from the year ended December 31, 2022.

Table of Contents

Flora Growth Corp.

Notes to the condensed interim consolidated financial statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States dollars, except shares and per share amounts)

3. TRADE AND AMOUNTS RECEIVABLE

The Company’s trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at March 31, 2023 and December 31, 2022 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes (“HST”), as well as Value Added Tax (“VAT”) from various jurisdictions, and other receivables.

	March 31, 2023			December 31, 2022
Trade accounts receivable	$	7,235		$	6,767
Allowance for expected credit losses		(3,024	)		(2,988	)
HST/VAT receivable		1,697			2,294
Other receivables		821			778
Total	$	6,729		$	6,851

Changes in the trade accounts receivable allowance in the three months ended March 31, 2023 relate to establishing an allowance for expected credit losses. There were no write-offs of trade receivables during the three months ended March 31, 2023. The Company has no amounts written-off that are still subject to collection enforcement activity as at March 31, 2023. The Company’s aging of trade accounts receivable is as follows:

	March 31, 2023
Current	$	2,069
1-30 Days		1,031
31-60 Days		343
61-90 Days		522
91-180 Days		439
180+ Days		2,831
Total trade receivables	$	7,235

4. INVENTORY

Inventory is comprised of the following as at March 31, 2023 and 2022:

	March 31, 2023		December 31, 2022
Raw materials and supplies	$	2,799	$	3,153
Harvested cannabis		131		120
Work in progress		6		6
Finished goods		7,375		6,810
Total	$	10,311	$	10,089

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	March 31, 2023		December 31, 2022
Land	$	657	$	637
Buildings		1,965		1,875
Machinery and office equipment		3,044

SEC Form 10-Q filed by Flora Growth Corp.