THE SEC DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR
COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE SEC; HOWEVER, THE SEC HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE
EXEMPT FROM REGISTRATION.
Title of Each Class of Securities to be Qualified
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Amount to be Qualified
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Price to Public
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Underwriting Discount and Commissions
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Proceeds to
the
Company (2)
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Units, each consisting of:
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40,000,000
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|
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$
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0.75
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|
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(1)
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$
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29,075,000
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One Common Share
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40,000,000
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-
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One-half of one Warrant
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40,000,000
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-
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|
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Common Shares underlying Warrants
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20,000,000
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$
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1.00
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(1)
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$
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20,000,000
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Total Maximum Offering (3)
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$
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50,000,000
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(1)
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$
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49,075,000
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The minimum investment amount for each subscription is 1,333 Units or $1,000. The Offering is being made directly to investors by the management of the Company on a “best efforts” basis. We reserve the right
to offer the Units through broker-dealers who are registered with the Financial Industry Regulatory Authority (“FINRA”). The Company has engaged Dalmore Group, LLC, a New York limited liability company and FINRA/SIPC registered broker-dealer
("Dalmore"), to provide broker-dealer services in seven specified states, including Washington, Arizona, Texas, Alabama, North Dakota, Florida and New Jersey, in connection with this Offering. The Company has agreed to pay Dalmore a one-time
setup fee of $25,000, as described in the Broker-Dealer Agreement between the Company and Dalmore, as well as a 3% commission on the aggregate amount raised by the Company from investors in the specified states from the sale of Units.
Commissions are not payable upon exercise of the Warrants.
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(2)
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The amounts shown in the "Proceeds to the Company" column include a deduction of 3% for commissions payable to Dalmore on all the Units being offered. The 3% commission will only be paid on investments in the
seven states where Dalmore is engaged to provide broker-dealer services (Washington, Arizona, Texas, Alabama, North Dakota, Florida and New Jersey), although the Company intends to offer Units in all states within the United States and in
certain provinces of Canada (and other non-U.S. jurisdictions). The amount of total estimated proceeds to the Company in the table above also includes a deduction of $25,000 for the one-time setup fee payable to Dalmore. The amounts shown are
before deducting other organization and Offering costs to be borne by the Company, including legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering of the Units (See "Use of Proceeds to Issuer"
and "Plan of Distribution and Selling Securityholders").
|
|
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(3)
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The Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares are being offered pursuant to Regulation A of Section 3(b) of the Securities Act for Tier 2 offerings. The
Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares are only issued to purchasers who satisfy the requirements set forth in Regulation A. We have the option in our sole discretion to accept less
than the minimum investment. The Total Maximum Offering amounts include the aggregate price and future aggregate potential proceeds of $20,000,000 with respect to the Warrant Shares if all 40,000,000 Units are sold and all 20,000,000 Warrant
Shares are sold upon exercise of the Warrants issued in the Offering.
|
GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN TEN PERCENT (10%) OF THE GREATER OF YOUR ANNUAL
INCOME OR YOUR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF
REGULATION A+. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO WWW.INVESTOR.GOV.
This Offering Circular contains all of the representations by us concerning this Offering, and no person shall make different or broader statements than those
contained herein. Investors are cautioned not to rely upon any information not expressly set forth in this Offering Circular.
Sale of our Units will commence on approximately ________ __, 2019.
The Company is following the “Offering Circular” format of disclosure under Regulation A+.
The date of this Offering Circular is October 10, 2019
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Page
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4
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4
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6
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10
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24
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26
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27
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28
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39
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40
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46
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50
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52
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53
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53
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56
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Part F/S
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F-1
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Part III – Exhibits
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57
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59
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IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR
We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. Please carefully read the
information in this offering circular and any accompanying offering circular supplements, which we refer to collectively as the “Offering Circular.” You should rely only on the information contained in this Offering Circular. We have not
authorized anyone to provide you with any information other than the information contained in this Offering Circular. The information contained in this Offering Circular is accurate only as of its date or as of the respective dates of any
documents or other information incorporated herein by reference, regardless of the time of its delivery or of any sale or delivery of our securities. Neither the delivery of this Offering Circular nor any sale or delivery of our securities
shall, under any circumstances, imply that there has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available for delivery to the extent required by the federal securities
laws.
This Offering Circular is part of an offering statement (the “Offering Statement”) that we filed with the Securities and Exchange Commission (the “SEC”) using a
continuous offering process. Periodically, we may provide an offering circular supplement that would add, update or change information contained in this Offering Circular. Any statement that we make in this Offering Circular will be modified
or superseded by any inconsistent statement made by us in a subsequent offering circular supplement. The Offering Statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this
Offering Circular. You should read this Offering Circular and the related exhibits filed with the SEC and any offering circular supplement, together with additional information contained in our annual reports, semi-annual reports and other
reports and information statements that we will file periodically with the SEC. The Offering Statement and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov.
Unless otherwise indicated, data contained in this Offering Circular concerning the business of the Company are based on information from various public sources. This
Offering Circular also includes statistical and other market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Although we believe that these data are generally reliable, such
information is inherently imprecise, and our estimates and expectations based on these data involve a number of assumptions and limitations. As a result, you are cautioned not to give undue weight to such data, estimates or expectations. All
references in this Offering Circular to “$” or “dollars” are to United States dollars, unless specifically stated otherwise.
In this Offering Circular, unless the context indicates otherwise, references to the “Company,” “we,” “our,” and “us” refer to the activities of and the assets and
liabilities of the business and operations of Flora Growth Corp., a Canadian corporation formed under the laws of the Province of Ontario, and its subsidiary.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under “Summary,” “Risk Factors,”
“Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Business” and
elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not
historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,”
“estimate,” “expect,” “intend,” “may,” “plan,”
“potential,” “should,” “will” and “would” or the negatives of these terms, or
other comparable terminology.
You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Offering Circular, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
Business risks including:
•
|
limited operating history;
|
•
|
reliance on licenses and authorizations;
|
•
|
changes in cannabis laws, regulations and guidelines;
|
•
|
demand for cannabis and derivative products;
|
•
|
regulatory compliance risks;
|
•
|
retention and acquisition of skilled personnel;
|
•
|
risks inherent in an agricultural business;
|
•
|
supply of cannabis seeds;
|
•
|
legal and regulatory proceedings;
|
•
|
ability to establish and maintain bank accounts;
|
•
|
protected areas established by the National System of Protected Areas;
|
•
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changes in corporate structure;
|
•
|
emerging market risks; and
|
Risks related to investment in a company with Colombian operations including:
•
|
economic and political risks inherent with any investment in Colombia;
|
•
|
governmental influence on the Colombian economy;
|
•
|
internal security issues; and
|
•
|
political and economic instability in the region.
|
Financial and accounting risks including:
•
|
estimates or judgments relating to critical accounting policies;
|
•
|
failure to develop our internal controls.
|
Although the forward-looking statements in this Offering Circular are based on our beliefs, assumptions and expectations, taking into account all information currently available
to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that
deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.
This summary highlights selected information contained elsewhere in this Offering Circular. This summary is not complete and does not contain all the information that you should consider before
deciding whether to invest in our securities. You should carefully read the entire Offering Circular, including the risks associated with an investment in the Company discussed in the “Risk Factors” section
of this Offering Circular, before making an investment decision. Some of the statements in this Offering Circular are forward-looking statements. See the section entitled “Cautionary Statement Regarding
Forward-Looking Statements” above.
Flora Growth Corp. (the “Company,” “Flora”, “we,” “our,” and “us”) was formed on March 13, 2019 under the laws of the Province of Ontario, and is headquartered in Toronto, Ontario. The Company is focused on
cultivating, processing and supplying all natural, medicinal-grade cannabis oil, cannabis oil extracts and related products to large channel distributors, including pharmacies, medical clinics, and cosmetic companies. Flora’s principal and
90%-owned subsidiary, Cosechemos Ya S.A.S. (“Cosechemos”) is a fully licensed and permitted cultivator, producer, and distributor of CBD medical cannabis in Colombia for: (a) use in Colombia; and (b) international export. Flora’s subsidiary
operations are in Giron, Colombia.
Cosechemos became a 90%-owned subsidiary of the Company effective October 2, 2019, pursuant to a share purchase agreement dated July 16, 2019 (the “Share Purchase Agreement”), by and among the Company and Guillermo
Andres Ramirez Martinez, Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa (collectively, the “Vendors”). Pursuant to the Share Purchase Agreement, Flora acquired 4,500 shares of Cosechemos (which is equivalent to 90% of the issued and
outstanding shares of Cosechemos). As consideration for the Cosechemos shares, Flora (i) paid $80,000 to the Vendors, and (ii) granted the Vendors a 10% non-dilutive, free carried interest in Cosechemos (the “Free Carry”). The Free Carry will
terminate upon Flora investing an aggregate of $25 million into Cosechemos. Upon the termination of the Free Carry, the Vendors will be required, if needed by Cosechemos, to fund the operations of Cosechemos on a pro rata basis or risk having
their equity interest in Cosechemos be diluted. Additionally, Flora is required to pay the Vendors, as a one-time payment, $750,000 within 60 days of Cosechemos earning a net income of $10 million.
Our principal place of business and mailing address is Flora Growth Corp., 65 Queen Street West, Suite 800, Toronto, ON M5V 3W6, and our telephone number is 1(416) 861-2267. Our Colombian-based offices are located at
Carrera 25 # 29 - 87 Local 17 A, Giron, Santander, Colombia. Our website address is www.floragrowth.ca. The information contained therein or accessible thereby shall not be deemed to be incorporated into this Offering Circular.
Our Business
Cosechemos’ facilities are located at its 361-hectare cannabis farm in Giron, Colombia. The equatorial location of its facilities offers Flora the opportunity to cultivate the highest quality cannabis flowers and
produce correspondingly high-quality oil extracts through combination of a consistent and natural 12-hour sunlight/darkness light cycle, along with the expertise provided by the Flora’s workforce drawn from Colombia’s cut flower industry. Flora
also benefits from the natural light cycle through minimal energy requirements, providing the potential for an extremely low carbon production footprint and high production cost efficiency.
Description of Property
Leased Real Property
Flora, through Cosechemos has (i) one property under lease, the Cosechemos Farm, in Giron, Santander, Colombia, and (ii) the option to lease the Palagua Farms, in Puerto Boyaca, Boyaca, Colombia.
The Cosechemos Farm is a 361-hectare property. The Company intends to use 100 hectares for the cultivation of cannabis at the Cosechemos Farm. The Palagua Farms is comprised of two contiguous forms for a total of
2,132 hectares.
Following the successful cultivation of 100 hectares at the Cosechemos Farm, the Company intends to use 50 hectares for the of cultivation of cannabis at the Palagua Farms. Following the successful cultivation of
the first 50 hectares, the Company can cultivate up to an additional 1,850 hectares at the Palagua Farms.
Risks Related to Our Business
Our business and our ability to execute our business strategy are subject to a number of risks, which are more fully described in the section titled “Risk Factors”
beginning on page 10. These risks include, among others:
Business risks including:
•
|
reliance on licenses and authorizations and delays in receiving such licenses and authorizations;
|
•
|
changes in cannabis laws, regulations and guidelines;
|
•
|
demand for cannabis and derivative products;
|
•
|
regulatory compliance risks;
|
•
|
retention and acquisition of skilled personnel;
|
•
|
risks inherent in an agricultural business;
|
•
|
supply of cannabis seeds;
|
•
|
limited operating history;
|
•
|
legal and regulatory proceedings;
|
•
|
ability to establish and maintain bank accounts;
|
•
|
protected areas established by the National System of Protected Areas;
|
•
|
changes in corporate structure;
|
•
|
emerging market risks; and
|
Risks related to investment in a company with Colombian operations including:
•
|
economic and political risks inherent with any investment in Colombia;
|
•
|
guerrilla activity in Colombia;
|
•
•
|
operations in Spanish; and
enforements of judgements.
|
Financial and accounting risks including:
•
|
foreign sales and fluctuations in the exchange rate between the Colombian peso and the Canadian dollar, the Colombian peso and the U.S. dollar and the U.S. dollar and the Canadian dollar;
|
•
|
estimates or judgments relating to critical accounting policies; and
|
Our financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. Since inception, we have funded operations with debt and proceeds from the sale and issuance of equity to investors. Our future viability is largely dependent upon our ability to raise additional capital to finance our
operations. Our management expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions. Although our management continues to pursue these plans, there is no assurance that we will be
successful with this Offering or in obtaining sufficient financing on terms acceptable to us to continue to finance our operations, if at all. These circumstances raise substantial doubt on our ability to continue as a going concern, and our
financial statements do not include any adjustments that might result from the outcome of these uncertainties.
We are offering the Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares pursuant to rules of the SEC mandated under the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”). These offering rules are often referred to as “Regulation A+.” We are relying upon “Tier 2” of Regulation A+,
which allows us to offer securities of up to $50 million in a 12-month period.
In accordance with the requirements of Tier 2 of Regulation A+, we are required to publicly file annual, semiannual, and current event reports with the SEC.
Issuer:
|
|
Flora Growth Corporation, a corporation incorporated in the Province of Ontario, Canada.
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|
|
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Units Offered:
|
|
A maximum of 40,000,000 units (the “Units”) at an offering price of $0.75 per Unit, each Unit being comprised of:
• one common share in the capital of the Company, with no par value per share (a “Common Share”);
and
• one-half of one Common Share purchase warrant (each whole warrant, a “Warrant”) to purchase one
additional Common Share (a “Warrant Share”) at an exercise price of $1.00 per share, subject to customary adjustments, over an 18-month exercise period following the date of issuance of the Warrant.
|
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Warrant Shares Offered:
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A maximum of 20,000,000 Warrant Shares at an exercise price of $1.00 per Warrant Share, subject to customary adjustments, over an 18-month exercise period following the date of issuance.
|
|
|
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Common Shares Outstanding before the Offering (1):
|
|
70,000,000 Common Shares.
|
|
|
|
Common Shares to be Outstanding after the Offering (1):
|
|
110,000,000 Common Shares if the maximum Units are sold, or 130,000,000 Common Shares upon exercise of the Warrants if the maximum Units are sold and the maximum Warrant Shares are issued.
|
|
|
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Price per Unit:
|
|
$0.75
|
|
|
|
Price per Warrant Share
|
|
$1.00, subject to customary adjustments as described in the form of Warrant included as Exhibit 4.2 hereto.
|
|
|
|
Maximum Offering:
|
|
40,000,000 Units, at an offering price of $0.75 per Unit, (including the exercise of the Warrants to purchase 20,000,000 Warrant Shares with an exercise price of $1.00 per Warrant Share, subject to customary
adjustments).
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|
|
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Use of Proceeds:
|
|
If we sell all of the 40,000,000 Units being offered, and all of the 20,000,000 Warrant Shares underlying the Units being offered, our net proceeds (after deducting fees and commissions and estimated offering
expenses) will be approximately $48,857,000. We will use these net proceeds for research and development expenses, working capital and general corporate purposes, and such other purposes described in the “Use of Proceeds to Issuer” section of this Offering Circular.
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Resale Restrictions:
|
|
See “Securities Being Offered – Resale Restrictions” on page 55.
|
|
|
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Risk Factors:
|
|
Investing in our Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares involve a high degree of risk. See “Risk Factors” starting on page 10.
|
(1)
|
Excludes 7,000,000 Common Shares issuable upon exercise of stock options outstanding which are exercisable at an exercise price of $0.05 per share and 7,000,000 Common Shares issuable upon exercise of common
share purchase warrants outstanding which are exercisable at an exercise price of $0.05 per share.
|
|
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below, together with all of the other
information included in this Offering Circular, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the price of our Common
Shares could decline and you may lose all or part of your investment. See “Cautionary Statement Regarding Forward Looking Statements” above for a discussion of forward-looking statements and the significance
of such statements in the context of this Offering Circular.
Risks Related to our Business and Industry
We are an early-stage company with limited operating history.
We are a company focused on cultivating, processing and supplying all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors, newly-formed in March 2019,
and have limited operating history. We have limited financial resources and no source of operating cash flow. Additionally, there can be no assurance that additional funding will be available to us for the development of our business, which will
require the commitment of substantial resources. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors
should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that we may be unable to:
•
|
successfully implement or execute our business plan, or that our business plan is sound;
|
•
|
adjust to changing conditions or keep pace with increased demand;
|
•
|
attract and retain an experienced management team; or
|
•
|
raise sufficient funds in the capital markets to effectuate our business plan, including product development, licensing and approvals.
|
Reliance on Licenses and Authorizations.
Our ability to grow, store and sell cannabis in Colombia is dependent on our ability to sustain and/or obtain the necessary licenses and authorizations by certain authorities
in Colombia. To date, we have received the Non-Psychoactive Cannabis Cultivation License and have applied for the Psychoactive Cannabis Cultivation License and the Cannabis Derivatives Manufacturing License. The impact of the compliance regime, any
delays in obtaining, or failure to obtain or keep the regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on our business, results of operations
and financial condition.
The licenses and authorizations are subject to ongoing compliance and reporting requirements and our ability to obtain, sustain or renew any such licenses and authorizations on
acceptable terms is subject to changes in regulations and policies and to the discretion of the applicable authorities or other governmental agencies in Colombia and potentially in other foreign jurisdictions. Failure to comply with the requirements
of the licenses or authorizations or any failure to maintain the licenses or authorizations would have a material adverse impact on our business, financial condition and operating results.
Although we believe that we will meet the requirements to obtain, sustain or renew the necessary licenses and authorizations, there can be no guarantee that the applicable
authorities will issue these licenses or authorizations. Should the authorities fail to issue the necessary licenses or authorizations, we may be curtailed or prohibited from the production and/or distribution of cannabis or from proceeding with the
development of our operations as currently proposed and our business, results of operations and financial condition may be materially adversely affected.
Change of Cannabis Laws, Regulations, and Guidelines.
Cannabis laws and regulations are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated with compliance or alter certain
aspects of our business plan. It is also possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our businesses. We cannot predict the nature of any future laws, regulations, interpretations or
applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in
the cannabis industry in Colombia and internationally will continue to be dynamic and will require innovative solutions to try to comply with this changing legal landscape in this nascent industry for the foreseeable future. Compliance with any such
legislation may have a material adverse effect on our business, financial condition and results of operations.
Public opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public’s perception of the cannabis industry could
affect future legislation or regulation in different jurisdictions.
Demand for Cannabis and Derivative Products.
The legal cannabis industry in Colombia is at an early stage of its development. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of
medicinal cannabis are mixed and evolving and can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of medicinal 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 favourable to the medicinal 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 favourable than, or that question, earlier research reports, findings or
publicity, could have a material adverse effect on the demand for medicinal cannabis and on our business, results of operations, financial condition and cash flows. Further, adverse publicity reports or other media attention regarding cannabis in
general, or associating the consumption of medicinal cannabis with illness or other negative effects or events, could have such a material adverse effect. Public opinion and support for medicinal cannabis use has traditionally been inconsistent and
varies from jurisdiction to jurisdiction. Our ability to gain and increase market acceptance of our business may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that
such initiatives will be successful and their failure to materialize into significant demand may have an adverse effect on our financial condition.
Product Liability.
As a distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our
products are alleged to have caused bodily harm or injury. In addition, the sale of our products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human
consumption of our products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate
instructions for use or include inadequate warnings concerning health risks, possible side effects or interactions with other substances. Product liability claims or regulatory actions against us could result in increased costs, could adversely
affect our reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability
insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on
reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our potential products.
Product Recalls.
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 labelling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to
incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin, or at all. In addition,
a product recall may require significant management attention. There can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if
our products are subject to recall, our reputation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial
condition. Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies, requiring further management attention, potential loss of applicable licenses, and potential legal fees and other expenses.
Regulatory Compliance Risks.
Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory
approvals, where necessary, for the sale of our products. We may not be able to obtain or maintain the necessary licenses, permits, quotas, authorizations or accreditations to operate our business, or may only be able to do so at great cost. We
cannot predict the time required to secure all appropriate regulatory approvals for our products, or the extent of testing and documentation that may be required by local governmental authorities.
Our officers and directors must rely, to a great extent, on Colombian legal counsel and local consultants retained in order to keep abreast of material legal, regulatory and
governmental developments as they pertain to and affect our business operations, and to assist us with governmental relations. We must rely, to some extent, on those members of management and the board who have previous experience working and
conducting business in Colombia in order to enhance our understanding of and appreciation for the local business culture and practices in Colombia.
We also rely on the advice of local experts and professionals in connection with any current and new regulations that develop in respect of banking, financing and tax matters
in Colombia. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices in Colombia are beyond our control and may adversely affect our business.
We will incur ongoing costs and obligations related to regulatory compliance. 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. We may be required to compensate those suffering loss or damage by reason of our operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. In addition, changes in
regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our
business, results of operations and financial condition.
Retention and Acquisition of Skilled Personnel.
The loss of any member of our management team could have a material adverse effect on our business and results of operations. In addition, the inability to hire or the
increased costs of hiring new personnel, including members of executive management, could have a material adverse effect on our business and operating results. The expansion of marketing and sales of our products will require us to find, hire and
retain additional capable employees who can understand, explain, market and sell our products. There is intense competition for capable personnel in all of these areas and we may not be successful in attracting, training, integrating, motivating, or
retaining new personnel, vendors, or subcontractors for these required functions. New employees often require significant training and in many cases, take a significant amount of time before they achieve full productivity. As a result, we may incur
significant costs to attract and retain employees, including significant expenditures related to salaries and benefits and compensation expenses issued in connection to equity awards, and we may lose new employees to our competitors or other
companies before we realize the benefit of our investment in recruiting and training them. In addition, as we move into new jurisdictions, we will need to attract and recruit skilled employees in those new areas.
Risks Inherent in an Agricultural Business.
Our business involves the growing of cannabis, which is an agricultural product. The occurrence of severe adverse weather conditions, especially droughts or floods is
unpredictable and may have a potentially devastating impact on agricultural production, and may otherwise adversely affect the supply of cannabis. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the
introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce our yields or require us to increase our level of investment to maintain yields. Additionally, higher than average temperatures
and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts could reduce the yield and quality of our cannabis production, which could materially and adversely affect our
business, financial condition and results of operations.
The occurrence and effects of plant disease, insects and pests can be unpredictable and devastating to agricultural production, potentially rendering all or a substantial
portion of the affected harvests unsuitable for sale. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs may have been incurred.
Although some plant diseases are treatable, the cost of treatment can be high and such events could adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plant disease and the production is
threatened, we may be unable to adequately supply our customers, which could adversely affect our business, financial condition and results of operations. There can be no assurance that natural elements will not have a material adverse effect on
production.
Supply of Cannabis Seeds.
If for any reason the supply of cannabis seeds is ceased or delayed, we would have to seek alternate suppliers and obtain all necessary authorization for the new seeds. If
replacement seeds cannot be obtained at comparable prices, or at all, or if the necessary authorizations are not obtained, our business, financial condition and results of operations would be materially and adversely affected.
Many of our competitors have greater resources that may enable them to compete more effectively than us in the cannabis industry.
The industry in which we operate is subject to intense and increasing competition. Some of our competitors have a longer operating history and greater capital resources and facilities, which may
enable them to compete more effectively in this market. We expect to face additional competition from existing licensees and new market entrants who are granted licenses in Colombia, who are not yet active in the industry. If a significant number
of new licenses are granted in the near term, we may experience increased competition for market share and may experience downward pricing pressure on our products as new entrants increase production. Such competition may cause us to encounter
difficulties in generating revenues and market share, and in positioning our products in the market. If we are unable to successfully compete with existing companies and new entrants to the market, our lack of competitive advantage will have a
negative impact on our business and financial condition.
Legal and Regulatory Proceedings.
From time to time, we may be a party to legal and regulatory proceedings, including matters involving governmental agencies, entities with whom it does business and other
proceedings arising in the ordinary course of business. We will evaluate our exposure to these legal and regulatory proceedings and establish reserves for the estimated liabilities in accordance with generally accepted accounting principles.
Assessing and predicting the outcome of these matters involves substantial uncertainties. Unexpected outcomes in these legal proceedings, or changes in management’s evaluations or predictions and accompanying changes in established reserves, could
have an adverse impact on our financial results.
Our participation in the cannabis industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by third parties, other companies and/or
various governmental authorities against us. Litigation, complaints, and enforcement actions involving us could consume considerable amounts of financial and other corporate resources, which could have an adverse effect on our future cash flows,
earnings, results of operations and financial condition.
Ability to Establish and Maintain Bank Accounts.
There is a risk that banking institutions in countries where we operate will not open accounts for us or will not accept payments or deposits from proceeds related to the
cannabis industry. Such risks could increase our costs or prevent us from expanding into certain jurisdictions.
Insurance Coverage.
Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, plant diseases and pest infestations, other natural
phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework applicable to us and environmental contingencies.
We are in the process of obtaining insurance coverage over our production and facilities. We may not be able to maintain or obtain insurance of the type and amount desired at a
reasonable cost. If we were to incur significant liability for which we were not fully insured, it could have an adverse effect on our business, financial condition and results of operations.
Protected Areas Established by the National System of Protected Areas.
Under Colombian laws, competent governmental authorities are not allowed to grant any type of cannabis licenses on properties that are located within areas registered as
national parks or protected areas in the National System of Protected Areas (“SINAP”). Additionally, the Colombian government is entitled to create new protected areas based on their environmental relevance, which might result in the prohibition to
conduct any type of activities on those areas or the need to obtain specific environmental authorizations or permits.
We do not operate in a protected area and we believe that we are not currently at risk of expropriation pursuant to the SINAP, but we cannot assure you that the areas in which
we operate will not be subject to such risks in the future.
Changes in Corporate Structure.
Colombian cannabis licenses are granted on a non-transferable, non-exchangeable and non-assignable basis. Any breach of this restriction may result in the revocation of the
license. While there are no specific regulations or restrictions regarding the effects of a change in control, modification of the corporate structure, issuance of shares, or any changes in holders or final beneficiaries on the cannabis licenses,
these restrictions may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Emerging Market Risks.
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more
susceptible to destabilization resulting from domestic and international developments. All of our operations are in Colombia, See “Risks Related to Operations in Colombia”.
Global Economy.
Financial and securities markets in Colombia are influenced by the economic and market conditions in other countries, including other South American emerging market countries.
Although economic conditions in these countries may differ significantly from economic conditions in Colombia, international investors’ reactions to developments in these other countries, may substantially affect capital inflows into the Colombian
economy, and the market value of securities of issuers with operations in Colombia.
Economic downturn or volatility could have a material adverse effect on our business, financial condition and results of operations. In addition, weakening of economic
conditions could lead to reductions in demand for our products. Further, weakened economic conditions or a recession could reduce the amount of income customers are able to spend on our products. In addition, as a result of volatile or uncertain
economic conditions, we may experience the negative effects of increased financial pressures on our clients. For instance, our business, financial condition and results of operations could be negatively impacted by increased competitive pricing
pressure, which could result in the incurrence of increased bad debt expense. If we are not able to timely and appropriately adapt to changes resulting from a weak economic environment, our business, results of operations and financial condition may
be materially and adversely affected.
We will need to grow the size of our organization, and we may experience difficulties in managing any growth we may achieve.
As our development and commercialization plans and strategies develop, we expect to need additional research, development, managerial, operational, sales, marketing, financial, accounting, legal
and other resources. Future growth would impose significant added responsibilities on members of management. Our management may not be able to accommodate those added responsibilities, and our failure to do so could prevent us from effectively
managing future growth and successfully growing our company.
We expect to incur significant ongoing costs and obligations related to our investment in infrastructure, growth, regulatory compliance and operations.
We expect to incur significant ongoing costs and obligations related to our investment in infrastructure and growth and regulatory compliance, which could have a material adverse impact on our
results of operations, financial condition and cash flows. In addition, future changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or
give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition. Our efforts to grow our business may be costlier than we expect, and we may not be able to generate
sufficient revenue to offset such higher operating expenses. We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays, and other unknown events.
We will need, but may be unable to, obtain additional funding on satisfactory terms, which could dilute our shareholders or impose burdensome financial restrictions on our
business.
In the future, we hope to rely on revenues generated from operations to fund all of the cash requirements of our activities. However, there can be no assurance that we will be able to generate any
significant cash from our operating activities in the future. Future financings may not be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Any debt financing or other financing of securities senior to the
Common Shares will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition and results of
operations because we could lose our existing sources of funding and impair our ability to secure new sources of funding. There can be no assurance that we will be able to generate any investor interest in our securities. If we do not obtain
additional financing, our business may never commence, in which case you would likely lose the entirety of your investment in the Company.
Even if this Offering is successful, we will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary
capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
The proceeds from this Offering, excluding potential proceeds from the sale of Warrant Shares upon exercise of all the Warrants, will be up to $30,000,000 before deducting offering expenses
payable by us. We expect that if the maximum sale of Units is achieved, the net proceeds from this Offering will be sufficient to fund our current operations for at least the next twenty-four months. However, we may not achieve the maximum sale of
Units and Warrant Shares, and/or our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or
other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances or a combination of these approaches. Raising funds in the current economic environment may present additional challenges. It is not
certain that we have accounted for all costs and expenses of future development and regulatory compliance. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions
are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products. In addition, we
cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of
additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute our existing shareholders. The
incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire,
sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at
an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our
business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization
of any product, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
If you purchase our Units in this Offering, you will incur immediate and substantial dilution in the book value of your Units.
You will suffer immediate and substantial dilution in the net tangible book value of the Units you purchase in this Offering. Assuming an offering price of $0.75 per Unit and
$1.00 per Warrant Share, and assuming all 40,000,000 Units are sold and all 20,000,000 Warrant Shares are issued for estimated net proceeds of $48,857,000 (after deducting estimated offering expenses), purchasers of Units in this Offering will
experience dilution of approximately $0.46 per Unit in net tangible book value of the Units. In addition, investors purchasing Units in this Offering will contribute up to 97% of the total amount invested by shareholders since inception, but will
only own approximately 46% of the Common Shares outstanding.
We have no minimum capitalization.
We do not have a minimum capitalization, and we may use the proceeds from this Offering immediately following our acceptance of the corresponding subscription agreements. We do not have any track
record for self-underwritten Regulation A+ offerings and there can be no assurance the Maximum Offering or any other amount will be sold in this Offering. There is no assurance that we will raise sufficient capital solely from this Offering to
implement our business plan, potentially resulting in greater operating losses unless we are able to raise the required capital from alternative sources. There is no assurance that alternative capital, if needed, would be available on terms
acceptable to us, or at all.
Risks Related to Operations in Colombia
Our operations are located in Colombia, which may make it more difficult for investors to understand and predict how changing market and economic conditions will affect our
financial results.
Our operations are located in Colombia and, consequently, are subject to the economic, political and tax conditions prevalent in that country. The economic conditions in Colombia are subject to
different growth expectations, market weaknesses and business practices than economic conditions in other markets. We may not be able to predict how changing market conditions in Colombia will affect our financial results.
As of the date of this Offering Circular, Colombia’s long-term foreign currency sovereign credit ratings were affirmed “Baa2” by Moody’s, “BBB-” by S&P and “BBB” by Fitch, three of the main
rating agencies worldwide. The Colombian economy is expected to experience a modest recovery in growth in 2019, along with a decrease in the current account deficit and a marginal increase in debt in the coming three years. The stable outlook
reflects their expectation that Colombia’s established political institutions and track record of consensus on key economic policies will contribute to economic stability and continuity over the coming two to three years.
Colombia’s economy, like most Latin-American countries, continues to suffer from the effects of lower commodity prices, mainly oil, reflected in its elevated level of external debt. Even though the
country has taken measures to stabilize the economy, it is uncertain how these measures will be perceived and if the intended goal of increasing investor’s confidence will be achieved.
Economic and political conditions in Colombia may have an adverse effect on our financial condition and results of operations.
Our operations are located in Colombia. Consequently, our financial condition and results of operations depend significantly on macroeconomic and political conditions
prevailing in Colombia. Decreases in the growth rate, periods of negative growth, increases in inflation, changes in law, regulation, policy, or future judicial rulings and interpretations of policies involving exchange controls and other matters
such as (but not limited to) currency depreciation, inflation, interest rates, taxation, banking laws and regulations and other political or economic developments in or affecting Colombia may affect the overall business environment and may, in turn,
adversely impact our financial condition and results of operations in the future. The Colombian government frequently intervenes in Colombia’s economy and from time to time makes significant changes in monetary, fiscal and regulatory policy. Our
business and results of operations or financial condition may be adversely affected by changes in government or fiscal policies, and other political, diplomatic, social and economic developments that may affect Colombia. We cannot predict what
policies the Colombian government will adopt and whether those policies would have a negative impact on the Colombian economy or on our business and financial performance in the future.
We cannot assure you whether current stability in the Colombian economy will be sustained. If the condition of the Colombian economy were to deteriorate, we would likely be
adversely affected.
The Colombian Government and the Central Bank exercise significant influence on the Colombia economy.
Although the Colombian government has not imposed foreign exchange restrictions since 1990, Colombia’s foreign currency markets have historically been extremely regulated.
Colombian law permits the Central Bank of Colombia (the “Central Bank”) to impose foreign exchange controls to regulate the remittance of dividends and/or foreign investments in the event that the foreign currency reserves of the Central Bank fall
below a level equal to the value of three months of imports of goods and services into Colombia. An intervention that precludes our Colombian subsidiary from possessing, utilizing or remitting U.S. Dollars would impair our financial condition and
results of operations, and would impair the Colombian subsidiary’s ability to convert any dividend payments to U.S. dollars.
The Colombian government and the Central Bank may also seek to implement new policies aimed at controlling further fluctuation of the Colombian peso against the U.S. dollar and
fostering domestic price stability. The Central Bank may impose certain mandatory deposit requirements in connection with foreign-currency denominated loans obtained by Colombian residents. We cannot predict or control future actions by the Central
Bank in respect of such deposit requirements, which may involve the establishment of a different mandatory deposit percentage. The U.S. dollar/Colombian peso exchange rate has shown some instability in recent years.
Colombia has experienced and continues to experience internal security issues that have had or could have a negative effect on the Colombian economy and our financial condition.
Colombia is subject to sustained internal security issues, primarily due to the activities of guerrilla groups, such as dissidents from the former Revolutionary Armed Forces of
Colombia (Fuerzas Armadas Revolucionarias de Colombia), or “FARC,” the National Liberation Army (Ejército de Liberación Nacional), or “ELN,” paramilitary groups, drug
cartels and criminal gangs (Bacrim). In remote regions of the country with minimal governmental presence, these groups have exerted influence over the local population and funded their activities by protecting
and rendering services to drug traffickers and participating in drug trafficking activities. Even though the Colombian government’s policies have reduced guerilla presence and criminal activity, particularly in the form of terrorist attacks,
homicides, kidnappings and extortion, such activity persists in Colombia, and possible escalation of such activity and the effects associated with them have had and may have in the future a negative effect on the Colombian economy and on us,
including on our customers, employees, results of operations and financial condition. The Colombian government commenced peace talks with the FARC in August 2012, and peace negotiations with the ELN began in November 2016. The Colombian government
and the FARC signed a peace deal on September 26, 2016, which was amended after voters rejected it in the referendum held on October 2, 2016. The new agreement was signed on November 24, 2016 and was ratified by the Colombian Congress on November 30,
2016 and is being implemented after four years of negotiations. Pursuant to the peace agreements negotiated between the FARC and the Colombian government in 2016, the FARC occupies five seats in the Colombian Senate and five seats in the Colombian
House of Representatives. The new deal clarifies protection to private property, is expected to increase the government’s presence in rural areas and bans former rebels from running for office in certain newly created congressional districts in
post-conflict zones. As a result, during the transition process, Colombia may experience an increase in internal security issues, drug-related crime and guerilla and paramilitary activities, which may have a negative impact on the Colombian economy.
Our business or financial condition could be adversely affected by rapidly changing economic or social conditions, including the Colombian government’s response to implementation of the agreement with FARC and ongoing peace negotiations, if any,
which may result in legislation that increases the tax burden of Colombian companies.
Despite efforts by the Colombian government, drug-related crime, guerrilla paramilitary activity and criminal bands continue to exist in Colombia, and allegations have surfaced
regarding members of the Colombian congress and other government officials having ties to guerilla and paramilitary groups. Although the Colombian government and ELN have been in talks since February 2017 to end a five-decade war, the Colombian
government has suspended the negotiations after a series of rebel attacks. On January 17, 2019, a car with explosives burst through the gates at a police academy in Bogotá resulting in 21 people dead and many injured. The Colombian Defense Minister
confirmed that the terrorist attack was perpetrated by the ELN. Any possible escalation in the violence associated with this terrorist attack and/or these activities may have a negative impact on the Colombian economy. In addition, the current
administration has not honored the peace protocols to be applied in the event of a suspension of peace negotiations entered into by the prior administration, on the grounds that these protocols are only binding to the administration that agreed to
them. This situation could result in escalated violence by the ELN and may have a negative impact on the credibility of the Colombian government which could in turn have a negative impact on the Colombian economy. Any terrorist activity in Colombia
generally may disrupt supply chains and discourage qualified individuals from being involved with our operations.
Political and economic instability in the region may affect the Colombian economy and, consequently, our results of operations and financial condition.
Some of Colombia’s neighboring countries, particularly Venezuela, have experienced and continue to experience periods of political and economic instability. According to figures
from the United Nations, more than two million Venezuelans have emigrated amid food and medicine shortages and profound political divisions in their country. Approximately half of those migrants have opted to live in Colombia, and many have arrived
with only what they could carry. Providing migrants with access to healthcare, utilities and education may have a negative impact on Colombia’s economy if the Colombian government is not able to respond adequately to legalize migrants, generate
programs to help them find formal jobs, and increase tax revenue and consumption.
Moreover, diplomatic relations with Venezuela and Ecuador have from time to time been tense and affected by events surrounding the Colombian military forces’ confrontations with
guerilla groups, particularly on Colombia’s borders with each of Venezuela and Ecuador. More recently, the Colombian government joined an international campaign against Nicolás Maduro asking him to relinquish power, which has further increased
diplomatic tensions with Venezuela.
On November 19, 2012, the International Court of Justice placed a sizeable area of the Caribbean Sea within Nicaragua’s exclusive economic zone, which until then had been deemed
by Colombia as part of its own exclusive economic zone. A worsening of diplomatic relations between Colombia and Nicaragua involving the disputed waters could result in the Nicaraguan government taking measures, or a reaction among the Nicaraguan
public, which would be detrimental to Colombian-owned interests in that country.
Further economic and political instability in Colombia’s neighboring countries or any future deterioration in relations with Venezuela, Ecuador, Nicaragua and other countries in
the region may result in the closing of borders, the imposition of trade barriers and a breakdown of diplomatic ties, or a negative effect on Colombia’s trade balance, economy and general security situation, which may adversely affect our results of
operations and financial condition.
Finally, political conditions such as changes in the United States policies related to immigration and remittances could affect the regions in which we operate. Economic
conditions in the United States and the region generally may be impacted by the new United States-Mexico-Canada Agreement. This could have an indirect effect on the Colombian economy and other countries in which we may operate.
Financial and Accounting Risks
Foreign Sales.
Our functional currency is denominated in U.S. dollars. We currently expect that sales will be denominated in Colombian pesos and may, in the future, have sales denominated in
the currencies of additional countries in which we establish operations or distribution. In addition, we incur the majority of our operating expenses in Colombia Pesos. In the future, the proportion of our sales that are international may increase.
Such sales may be subject to unexpected regulatory requirements and other barriers. Any fluctuation in the exchange rates of foreign currencies may negatively impact our business, financial condition and results of operations. We have not previously
engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs or illiquid markets. In addition, those activities may be limited in the
protection they provide from foreign currency fluctuations and can themselves result in losses.
Estimates or Judgments Relating to Critical Accounting Policies.
The preparation of financial statements in conformity with International Financial Reporting Standards issued by the International Accounting Standards Board requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, as provided in the notes to our financial statements, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other
sources. Our operating results may be adversely affected if the assumptions change or if actual circumstances differ from those in the assumptions, which could cause our operating results to fall below the expectations of securities analysts and
investors, resulting in a decline in the price of our Common Shares. Significant assumptions and estimates used in preparing the financial statements include those related to the credit quality of accounts receivable, income tax credits receivable,
share based payments, impairment of non-financial assets, fair value of biological assets, as well as revenue and cost recognition.
Tax Risks.
We and our subsidiary will operate and will be subject to income tax and other forms of taxation in multiple jurisdictions. Taxation laws and rates which determine taxation
expenses may vary significantly in different jurisdictions, and legislation governing taxation laws and rates are also subject to change. Therefore, our earnings may be impacted by changes in the proportion of earnings taxed in different
jurisdictions, changes in taxation rates, changes in estimates of liabilities and changes in the amount of other forms of taxation. We may have exposure to greater than anticipated tax liabilities or expenses. We may be subject to income taxes and
non-income taxes in a variety of jurisdictions and our tax structure may be subject to review by both domestic and foreign taxation authorities and the determination of our provision for income taxes and other tax liabilities will require significant
judgment. In addition, we may be subject to different taxes imposed by the Colombian government, and changes within such tax, legal and regulatory framework may have an adverse effect on our financial results.
Failure to develop our internal controls over financial reporting as we grow could have an adverse impact on us.
As our Company matures we will need to continue to develop and improve our current internal control systems and procedures to manage our growth. We are required to establish and maintain
appropriate internal controls over financial reporting. Failure to establish appropriate controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or
results of operations. In addition, management's assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may
raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management's assessment of our internal controls over financial reporting or
disclosure of our public accounting firm's attestation to or report on management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Shares.
Risks Related to Our Securities
We intend to list our Common Shares for trading on a securities exchange, which would increase our regulatory burden; however, it is uncertain when our Common Shares will be
listed on an exchange for trading, if ever.
We intend to seek a listing on the Canadian Stock Exchange (the “CSE”). Our Board of Directors, in its sole discretion, may choose to take actions necessary to list our Common Shares on a national
securities exchange, but is not obligated to do so. As a result, our Common Shares sold in this Offering may not be listed on a securities exchange for an extended period of time, if at all. If our Common Shares are not listed on an exchange, it
may be difficult to sell or trade in our Common Shares.
Although to date we have not been subject to the continuous and timely disclosure requirements of Canadian securities laws or other rules, regulations and policies of the CSE. We are working with
our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems to manage our obligations as a public company listed on the CSE. These areas include corporate
governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting.
However, we cannot assure holders of our shares that these and other measures that we might take will be sufficient to allow us to satisfy our obligations as a public company listed on the CSE on a timely basis. In addition, compliance with
reporting and other requirements applicable to public companies listed on the CSE will create additional costs for us and will require the time and attention of management. We cannot predict the amount of the additional costs that we might incur,
the timing of such costs or the impact that management's attention to these matters will have on our business.
There is no existing market for our Common Shares, and you cannot be certain that an active trading market or a specific share price will be established.
Prior to this Offering, there has been no public market for shares of our Common Shares. We cannot predict the extent to which investor interest in our Company will lead to the development of a
trading market or how liquid that market might become. The Offering price for the Units has been arbitrarily determined by the Company and may not be indicative of the price that will prevail in any trading market following this Offering, if any.
The market price for our Common Shares may decline below the Offering price, and our stock price is likely to be volatile.
Our executive officers and directors and their respective affiliates may continue to exercise significant control over our Company after this Offering, which will limit your
ability to influence corporate matters and could delay or prevent a change in corporate control.
Our executive officers and directors currently represent beneficial ownership, in the aggregate, of approximately 36.8% of our outstanding Common Shares. Immediately following the completion of
this Offering, and disregarding any Units that they purchase in this Offering, if any, the existing holdings of our executive officers and directors and their affiliates will represent beneficial ownership, in the aggregate, of approximately 19.8%
of our outstanding Common Shares, assuming we sell the maximum number of Units offered in this Offering and issue 60,000,000 Common Shares (assuming 20 million Warrant Shares are issued) to the subscribers in the Offering. Please see “Security Ownership of Management & Certain Security Holders” on page 52 for more information. As a result, these shareholders may be able to influence our management and affairs and
control the outcome of matters submitted to our shareholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These shareholders acquired their Common Shares
for substantially less than the price of the Units being acquired in this Offering, and these shareholders may have interests, with respect to their Common Shares, that are different from those of investors in this Offering, and the concentration
of voting power among one or more of these shareholders may have an adverse effect on the price of our Common Shares. In addition, this concentration of ownership might adversely affect the market price of our Common Shares by:
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delaying, deferring or preventing a change of control of the Company;
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impeding a merger, consolidation, takeover or other business combination involving the Company; or
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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.
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Conflicts of Interest.
We may be subject to various potential conflicts of interest because of the fact that some of our officers and directors may be engaged in a range of business activities. In addition, our
executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to the Company. In some cases, our executive officers and directors may have
fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect our operations. These business interests could require significant time and
attention of our executive officers and directors.
We have broad discretion in how we use the proceeds of this Offering and may not use these proceeds effectively, which could affect our results of operations and cause the
price of our Common Shares to decline.
We will have considerable discretion in the application of the net proceeds of this Offering. We intend to use the net proceeds from this Offering to fund our business strategy, including without
limitation, new and ongoing research and development, cultivation and commercialization operations, offering expenses, working capital and other general corporate purposes, which may include funding for the hiring of additional personnel. As a
result, investors will be relying upon management's judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this Offering. We may use the net proceeds for purposes that do not yield a
significant return or any return at all for our shareholders. In addition, pending their use, we may invest the net proceeds from this Offering in a manner that does not produce income or that loses value.
We will incur increased costs as a result of our public reporting obligations, and our management team will be required to devote substantial time to new compliance
initiatives.
We may become subject to the periodic reporting requirements for public reporting companies in the United States and Canada in the near future. Particularly after we are no longer an “emerging
growth company,” we will continue to incur significant legal, accounting and other expenses that we have not incurred as a private company. Our management and other personnel would need to devote a substantial amount of time to comply with our
reporting obligations. Moreover, these reporting obligations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
We may lose our status as a foreign private issuer in the United States, which would result in increased costs related to regulatory compliance under United States securities
laws.
The Company will cease to qualify as a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended
(the “Exchange Act”), if, as of the last business day of our second fiscal quarter, more than 50 percent of our outstanding Common Shares are directly or indirectly owned by residents of the United States. If we determine that we fail to qualify as
a foreign private issuer, the Company will cease to be eligible to avail itself of the forms and rules designated for foreign private issuers beginning on the first day of the fiscal year following such determination. Among other things, this will
result in loss of the exemption from registration under the Exchange Act provided by Rule 12g3-2(b) thereunder, and, if the Company is required to register our Common Shares under section 12(g) of the Exchange Act, we will have to do so as a
domestic issuer. Further, any securities that we issue in unregistered or unqualified offerings both within and outside the United States will be “restricted securities” (as defined in Rule 144(a)(3) under the Securities Act), and will continue to
be subject to United States resale restrictions notwithstanding their resale in “offshore transactions” pursuant to Regulation S under the Securities Act. As a practical matter, this will likely require us to register more offerings of our
securities under the Securities Act on either a primary offering or resale basis, even if they take place entirely outside the United States. The resulting legal and administrative costs of complying with the resulting regulatory requirements are
anticipated to be substantial, and to subject the Company to additional exposure to liability for which we may not be able to obtain insurance coverage on favorable terms or at all.
If our stock price fluctuates after the Offering, you could lose a significant part of your investment.
The market price of our Common Shares could be subject to wide fluctuations in response to, among other things, the risk factors described in this section of this Offering Circular, and other
factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us. Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic,
political, and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our Common Shares. In the past, many companies that have experienced volatility in the
market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's
attention from other business concerns, which could seriously harm our business.
After the completion of this Offering, we may be at an increased risk of securities class action litigation.
Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If our stock price decreases and we were to be
sued, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.
We do not intend to pay dividends on our Common Shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our
Common Shares.
We have never declared or paid any cash dividend on our Common Shares and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in the Units, the Common Shares and Warrants of which the
Units consist and the underlying Warrant Shares will depend upon any future appreciation in their value. There is no guarantee that the Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares will
appreciate in value or even maintain the price at which you purchased them.
We may terminate this Offering at any time during the Offering Period.
We reserve the right to terminate this Offering at any time, regardless of the number of Units sold. In the event that we terminate this Offering at any time prior to the sale of all of the Units
offered hereby, whatever amount of capital that we have raised at that time will have already been utilized by the Company and no funds will be returned to subscribers.
As at the date of this Offering Circular, an aggregate of 70,000,000 Common Shares are issued and outstanding.
If you purchase Units in this Offering, your ownership interest in our Common Shares will be diluted immediately, to the extent of the difference between the price to the public charged for each Unit in this
Offering and the net tangible book value per share of our Common Shares after this Offering.
Our net tangible book value as of June 30, 2019 was ($414,000), or ($0.01) per share, based on 70,000,000 outstanding Common Shares as of the date of this Offering Circular. Net tangible book value per share equals
the amount of our total tangible assets less total liabilities, divided by the total number of Common Shares outstanding, all as of the date specified.
If the Maximum Offering, at an offering price of $0.75 per Unit and $1.00 per Warrant Share, is sold in this Offering, after deducting approximately $1,143,000 in offering expenses payable by us, our pro forma as
adjusted net tangible book value at June 30, 2019 would be approximately $48,671,000, or $0.37 per share. This amount represents an immediate increase in pro forma net tangible book value of $0.38 per share to our existing shareholders as of the
date of this Offering Circular, and an immediate dilution in pro forma net tangible book value of approximately $0.46 per share to new investors purchasing Units in this Offering at a price of $0.75 per Unit.
The following table illustrates the approximate per share dilution to new investors discussed above, assuming the sale of, respectively, 100%, 75%, 50% and 25% of the Units and the Warrant Shares offered for sale
in this Offering (after deducting our estimated offering expenses of $1.1 million):
Funding Level
|
|
$
|
48,857,000
|
|
|
$
|
36,582,000
|
|
|
$
|
24,307,500
|
|
|
$
|
12,302,000
|
|
Offering Price per Unit
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
Offering Price per Warrant Share
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
Weighted Average Price per Unit and Warrant Share
|
|
$
|
0.83
|
|
|
$
|
0.83
|
|
|
$
|
0.83
|
|
|
$
|
0.83
|
|
Pro forma net tangible book value per Common Share before the Offering
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Increase per Common Share attributable to investors in this Offering
|
|
$
|
0.38
|
|
|
$
|
0.33
|
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
Pro forma net tangible book value per Common Share after the Offering
|
|
$
|
0.37
|
|
|
$
|
0.31
|
|
|
$
|
0.24
|
|
|
$
|
0.14
|
|
Dilution to investors after the Offering
|
|
$
|
0.46
|
|
|
$
|
0.52
|
|
|
$
|
0.59
|
|
|
$
|
0.69
|
|
The following tables set forth, assuming the sale of, respectively, 100%, 75%, 50% and 25% of the Units offered for sale in this Offering, the total number of shares previously
sold to existing shareholders as of October 10, 2019, including shares issued for services, the total consideration paid for the foregoing (based on cash actually received and the value of shares issued for services), and the respective percentages
applicable to such purchased shares and consideration paid based on an average price of $0.02 per share paid by our existing shareholders or as the value of shares issued for services and $0.75 per Unit paid by investors in this Offering.
|
Units Purchased
|
|
Total Consideration
|
|
|
Number
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
Assuming 100% of Units Sold:
|
|
|
|
|
|
|
|
|
Existing Shareholders
|
|
|
70,000,000
|
|
|
|
54
|
%
|
|
$
|
1,400,000
|
|
|
|
3
|
%
|
New Investors
|
|
|
60,000,000
|
|
|
|
46
|
%
|
|
$
|
50,000,000
|
|
|
|
97
|
%
|
Total
|
|
|
130,000,000
|
|
|
|
100
|
%
|
|
$
|
51,400,000
|
|
|
|
100
|
%
|
|
Units Purchased
|
|
Total Consideration
|
|
|
Number
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
Assuming 75% of Units Sold:
|
|
|
|
|
|
|
|
|
Existing Shareholders
|
|
|
70,000,000
|
|
|
|
61
|
%
|
|
$
|
1,400,000
|
|
|
|
4
|
%
|
New Investors
|
|
|
45,000,000
|
|
|
|
39
|
%
|
|
$
|
37,500,000
|
|
|
|
96
|
%
|
Total
|
|
|
115,000,000
|
|
|
|
100
|
%
|
|
$
|
38,900,000
|
|
|
|
100
|
%
|
|
Units Purchased
|
|
Total Consideration
|
|
|
Number
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
Assuming 50% of Units Sold:
|
|
|
|
|
|
|
|
|
Existing Shareholders
|
|
|
70,000,000
|
|
|
|
70
|
%
|
|
$
|
1,400,000
|
|
|
|
5
|
%
|
New Investors
|
|
|
30,000,000
|
|
|
|
30
|
%
|
|
$
|
25,000,000
|
|
|
|
95
|
%
|
Total
|
|
|
100,000,000
|
|
|
|
100
|
%
|
|
$
|
26,400,000
|
|
|
|
100
|
%
|
|
Units Purchased
|
|
Total Consideration
|
|
|
Number
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
Assuming 25% of Units Sold:
|
|
|
|
|
|
|
|
|
Existing Shareholders
|
|
|
70,000,000
|
|
|
|
82
|
%
|
|
$
|
1,400,000
|
|
|
|
10
|
%
|
New Investors
|
|
|
15,000,000
|
|
|
|
18
|
%
|
|
$
|
12,500,000
|
|
|
|
90
|
%
|
Total
|
|
|
85,000,000
|
|
|
|
100
|
%
|
|
$
|
13,900,000
|
|
|
|
100
|
%
|
The foregoing tables and calculations exclude (i) 7,000,000 Common Shares issuable upon exercise of stock options outstanding which are exercisable at an exercise price of $0.05
per share, (ii) 7,000,000 Common Shares issuable upon exercise of common share purchase warrants outstanding which are exercisable at an exercise price of $0.05 per share and (iii) Warrant Shares issuable upon the exercise of Warrants and any
proceeds therefrom.
PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS
The Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares are being offered pursuant to Regulation A of Section 3(b) of the Securities Act of 1933, as amended (the
“Securities Act”), for Tier 2 offerings, by the management of the Company on a “best-efforts” basis directly to purchasers who satisfy the requirements set forth in Regulation A. We have the option in our
sole discretion to accept less than the minimum investment. We have no minimum capitalization, and we may use the proceeds from this Offering immediately following our acceptance of the corresponding subscription agreements towards our business
strategy, facility expenses, research and development expenses, offering expenses (which include legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering), working capital, general corporate
purposes, and other uses, as more specifically set forth in the “Use of Proceeds to Issuer” starting on page 27. There is no arrangement for the return of funds to investors if all of
the Units offered are not sold in the Offering.
Our Offering will expire on the first to occur of (a) the sale of all 40,000,000 Units offered hereby, (b) ________ __, 2021 or (c) when our Board of Directors elects to terminate the Offering.
There is no arrangement to address the possible effect of the Offering on the price of our Common Shares.
We reserve the right to offer the Units, the Common Shares and Warrants of which the Units consist and the underlying Warrant Shares through broker-dealers who are registered with FINRA. The Company has engaged
Dalmore Group, LLC ("Dalmore"), a New York limited liability company and broker-dealer registered with the SEC and a member of FINRA, to provide broker-dealer services in seven specified states, including Washington, Arizona, Texas, Alabama,
North Dakota, Florida and New Jersey, in connection with this Offering. Dalmore's services include the review of investor information, including Know Your Customer data, Anti-Money Laundering and other compliance checks, and the review of
subscription agreements and investor information. As compensation for these services, the Company has agreed to pay Dalmore a one-time setup fee in the amount of $25,000, plus a 3% commission on the aggregate amount raised by the Company in this
Offering in the specified states, as described in the Broker-Dealer Agreement between the Company and Dalmore.
Generally speaking, Rule 3a4-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons
associated with an issuer that participate in an offering of the issuer's securities. None of our officers or directors are subject to any statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act. None of our
officers or directors will be compensated in connection with their participation in the Offering by the payment of commissions or other remuneration based either directly or indirectly on transactions in our securities. None of our officers or
directors are, or have been within the past 12 months, a broker or dealer, and none of them are, or have been within the past 12 months, an associated person of a broker or dealer. At the end of the Offering, our officers and directors will
continue to primarily perform substantial duties for the Company or on its behalf otherwise than in connection with transactions in securities. Our officers and directors will not participate in selling an offering of securities for any issuer
more than once every 12 months other than in reliance on Exchange Act Rule 3a4-1(a)(4)(i) or (iii), except that for securities issued pursuant to Rule 415 under the Securities Act, the 12 months shall begin with the last sale of any
security included within one Rule 415 registration.
We may be required to retain a broker-dealer or register as an issuer-dealer and/or agent under the blue sky laws of certain states in order to make offers to sell our Units in those states. There can be no
guarantee that we will be approved as an issuer-dealer and/or agent in any or all of the states which we determine require such registration.
Selling Security Holders
No securities are being sold for the account of security holders; all net proceeds of this offering will go to the Company.
USE OF PROCEEDS TO ISSUER
The maximum gross proceeds from the sale of our Units in this Offering is $50,000,000 (including the proceeds from the issuance of all Warrant Shares upon exercise of Warrants issued in this Offering). The net
proceeds from the total maximum offering are expected to be approximately $48,857,000, after the payment of offering costs (including legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering). Our
estimated offering costs of $1,143,000 include a deduction of 3% of the total gross proceeds for commissions payable to Dalmore on all the Units being offered. We note that this is a conservative estimate, as the 3% commission will only be paid
on investments in the seven states where Dalmore is engaged to provide broker-dealer services (Washington, Arizona, Texas, Alabama, North Dakota, Florida and New Jersey), although the Company intends to offer Units in all states within the United
States and in certain provinces of Canada (and other non-U.S. jurisdictions). The estimate of the budget for offering costs is an estimate only and the actual offering costs may differ. We expect from time to time to evaluate the acquisition of
businesses, intellectual property, products and technologies for which a portion of the net proceeds may be used. The following table represents management's best estimate of the uses of the net proceeds, assuming the sale of, respectively,
100%, 75%, 50% and 25% of the Units offered for sale in this Offering.
|
|
|
|
|
Percentage of Offering Sold
|
|
|
|
|
|
|
|
100%
|
|
|
|
75%
|
|
|
|
50%
|
|
|
|
25%
|
|
Construction of facilities and equipment
|
|
$
|
10,000,000
|
|
|
$
|
8,000,000
|
|
|
$
|
8,000,000
|
|
|
$
|
4,000,000
|
|
Complete licensing and permitting at new facilities
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Cosechemos operational expenditures
|
|
$
|
6,000,000
|
|
|
$
|
6,000,000
|
|
|
$
|
6,000,000
|
|
|
$
|
3,000,000
|
|
Recruit and implement sales team
|
|
$
|
1,500,000
|
|
|
$
|
900,000
|
|
|
$
|
600,000
|
|
|
$
|
400,000
|
|
Research and Development
|
|
$
|
5,800,000
|
|
|
$
|
4,800,000
|
|
|
$
|
1,900,000
|
|
|
$
|
1,328,500
|
|
General and Administrative
|
|
$
|
6,100,000
|
|
|
$
|
6,100,000
|
|
|
$
|
6,007,000
|
|
|
$
|
2,003,500
|
|
Execute marketing and branding campaigns
|
|
$
|
3,000,000
|
|
|
$
|
2,000,000
|
|
|
$
|
800,000
|
|
|
$
|
300,000
|
|
Strategic acquisitions and related capital expenditures
|
|
$
|
15,457,000
|
|
|
$
|
7,782,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
TOTAL
|
|
$
|
48,857,000
|
|
|
$
|
36,582,000
|
|
|
$
|
24,307,000
|
|
|
$
|
12,032,000
|
|
The Company has a very limited operating history. Our plan of operations for the next few years includes: successfully completing the Pilot Project, expanding our cultivation to 100 hectares at the Cosechemos Farm,
building the requisite infrastructure at the Cosechemos Farm, including 1 hectare of nursery and propagation centres and the Research Technology and Processing Centre; developing, executing and monitoring sales and marketing campaigns,
identifying strategic partners and consumers in Colombia and export partners internationally, building the requisite infrastructure at the Palagua Farms, expanding our cultivation to the initial 50 hectares at the Palagua Farms and acquiring
businesses currently in the Company’s pipeline. The amounts set forth above are our current estimates for such development activities, and we cannot be certain that actual costs will not vary from these estimates. Our management has significant
flexibility and broad discretion in applying the net proceeds received in this Offering and making short-term interest-bearing investments of the proceeds for capital preservation purposes. We cannot assure you that our assumptions, expected
costs and expenses and estimates will prove to be accurate or that unforeseen events, problems or delays will not occur that would require us to seek additional debt and/or equity funding, which may not be available on favorable terms, or at all.
See “Risk Factors” starting on page 10 for more information regarding the risks associated with an investment in our securities.
The Company intends to use a portion of the proceeds raised in this Offering to fund the compensation payable to its officers, as described under “Compensation
of Directors and Executive Officers” below. The Company may, in its discretion, pay its directors cash compensation and compensate them with the proceeds of the Offering.
This expected use of the net proceeds from this Offering represents our intentions based upon our current financial condition, results of operations, business plans and conditions. As of the date of this Offering
Circular, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this Offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our
actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this Offering and reserves the right to change the estimated
allocation of net proceeds set forth above.
Although our business does not presently generate any cash, we believe that if we raise the maximum amount in this Offering, that we will have sufficient capital to finance our operations for at least the next 24
months. However, if we do not sell the maximum number of Units offered in this Offering, or if our operating and development costs are higher than expected, we will need to obtain additional financing prior to that time. Further, we expect that
during or after such 24-month period, we will be required to raise additional funds to finance our operations until such time that we can conduct profitable revenue-generating activities.
Pending our use of the net proceeds from this Offering, we may invest the net proceeds in a variety of capital preservation investments, including without limitation short-term, investment grade, interest bearing instruments and United States
government securities and including investments in related parties. We may also use a portion of the net proceeds for the investment in strategic partnerships and possibly the acquisition of complementary businesses, products or technologies,
although we have no present commitments or agreements for any specific acquisitions or investments.
Flora Growth Corp. (the “Company,” “Flora”, “we,” “our,” and “us”) was incorporated on March 13, 2019 in the Province of Ontario. Flora is a private company headquartered in Canada with a focus on cultivating,
processing and supplying all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors, including pharmacies, medical clinics, and cosmetic companies.
Our business operations are in Colombia. Our registered office and its head office is located at 65 Queen Street West, Suite 800, Toronto, Ontario M5H 2M5. We have one 90% owned operating subsidiary, Cosechemos Ya
S.A.S. (“Cosechemos”), which operates its business of cultivation and processing all natural cannabis into standardized, medicinal-grade oil extracts and related products. Cosechemos became a subsidiary of the Company effective October 2, 2019
pursuant to share purchase agreement between Flora, Guillermo Andres Ramirez Martinez, Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa.
Pursuant to our articles of incorporation (our “Articles”), we are authorized to issue an unlimited number of Common Shares. As of October 10, 2019, we had 70,000,000 Common Shares issued and outstanding.
Intercorporate Relationships
We have one 90% owned subsidiary, Cosechemos, incorporated under the laws of Colombia and has its registered office address at Carrera 25 # 29 - 87 Local 17
A, Giron, Santander, Colombia.
|
|
|
|
Flora Growth Corp.
(Ontario)
|
|
|
|
|
|
|
|
90%
|
|
|
|
|
|
|
Cosechemos Ya S.A.S.
(Colombia)
|
|
Cosechemos became our 90%-owned subsidiary effective October 2, 2019, pursuant to the Share Purchase Agreement, by and among us and Guillermo Andres Ramirez Martinez, Guillermo Ramirez Cabrales and Oscar Mauricio
Franco Ulloa. Pursuant to the Share Purchase Agreement, we acquired 4,500 shares of Cosechemos (which is equivalent to 90% of the issued and outstanding shares of Cosechemos). As consideration for the Cosechemos shares, we (i) paid $80,000 to
the Vendors, and (ii) granted the Vendors a 10% non-dilutive, free carried interest in Cosechemos.
The Free Carry will automatically terminate upon such time as we invest an aggregate of $25 million into Cosechemos. Upon the termination of the Free Carry, the Vendors will be required, if needed by Cosechemos, to
fund the operations of Cosechemos on a pro rata basis or risk having their equity interest in Cosechemos be diluted. Additionally, we are required to pay the Vendors, as a one-time payment, $750,000 within 60 days of Cosechemos earning a net
income of $10 million.
Narrative Description of the Business
Flora is a private company headquartered in Canada with a focus on cultivating, processing and supplying all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors, including
pharmacies, medical clinics, and cosmetic companies. Our 90% owned subsidiary, Cosechemos, is a fully licensed and permitted cultivator, producer, and distributor of CBD medical cannabis in Colombia for: (a) use in Colombia; and (b) international
export. On August 22, 2019, Cosechemos applied to the Ministry of Justice for a Psychoactive Cannabis Cultivation License and on August 14, 2019 Cosechemos applied to the Ministry of Health and Social Protection (the “Ministry of Health”) for its
cannabis manufacturing license. Cosechemos expects to receive these licenses by the end of 2019.
Our cultivation operations are in Giron, Santander, Colombia, where Cosechemos has leased the Cosechemos Farm, a 361 hectare property,
and the Palagua Farms, a 1,900 hectare property, to host the entirety of its operations, from the seed stage to the processing stage. The equatorial location of its facilities offers Cosechemos the opportunity to cultivate the highest quality
cannabis flowers and produce correspondingly high quality oil extracts through combination of a consistent and natural 12 hour sunlight/darkness light cycle, along with the expertise provided by the Cosechemos workforce drawn from Colombia’s cut
flower industry. Cosechemos also benefits from the natural light cycle through minimal energy requirements, providing the potential for an extremely low carbon production footprint and high production cost efficiency.
We have initiated a 2 hectare Pilot Program at the Cosechemos Farm. Pursuant to the Pilot Program, We have constructed one nursery and propagation center (an aggregate of
1,000 square meters) at the Cosechemos Farm wherein Flora has planted 7,800 seedlings of non-psychoactive cannabis. Once the plants have strengthened and developed a healthy root structure, the plants will be planted in lots on the Cosechemos Farm
for a total of two hectares of planted crops. We expect to harvest, dry, trip and process the non-psychoactive cannabis from the Pilot Program in November/December of 2019. Once the Pilot Program has been completed, we will start planting 100
hectares of non-psychoactive cannabis at the Cosechemos Farm (the “Stage 1 Grow”). The Cosechemos Farm is a 361 hectare property.
Following the successful completion of the Stage 1 Grow and subject to the Company having adequate financing and demand for the Company’s products, Cosechemos intends to expand
its operations by cultivating non-psychoactive cannabis at the Palagua Farms. Initially, we intend to use 50 hectares for the cultivation of cannabis at the Palagua Farms. Following the successful cultivation of the first 50 hectares at the Palagua
Farms, we can cultivate up to an additional 1,850 hectares at the Palagua Farms.
Our Products and Services
Cosechemos is focused on cultivating, processing and supplying all natural, medicinal-grade cannabis oil, cannabis oil extracts and related products to large channel
distributors, including pharmacies, medical clinics, and cosmetic companies.
Cosechemos is currently in the process of cultivating medicinal cannabis at the Cosechemos Farm in Giron, Colombia for a variety of medical conditions. Cosechemos currently has
registered 12 varieties of cannabis. See “Operations - Strains of Cannabis”.
The development of these strains enables the selection of mother plants and identification of the concentrations of cannabinoids required for the formulations in which we
intend to distribute. Upon completion of the construction of its Research Technology and Processing Centre, the cannabis will be produced in accordance with good manufacturing practice (GMP) Standards. We are
committed to developing final products consistent with medicinal cannabis industry standards and pharmaceutical procedures. Our products will include a variety of THC and CBD compositions designed to treat specific medical conditions. Currently, we
are authorized to grow only non-pyschoactive cannabis (less than 1% THC) but we expect to obtain a psychoactive cannabis license (higher than 1% THC) by Q4 2019. Upon obtaining the psychoactive cannabis license, the composition of the strains grown
we grow will include a wide range of THC and CBD ratios. We are currently evaluating various delivery methods to its target demographic of pharmacies, medical clinics, and cosmetic companies.
Our non-psychoactive cannabis license allows us to produce and distribute CBD dominant cannabis oils and derivative products. This provides a strong base for our operations as
the recently established medicinal cannabis market in Colombia develops and matures, and opportunities in Colombia’s low THC non-psychoactive cannabis over-the-counter markets arise.
Our CBD dominant cannabis products will mainly be focused on addressing the medicinal cannabis needs of prospective Colombian patients with conditions potentially suitable for
treatment with medical cannabis. Such conditions include anxiety, insomnia, anorexia, chronic pain, epilepsy, chemotherapy-induced nausea and vomiting, post-traumatic stress disorder (PTSD), Parkinson’s disease, Tourette syndrome, irritable bowel
syndrome (IBS) and spasticity associated with multiple sclerosis (MS) and spinal cord injury (SCI)1. Prohibition Partners2 estimates the need for medical cannabis production in Colombia to treat pain and pain symptoms of 4.5 million patients domestically as well as 60 million patients in Latin America suffering from
conditions such as cancer, multiple sclerosis and epilepsy. In Colombia alone, it is estimated that more than 2.2 million people suffer with chronic pain, some 475,000 suffer post-traumatic stress disorder and another 520,000 have insomnia.
Operations
Method of Production
We are currently in the process of growing a variety of cannabis strains for specific patient ailments. We have developed initial processing procedures for mature plants with
the objective of distributing products through a variety of market channels in Colombia and potentially internationally. We will utilize stringent quality assurance and quality control measures to ensure that its products are consistent with
medicinal cannabis industry standards.
We have initiated a 2 hectare pilot program (the “Pilot Program”) at the Cosechemos Farm. Pursuant to the Pilot Program, we have constructed one nursery and propagation center
(an aggregate of 1,000 square meters) wherein we have planted 7,800 seedlings of non-psychoactive cannabis. Once the plants have strengthened and developed a healthy root structure, the plants will be planted in lots on the Cosechemos Farm for a
total of two hectares of planted crops. We expect to harvest, dry, trip and process the non-psychoactive cannabis from the Pilot Program in November/December of 2019. Once the Pilot Program has been completed, we will start to plant 100 hectares of
non-psychoactive cannabis. The Cosechemos Farm is a 361 hectare property. 100 hectares of the Cosechemos Farm will be used to grow and cultivate cannabis, with the remainder of the Cosechemos Farm used to host the requisite facilities and
infrastructure, including the Nursery and Propagation Centre, storage warehouse, technical and administrative offices, employee quarters, fertilization booth, post-harvest (drying and curing centre), a water reservoir and the Research Technology and
Processing Centre.
Following the successful cultivation of 100 hectares at the Cosechemos Farm, adequate financing and subject to demand for the Company’s products, Cosechemos intends to expand its
operations by cultivating non-psychoactive cannabis at the Palagua Farms.
Subject to the Company obtaining adequate financing, we intend to construct the following facilities at the Cosechemos Farm by the of Q3 2020:
Nursery and Propagation Centre
We intend to build 1 hectare of open-air greenhouses capable of supplying more than 45,000 rooted cuttings per week from 17,000 mother-plants, the estimated number eventually required to support a
planned 100-hectare cultivation and harvesting operation at the Cosechemos Farm.
Warehouse
We intend to construct a 3,000 m2 warehouse for the housing and storage of all equipment required at the Cosechemos
Farm.
1 Paradigm Capital – Medicinal Cannabis Industry Report (April 2018)
2 Prohibition Partners – The LATAM Cannabis Report (October 2018)
Technical and administrative office
We intend to construct a 3,000 m2 office for its technical and administrative team.
Housing for Technical Team
We intend to construct a 100m2 residential quarters to host its technical team. Four members of our technical team
will reside at the Cosechemos Farm to ensure that its crops have constant surveillance.
Fertilization Centre
We intend to construct a 1,500 m2 fertilization center which shall contain all of the fertilization infrastructure
and equipment needed for the Cosechemos Farm, including pumping system, filters and automation tanks.
Water Reservoir
We intend to construct a 1 hectare water reservoir which shall have a capacity of 30,000 m3 of water. The water
reservoir will be filled with water from the underground water aquifer.
Research Technology and Processing Centre
We intend to construct a 1.5 hectare Research Technology and Processing Centre. The Research Technology and Processing Centre will contain facilities to: (i) dry flowers
naturally as well as using drying machines; (ii) a milling area; (iii) extraction areas; and (iv) an area designed for testing for levels of THC and CBD and physical-chemical analyzes of the soil, pathological plants and multiplication of beneficial
microorganisms. Once complete, it must be certified by INVIMA to ensure that it meets GMP standards.
Production
The nursery and propagation center has one primary function, to develop and propagate a steady stream of genetically stable cuttings (clones) that will supply our cultivation
lots, which in turn root and cultivate the cuttings into flowering plants that eventually yield the harvested cannabis flower that is sent for processing into standardized, medicinal-grade oil extracts at our planned state-of-the-art oil processing
center.
These outbound cuttings, destined for contract cultivation, are hand-culled from populations of mother plants, which will occupy a dominant percentage, of approximately 75% of
the overall nursery and propagation center’s open-air greenhouse planting capacity. The mothers supply all of the feeder stock cannabis cuttings to be cultivated at the Cosechemos Farm.
Not only do the mother plants supply genetically stable varieties of cuttings, they themselves also originated as harvested cuttings from grandmother plants. As the cloning
process perfectly replicates plant genetics, the genetics of the mother plants mirror those of the grandmother plants from which they were harvested.
After extensive laboratory and field propagation testing only a select few plants determined to possess superior genetics are selected to be grandmothers.
To ensure the genetic consistency of future generations of grandmother plants (and by extension future mother plants), tissue culture harvested from the grandmother plants is stored in an onsite tissue culture lab. In other words, when the entire
population of grandmother plants needs to be replaced with new grandmothers, which is required approximately every six months, it is replaced with its own genetic offspring via tissue culture propagation.
Cultivation and Processing
The non-psychoactive cannabis produced as part of the Pilot Project will be processed at our current processing center which is located on the Cosechemos Farm. Until the
Research Technology and Processing Centre is constructed, the CBD oil from the Pilot Project will be extracted in a temporary non-certified facility located at the Cosechemos Farm.
The construction of the Research Technology and Processing Centre that Cosechemos will use to produce cannabis is targeted to commence by the first half of 2020. Once
completed, the Research Technology and Processing Centre must be certified by INVIMA in order to ensure that it meets GMP Standards.
GMP Standards require a system in place that ensures that products are consistently produced and controlled according to quality standards. GMP Standards are designed to
minimize the risks involved in any pharmaceutical, food, cosmetics, and production that cannot be eliminated through testing the final product. GMP Standards implement standards for all facets of production including materials, premises, equipment,
training and personal hygiene of staff. Detailed written procedures are essential for each process that could affect the quality of the finished product. In addition, systems must be implemented to provide documented proof that correct procedures are
consistently followed at each step in the manufacturing process, every time a product is made.
Location
The Cosechemos Farm is in Giron, Santander, Colombia. Giron’s tropical rainforest climate has an average daily temperature of 23.79°C (74.82°F) throughout the year with
virtually no variation. Giron consistently receives 12 hours and 10 minutes of daylight, year-round, with very little variability, important for cannabis cultivation. Rainfall is abundant in Giron, with the probability of precipitation at some point
ranging between 43% and 67% throughout most of the year (8.3 months), and usually a light to moderate breeze, which is ideal for controlling humidity and moisture levels within open-air greenhouses.
Giron’s location and infrastructure are well suited to supply international markets as it is 10 kilometers from Palonegro International Airport.
The Palagua Farm is located in Puerto Boyacá, Departamento de Boyacá, Colombia. Puerto Boyacá’s rainforest has an average daily temperature of 27.83°C (82.09°F) throughout the
year with a small variation of +/- 2.5°C (or 77°F to 86°F) with temperatures higher from September to October and lower from December to January. Puerto Boyacá, on average, receives 12 hours and 7 minutes of daylight, excellent for multiple cannabis
cultivation cycles in a year. Rainfall is abundant in Puerto Boyacá, with the probability of precipitation ranging between 31% and 80% throughout most of the year with an average monthly precipitation of 68%. Puerto Boyacá has a light breeze
year-round which is ideal for controlling humidity levels within open-air greenhouses.
Puerto Boyacá’s location and infrastructure are well suited to supply international markets as it is a river-port town located by the Magdalena River, a principal river of
Colombia, and is in close proximity to the airports of Puerto Perales and Puerto Nare.
Colombia is one of the world’s top cut flower producing regions. The skills of its many experienced horticultural workers are quickly transferable from flowers to cannabis. The
cost of agricultural labour in Colombia is less than a quarter of U.S. labour even with fair labour standards now in place throughout the industry to ensure safe and respectful working environments and fair wages.
Specialized Skills and Knowledge
Our board of directors and management team has strong experience enabling the team to operate a business of this nature including experience in horticulture, crop development,
horticultural production techniques, produce manufacturing and international finance. Our board of directors and management team also has experience operating in the South American and Colombian business environment.
Sources of Materials
We intend to source the majority of its non-GMO feeder stock seed material through the legally established channels set forth by the Colombian government.
Additionally, in certain situations where a specific strain is deemed to be important to developing a medical market formulation and domestic source plant material is not readily available, we may be required to import seeds from legally licensed
international seed vendors.
Water for growing is obtained from an underground aquifer on the Cosechemos Farm and from a nearby river at the Palagua Farms. Soil is obtained from the property itself at each
of the Cosechemos Farm and the Palagua Farms. Fertilizer is obtained from various suppliers based on the demand from the cultivation schedule.
Licenses
According to Colombian law, there are four types of cannabis licenses that authorize different activities concerning the various stages of the production line of the medicinal
cannabis industry: (i) the Cannabis Seeds Possession License; (ii) the Psychoactive Cannabis Cultivation License; (iii) the Cannabis Non-Psychoactive Cultivation License; and (iv) the Cannabis Derivatives Manufacturing License. An overview of each
license is provided below.
The legal framework currently in force in Colombia regarding medicinal cannabis is established in the Law 1787 of 2016 (the “Law”) and the Decree 613 of 2017 (the “Decree”).
Based on the Law and the Decree, the Ministry of Health and the Ministry of Justice are the authorities entitled to issue the aforementioned licenses, in an estimated time of sixty (60) days.
It is important to note that, in compliance with its international obligations, Colombia establishes an annual limit for the production volume of cannabis plants and
derivatives, which is monitored by the International Narcotics Control Board. Based on this limit, the Colombian Government established a quota system, in order to control the amount of psychoactive cannabis production per license. This means that
under the Psychoactive Cannabis Cultivation and Manufacturing licenses, licensees must first apply for a specific crop or manufacturing quota, before beginning production. Such restriction is not applicable to non-psychoactive cannabis production,
and therefore to Non-Psychoactive Cannabis Cultivation Licenses.
The current operations of Cosechemos do not require a Cannabis Seeds Possession License, Psychoactive Cannabis License or a Cannabis Derivatives Manufacturing License. Cosechemos
currently has a Non-Psychoactive Cannabis Cultivation License.
Non-Psychoactive Cannabis Cultivation License
The Non-Psychoactive Cannabis Cultivation License is granted by the Ministry of Justice and is intended to authorize the cultivation of non-psychoactive
cannabis plants for (i) seeds, cuttings and grain production, (ii) the manufacturing of derivatives, (iii) industrial purposes and (iv) scientific research purposes. Besides cultivation, licensees also have an authorization to store, commercialize,
distribute and transport non-psychoactive cannabis plants, as well as dried cannabis flower.
Cosechemos applied for this license on September 6, 2019, and the Ministry of Justice granted it on May 15, 2019, through Resolution N° 484. The Cannabis Non-Psychoactive
Cultivation License grants Cosechemos the right to cultivate non-psychoactive cannabis plants for: (a) grain and seeds production; (b) manufacturing of derivatives; and (c) industrial production.
The Cannabis Non-Psychoactive Cultivation License does not require a quota. The license is valid up to five (5) years and can be renewed for additional five year terms. The Colombian government
maintains the right to monitor the activities performed by the corresponding licensee.
Psychoactive Cannabis Cultivation License
On August 22, 2019, Cosechemos applied for the Psychoactive Cannabis Cultivation License before the Ministry of Justice. This license authorizes the cultivation of psychoactive
cannabis plants for (i) seeds and cuttings production, (ii) grain production, (iii) the manufacture of derivatives and (iv) scientific research purposes. Besides cultivation, licensees also have an authorization to store, commercialize, distribute
and transport psychoactive cannabis plants, as well as dried cannabis flower. Cosechemos expects to obtain this license in Q1 2020.
Cannabis Manufacturing License
On August 14, 2019, Cosechemos applied for the Cannabis Manufacturing License before the Ministry of Health. This license authorizes the manufacture of psychoactive cannabis derivatives for (i)
domestic commercialization, (ii) export, and (iii) scientific research purposes. Cosechemos expects to receive this license in Q1 2020.
Strains of Cannabis
Under article 2.8.11.11.1 of Decree 631 of 2018, licensed cannabis producers had the right to register before the Colombian Agricultural Institute (“ICA”), the genetics of any
cannabis strain found in Colombia without having to declare or specify its origin, until December 31, 2018. This right, known as “Fuente semillera”, works a mechanism to legalize the sources of cannabis
genetics already existing in Colombia, by allowing licensees to initiate the formal proceedings before the ICA, required to register such genetics in the Colombian National Plants Registry or “Registro Nacional de
Cultivares.” In this sense, each strain registered as Fuente semillera belongs to each licensee, giving it the right to grow its own strands of cannabis as opposed to having to purchase registered
strands from other licensed producers.
As of December 31, 2018, Cosechemos registered 12 varieties as its own Fuente semillera. This registration enables Cosechemos to grow
its own strands of cannabis as opposed to having to purchase registered strands from other licensed producers.
Seasonality
Colombia and its vertical offering of microclimates is the ideal country for year-round growing and processing of all possible varieties of cannabis in a
natural, environmentally friendly manner.
Environmental
Under Colombian law, land ownership creates a presumption of liability for environmental damage in case of the breach of environmental laws, environmental damages, and the
breach of an environmental license or any other administrative act issued by environmental authorities. Environmental authorities may investigate potential claims, authorize preventative measures, or impose sanctions to corporations for breaching
environmental laws.
General principles of environmental law are set out in Law 99 of 1993. Moreover, article 9 of the National Code of Natural Resources and Protection of the Environment, issued
through Decree 2811 of 1974, establishes the principles governing the use of natural resources, including, inter alia, that natural resources must be used without causing any harm to the interests of the community or third parties.
Any person, including corporations, that cause environmental damage while acting under the authority of a permit or environmental license, are responsible for the costs
incurred on rectifying the damage. Environmental sanctions are independent from other civil and criminal penalties that may be imposed for the same action or damage. Therefore, environmental damage caused while a party is performing any activity
without the required license constitutes a breach of Law 99 of 1993 and may lead to the imposition of sanctions, in addition to civil or criminal proceedings. Furthermore, Parties liable for environmental damage will also be required to carry out
studies to assess the characteristics of the damage.
Political and Economic
Stable, Democratic Government
Colombia is a republic, characterized as a democratically elected representative system with a president as its head of state and head of the executive. The Colombian
legislature is made up of a 102-member Senate and a 166-member Chamber of Representatives. On June 17, 2018, Iván Duque Márquez of the right wing Centro Democrático (CD) was elected president. President-elect Duque took office on August 7, 2018.
Colombia has a multitude of political parties and coalitions divided along ideological or single issue lines. Changes in who holds political office at both the national and
regional level is common.
Political conditions in Colombia are generally stable. However, large portions of the country remain in the control of armed groups, despite efforts to advance peace processes.
Market
We plan to distribute its product primarily in Colombia, although we will explore exportation to foreign countries as well. We intend to distribute its CBD dominant cannabis to
medical clinics and pharmacies in Colombia. In addition, we will distribute our CBD dominant cannabis to cosmetic manufacturers who will incorporate it into their own products.
As of August 1, 2019, the population of Colombia is approximately 49.9 million people, making it the third largest populous nation in Latin America.
Over 90% of Colombia’s population lives in the northwest part of the country, with most Colombians living in urban centers. Currently, over 80.6% of the Colombian population lives in urban centers, a figure which is growing at an annual rate of
1.37%. Bogota is Colombia’s largest city, with a population of 8.3 million people, followed by Medellin with a population of 2.5 million people, and Cali with a population of 2.6 million people.
The Colombian economy has been steadily growing over the past three years, hovering around approximate real growth rates between 2% and 3%. Last year, the GDP of Colombia was
$330.2 billion, with Colombia’s services sector comprising the largest portion of the economy. Colombia’s GDP per capita as of December 2018 was $7,698. The Colombian economy has seen inflation decline over the years from 7.5% in 2016, to 4.3% in
2017, 3.2% in 2018 and an expected rate of 3.4% in 2019.
Colombia is part of, or is currently negotiating, Free Trade Agreements (“FTA”) with over a dozen countries. It is also a founder and current member of the Pacific Alliance, a
trade bloc formed in 2012 with Chile, Mexico, and Peru. In May 2018, it joined the Organisation for Economic Co-operation and Development (OECD). It did so after many reforms to align with OECD standards in areas such as: labour, justice system
reform, corporate governance of state-owned enterprises, anti-bribery, and trade. Furthermore, Colombia is open to foreign direct investment (“FDI”). Since the 1990s, it has implemented several reforms to encourage FDI. These include lifting
restrictions on the remittance of profits and capital, allowing foreign investments in most and providing for national treatment of foreign investors.
In conjunction with legalizing the use of marijuana, the Colombian government has embraced a model of licensing producers and distributors to manage the industry rather than
issuing cards to consumers. It is estimated that there are currently about 3.2 million Colombian patients with conditions that can be treated with medical marijuana use. Additional research is being done
collaboratively by the Colombian government, the private sector, and health professionals on how medical marijuana can further help treat Colombia’s medical patients.
Risks Faced by Foreign Companies Operating in Colombia
Although Colombia is generally open to FDI, foreign companies operating in Colombia face a number of risks. For example, while Colombia has a strong legal framework for
commercial matters that defines the rights of businesses, reviews regulatory enforcement procedures and resolves contract disputes, the system is constrained by delays and corruption. A lack of coordination between government bodies and a lack of
available resources have contributed to the delays. The time between when a plaintiff files a lawsuit and a resolution averages 1,288 days; the enforcement of an award granted due to an arbitration can take up to two years. Furthermore, high profile
corruption cases continue to frequently arise despite many anti-corruption initiatives being implemented in the past eight years by outgoing president Juan Manuel Santos.
Furthermore, while FTAs, economic integration agreements, and other initiatives have streamlined the process for importing and exporting goods in Colombia, barriers to trade
persist. For example, theft in both customs warehouses and of transportation trucks continues to be an issue. Additionally, customs officials can detain shipments indefinitely for errors ranging from incorrect tariff schedule classifications to
typographical errors in paperwork.
Lastly, a lack of effective enforcement of labour law, particularly in rural areas, creates a reputational risk for foreign companies operating in Colombia. Moreover, decreases
in the number of inspections of workplaces by government labour officials and the inability of inspectors to receive logistical assistance from employers and/or employees when accessing workplaces, are also concerns.
Marketing Plans and Strategies
We intend to sell medicinal cannabis in the domestic market in Colombia, although we will target foreign export, as and when other countries legalize
medicinal cannabis products. The Colombian market allows for commercial production and distribution of medicinal cannabis products.
We will employ a hybrid business-to-business (“B2B”) and business-to-consumer (“B2C”) sales and distribution model. However, with respect to B2C channel
sales, we do not plan to market its products directly to end consumers, but rather through channel distributors including medical clinics, pharmacies, and manufacturers of cosmetic products. Targeted B2B customers will primarily consist of finished
goods manufacturers, research organizations and pharmaceutical companies.
We intend to support the entire marketing and sales process, develop the necessary knowledge to generate trust and encourage the proper use of the product by users. We will
develop a final product with its own B2C brand and distribution and loyalty channel. Our B2C concept encompasses the design of our product to the distribution and loyalty of the final consumer and doctors who prescribe cannabis or recommend cannabis
treatments. This will allow for value creation and customer loyalty of the product from both patients and doctors who prescribe our product. We will target our marketing efforts according to the needs and sizes of the markets, to meet expert leaders
with marketing orientation and people with the orientation of a visitor or promoter who interact in the regions with the market players (e.g., doctors, patients, relatives, institutions, clinics, drugstores, distributors, etc.)
We will strive to create allies within the healthcare process (clinics and doctors' offices) that formulate and believe in cannabis therapies. We will aim to create a network
of doctors and related health personnel to meet the needs of the market and through a defined system know and manage the product with confidence and tranquility and at the same time distribute the product in an agile and safe way. We believe that new
information technologies will be a key part of this strategy in order to have the market educated on the formulation trends of use and consumption of cannabis. These technologies will be used to educate the medical specialists of the selected
branches (neurologists, psychiatrists, rheumatologists, oncologists, etc.) and create the necessary confidence so that the patients they attend have the possibility of receiving cannabis therapies as a complement to traditional therapies.
For each of the channels, and according to the product portfolio, we are developing a marketing and loyalty strategy by creating the materials and communications for these
channels and their specific audiences – in the case of B2C, this would include doctors, patients, family members, regulatory entities and scientific associations, among others. Flora is developing marketing and commercial strategies focusing on the
following topics:
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marketing, strategic planning and sales tactics (line leaders, visitors and promoters);
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institutional relations;
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customer service, after sales; and
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information systems and management platform.
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Additionally, we believe that, as global cannabis regulations continue to transform, Colombia may potentially legalize non-medicinal cannabis use following the example of countries such as Uruguay and Canada, which have both recently legalized
adult-use recreational cannabis nationally. We believe that such an event would become a key factor for the Company’s future growth prospects, as such, we will continue to proactively monitor Colombia’s legal cannabis environment and plan accordingly
for any potential changes to the country’s legal cannabis framework.
Competitive Conditions
The market for medicinal cannabis in Colombia is characterized by a structural shortage of supply, with few authorized producers of THC dominant cannabis. There are
comparatively more producers of CBD dominant cannabis as production of CBD cannabis is not subject to the quota system in Colombia. Although competition in the market is growing, management believes that we are competitively positioned to capitalize
on its early mover status and satisfy a significant portion of the market’s demand for medicinal cannabis.
Management expects that its experience and fundamental understanding of Colombia’s regulatory framework, the agricultural and scientific processes necessary to develop high
quality and consistent medicinal cannabis products, will allow us to lead the Colombian medicinal cannabis marketplace.
The global cannabis industry is experiencing significant change as governments embrace regulatory reform, liberalizing the production and consumption of cannabis. It is possible
that foreign corporations may enter the Colombian market as a result of Colombia’s regulatory regime, creating the prospect of Colombia becoming a hub for future industry development. In addition, we may face new competition for other licensed
cannabis producers offering similar products to our products.
Legal Proceedings
There are no current legal proceedings against the Company.
Employees/Consultants
We have eight part-time consultants located in Canada and five full-time employees in Colombia. We do not currently have any pension, annuity, profit sharing, or similar
employee benefit plans, although we may choose to adopt such plans in the future.
We plan to engage contractors from time to time on an as-needed basis to consult with us on specific corporate affairs, or to perform specific tasks in connection with our
business development activities.
Corporate Information
Our principal Toronto-based executive offices are located at 65 Queen Street West, Suite 800, Toronto, Ontario, M5H 2M5 Canada, and our telephone number is +1(416)
861-2267. Our website address is www.floragrowth.ca. The information contained therein or accessible thereby shall not be deemed to be incorporated into this Offering Circular.
Leased Real Property
Pursuant to a lease agreement dated May 2, 2018, as amended, between C.I. Gramaluz S.C.A. and Cosechemos, Cosechemos has leased the Cosechemos Farm. The Cosechemos Farm is
a 361 hectare property in Giron, Santander, Colombia. The Company intends to use 100 hectares for the cultivation of cannabis at the Cosechemos Farm. The Cosechemos Farm will also host the Nursery and Propagation Centre, storage warehouse,
technical and administrative offices, employee quarters, fertilization booth, a water reservoir and the Research Technology and Processing Centre
Effective September 1, 2019, Cosechemos shall pay approximately $2,900 (COP10,000,000) a month to lease the Cosechemos Farm. On March 1, 2020, the monthly fee shall be
increased to approximately $5,800 (COP20,000,000). Cosechemos has a right to purchase the Cosechemos Farm at a price to be determined by an arm’s length third party appraiser from the real estate association of Bogota, Colombia.
Pursuant to an (i) option to lease agreement dated December 27, 2018 between Waldshut C.V. and Cosechemos, Cosechemos has the option to lease the Palagua Farm I, and (ii)
option to lease agreement dated December 27, 2018 between Vicalvaro C.V. and Cosechemos, Cosechemos the option to lease the Palagua Farm II. The Palagua Farm I is a 700 hectare property in Palagua, Boyaca, Colombia. The Palagua Farm II is a 1,432
hectare property in Palagua, Boyaca, Colombia. The Palagua Farm I and Palagua Farm II (collectively, the “Palagua Farms”) are contiguous to each other. The Palagua Farms are approximately 300 kilometers from the Cosechemos Farm.
Following the successful cultivation of the 100 hectares at the Cosechemos Farm, adequate financing and subject to demand for the Company’s products, Cosechemos intends
to expand its operations by cultivating non-psychoactive cannabis at the Palagua Farms.
Pursuant to the option to lease agreements for the Palagua Farms, Cosechemos shall pay approximately $28.13 (COP$95,879) a month for each hectare of the Palagua Farms
being used to cultivate cannabis by Cosechemos. Cosechemos is not required to make any payments until it commences its operations at the Palagua Farms. Cosechemos has a right to purchase the Palagua Farms, in whole or in part, at a price to be
determined by an arm’s length third party appraiser from the real estate association of Bogota, Colombia.
Following the successful cultivation of 100 hectares at the Cosechemos Farm, the Company intends to use 50 hectares for the of cultivation of cannabis at the Palagua
Farms. Following the successful cultivation of the first 50 hectares, the Company can cultivate up to an additional 1,850 hectares at the Palagua Farms. Cosechemos has a right to purchase the Palagua Farms, in whole or in part, at a price to be
determined by an arm’s length third party appraiser from the real estate association of Bogota, Colombia.
The Palagua Farms will host similar facilities to the Cosechemos Farm, including a nursery and propagation centre, storage warehouse, technical and administrative
offices, employee quarters, fertilization booth, a water reservoir and a research technology and processing centre.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of our operations together with the consolidated financial statements and notes
thereto appearing elsewhere in this Offering Circular. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may
differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” starting on page 10, “Cautionary Statement Regarding Forward-Looking Statements” starting on page 4 and elsewhere in this Offering Circular. Please see the notes to our consolidated financial statements for information about our
significant accounting policies, critical estimates, judgements and financial management and risk management.
OVERVIEW
The Company was incorporated on March 13, 2019 under the laws of the Province of Ontario, and is headquartered at 65 Queen Street West, Suite 800 in Toronto, Ontario,
Canada. Effective October 2, 2019, the Company acquired 90% of Cosechemos.
Cosechemos was established on May 12, 2016. Cosechemos, is located in Colombia and is focused on cultivating, processing and supplying all natural, organic medicinal-grade
cannabis oil, cannabis oil extracts and related products to large channel distributors, including pharmacies, medical clinics, and cosmetic companies. Cosechemos is a fully licensed and permitted cultivator, producer, and distributor of CBD
medical cannabis in Colombia for: (a) use in Colombia; and (b) international export. Cosechemos has (i) one property under lease, the Cosechemos Farm, in Giron, Santander, Colombia, and (ii) the option to lease the Palagu Farms, in Puerto
Boyaca, Boyaca, Colombia. Our subsidiary's main operations are currently in Giron, Colombia.
The Cosechemos Farm is a 361 hectare property. The Palagua Farms is comprised of two contiguous farms for a total of 2,132 hectares.
On July 16, 2019, the Company signed a share purchase agreement with Guillermo Andres Ramirez Martinez, Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa, collectively, the “Vendors”, to
purchase 90% of Cosechemos. Pursuant to the share purchase agreement, Flora acquired 4,500 shares of Cosechemos. As consideration for the Cosechemos shares, Flora (i) paid $80,000 to the Vendors, and (ii) granted the Vendors a 10% non-dilutive,
free carried interest in Cosechemos, the (“Free Carry”). The Free Carry will terminate upon Flora investing an aggregate of $25,000,000 in Cosechemos. Upon the termination of the Free Carry, the Vendors will be required, if needed by Cosechemos, to
fund the operations of Cosechemos on a pro rata basis or risk having their equity interest in Cosechemos be diluted. Pursuant to the agreement, Flora is required to pay the Vendors, as a one-time payment, $750,000 within 60 days of Cosechemos
earning a net income of $10,000,000.
On October 2, 2019, the Company, Guillermo Andres Ramirez Martinez, Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa signed a shareholders’ agreement with Cosechemos, the legal and beneficial owner of
100% interest of non-psychoactive cannabis license in Colombia.
Pursuant to a lease agreement dated May 2, 2018, between C.I. Gramaluz S.C.A. and Cosechemos, Cosechemos has leased the Cosechemos farm, which is a 361 hectare property in Giron, Santander,
Colombia. Effective September 1, 2019, Cosechemos shall pay approximately $2,900 (COP10,000,000) a month. On March 1, 2020, the monthly fee shall be increased to approximately $5,800 (COP20,000,000). Cosechemos has a right to purchase the
Cosechemos Farm at a price to be determined by an arm’s length third party appraiser from the real estate association of Bogota, Colombia.
Pursuant to an (i) option to lease agreement dated December 27, 2018 between Waldshut C.V. and Cosechemos, Cosechemos has the option to lease the Palagua Farm I, and (ii) option to lease agreement
dated December 27, 2018 between Vicalvaro C.V. and Cosechemos, Cosechemos has the option to lease the Palagua Farm II. The Palagua Farm I is a 700 hectare property in Palagua, Boyaca, Colombia. The Palagua Farm II is a 1,432 hectare property in
Palagua, Boyaca, Colombia. The Palagua Farm I and Palagua Farm II (collectively, the “Palagua Farms”) are contiguous to each other. The Palagua Farms are approximately 300 kilometers from the Cosechemos Farm. Pursuant to the option to lease
agreements for the Palagua Farms, Cosechemos shall pay approximately $28.13 (COP$95,879) a month for each hectare of the Palagua Farms being used to cultivate cannabis by Cosechemos.
Financial Condition and Results of Operations for the Period from March 13, 2019 (Incorporation) to June 30, 2019 for Flora Growth Corp.
Results of Operations
To date, Flora has not generated any revenues from its planned operations. For the period from incorporation on March 13, 2019 to June 30, 2019, Flora incurred a net loss of $1,899,714, consisting
of consulting and management fees of $1,550,610, expenses related to travel to the property and promotion of the company of $219,613, professional fees of $19,309, promotional expenses of $24,312 and $85,870 related to share based compensation. The
Company granted 7,000,000 founder warrants of the Company with an exercise price of $0.05 per common share. The fair market value of the warrants was estimated to be $Nil using the Black Scholes option pricing model. On June 28, 2019, the Company
also granted 7,000,000 options to directors, officers and consultants of the Company with an exercise price of $0.05 per common share. The options vested immediately. The fair market value of the options was estimated to be $85,870 using the Black
Scholes option pricing model.
The Company has and expects to continue to report negative earnings until the Company’s cannabis development program generates producing assets. The Company will continue to utilize proceeds from
financing and equity issuances to fund its cannabis program and general and administrative operating costs.
As at June 30, 2019, the Company had no operating assets and expects to generate negative cash flow from operations for the foreseeable future.
Financial Condition and Results of Operations for the Year Ended December 31, 2018 for Cosechemos
Results of Operations
Cosechemos has not generated any revenues. Cosechemos incurred a comprehensive loss of $141 for the period ending December 31, 2018 as compared with income of $95 for the period ending December 31,
2017.
Financial Condition and Results of Operations for the Six Months Ended June 30, 2019 for Cosechemos
Results of Operations
Cosechemos has not generated any revenues. Cosechemos incurred a comprehensive loss of $2,833 for the period ending June 30, 2019, primarily relating to an expense of $577 related to income tax,
$779 for travel expenses, $315 for interest expenses, $28 for amortization of the Company’s cannabis production license and lease commitment and other expenses of $1,295.
Cosechomos initiated a 2 hectare Pilot Program at the Cosechemos Farm. Pursuant to the Pilot Program, Cosechemos has constructed one nursery and a
propagation center (an aggregate of 1,000 square meters) at the Cosechemos Farm wherein the Company planted 7,800 seedlings of non-psychoactive cannabis. Once the plants have strengthened and developed a healthy root structure, the plants will be
planted in lots on the Cosechemos Farm for a total of two hectares of planted crops.
Liquidity and Capital Resources
As at June 30, 2019, the Company had a working capital deficit of $413,844. The Company’s primary cash flow needs are for the development of its cannabis activities, administrative expenses and for
general working capital.
Cosechomos had cash of $nil at June 30, 2019. To date, Cosechemos has not generated any cash from operations. . Nominal amounts paid for taxes by Cosechemos were funded by a director’s loan from
Oscar Franco. Cosechimos is owed $1,575 from the directors Guillermo Andres Ramirez Martinez, Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa for payment of their share capital. This is expected to be paid in the near term.
At present, the Company has no production and consequently no revenue generating assets or operations. The Company’s continued existence is dependent on its ability to obtain necessary financing to
complete the development of its cannabis operations and/or other potential projects and attain future profitable production. At present, the Company has no established sources of income and the success of its growth and development programs will be
contingent upon the Company’s ability to raise sufficient equity financing on favourable terms. The Company does not expect to generate any internal cash flows to finance the development costs in the foreseeable future.
In August 2019 the Company entered into a loan agreement with Copper One Inc. for an amount up to $500,000, of which $345,747 has been drawn down. The loan bears interest at 10% annually and is
payable on demand. Stan Bharti and Deborah Battiston are the Executive Chairman and Chief Financial Officer of the Company and of Copper One, respectively. These funds have been utilized to fund activities at Cosochemos and to fund costs associated
with the preparation and filing of this Offering Circular.
Although our business does not presently generate any cash, we believe that if we raise the maximum amount in this Offering we will have sufficient capital to finance our operations for at least the
next 24 months; however, if we do not sell the Maximum Amount or if our operating and development costs are higher than expected, we will need to obtain additional financing. We do not have any track record for self-underwritten Regulation A+
offerings, and there can be no assurance we will raise the Maximum Amount or any other amount. Further, we expect that after such 24-month period, we will be required to raise additional funds to finance our operations until such time that we can
conduct profitable revenue-generating activities. No assurances can be made that we will be successful in obtaining additional equity or debt financing, or that ultimately, we will achieve profitable operations and positive cash flow.
The Company does not pay dividends and, other than the debt discussed above, had no long-term debt or bank facilities as at June 30, 2019 and as at the date of this Offering Circular.
Plan of Operations
As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of Units offered for
sale in this Offering, we believe that the Company will have sufficient cash resources to fund its plan of operations for the next 24 months. If we are unable to do so, we may have to curtail and possibly cease some operations. The Company intends to
receive proceeds from the Offering to carry out its near term and longer-term goals.
For the next twelve months, the Company plans to operate the 2 hectare Pilot Program at the Cosechemos Farm. Pursuant to the Pilot Program, the Company has constructed one
nursery and propagation center (an aggregate of 1,000 square meters) at the Cosechemos Farm wherein the Company has planted 7,800 seedlings of non-psychoactive cannabis. Once the plants have strengthened and developed a healthy root structure, the
plants will be planted in lots on the Cosechemos Farm for a total of two hectares of planted crops. The Company expects to harvest, dry, trip and process the non-psychoactive cannabis from the Pilot Program in November/December of 2019. Once the
Pilot Program has been completed, Flora will start to plant 100 hectares of non-psychoactive cannabis at the Cosechemos Farm.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of
operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the
amounts will be sufficient to fund our ongoing operations.
Trend Information
Because we are still in the startup phase and have only recently commenced operations, we are unable to identify any recent trends in revenue or expenses. Thus, we are unable to identify any known
trends, uncertainties, demands, commitments or events involving our business that are reasonably likely to have a material effect on our revenues, income from operations, profitability, liquidity or capital resources, or that would cause the reported
financial information in this Offering to not be indicative of future operating results or financial condition.
Going Concern
The Company is in the preliminary stages of its planned operations and has not yet determined whether its processes and business plans are economically viable. The continued operations of the
Company are dependent upon the ability of the Company to obtain sufficient financing to complete the development of its facilities and if they are proven successful, the existence of future profitable production, or alternatively, upon the Company’s
ability to dispose of its assets on an advantageous basis, all of which are uncertain.
The Company’s financial statements have been prepared on a going concern basis, which assumes that the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business. The Company will need to raise additional capital in the near term to fund its ongoing operations and business activities. There can be no assurance that this Offering will conclude or that other
financings will be available on terms acceptable to the Company or at all. As a result of these circumstances, there are material uncertainties that cast significant doubt as to the appropriateness of the going concern presumption.
The business of cannabis growth and development of Cannabidiol (“CBD”) oils involves a high degree of risk and there can be no assurance that current business development programs will result in
profitable cannabis operations. The Company’s continued existence is dependent upon the acquisition of assets, preservation of its interest in the underlying assets, acquisition of various licenses, the achievement of profitable operations, or the
ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company’s ability to dispose of its assets and operations on an advantageous basis.
The Company’s financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and classifications in the statement of financial position that may be
necessary were the Company unable to continue as a going concern and these adjustments could be material.
Off Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Relaxed Ongoing Reporting Requirements
Regulation A+ provides that a filer can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same
adoption period for new or revised accounting standards as public companies.
Upon the completion of this Offering, we may elect to become a public reporting company under the Exchange Act. If we elect to do so, we will be required to publicly report on an ongoing basis as an "emerging growth company" (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. As defined in the JOBS Act, an emerging growth company is defined as a company with less than $1
Billion in revenue during its last fiscal year. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies.
For so long as we remain an "emerging growth company," we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange
Act reporting companies that are not "emerging growth companies," including but not limited to:
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
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taking advantage of extensions of time to comply with certain new or revised financial accounting standards;
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being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements; and
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being exempt from the requirement to hold a non-binding advisory vote on executive compensation and shareholder approval of any
golden parachute payments not previously approved.
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If we are required to publicly report under the Exchange Act as an "emerging growth company", we expect to take advantage of these reporting exemptions
until we are no longer an emerging growth company. We would remain an "emerging growth company" for up to five years, though if the market value of our Common Shares held by non-affiliates exceeds $700
Million, we would cease to be an "emerging growth company."
If we elect not to become a public reporting company under the Exchange Act, we will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A+ for Tier 2 issuers. The
ongoing reporting requirements under Regulation A+ are more relaxed than for "emerging growth companies" under the Exchange Act. The differences include, but are not limited to, being required to file only
annual and semi-annual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer's fiscal year, and semi-annual reports are due within 90 calendar days after the end of the first
six months of the issuer's fiscal year.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Name
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Position
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Age
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Term of Office
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Approximate hours per week
for part-time employees
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Executive Officers:
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Damian Lopez
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President and Chief Executive Officer
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36
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March 2019 – Present
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30
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Deborah Battiston
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Chief Financial Officer
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61
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March 2019 – Present
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15
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Orlando Bustos
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VP Corporate Development
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32
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March 2019 – Present
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30
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Javier Franco
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VP Agriculture
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52
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June 2019 – Present
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N/A
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Directors:
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Stan Bharti
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Executive Chairman
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67
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March 2019 – Present
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N/A
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Damian Lopez
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Director
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36
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March 2019 – Present
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N/A
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Fred Leigh
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Director
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63
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March 2019 – Present
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N/A
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William Steers
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Director
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66
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July 2019 – Present
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N/A
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The following describes the respective consulting agreements entered into by the Company and its executive officers in place as of the date hereof.
The Company has a contract with Mr. Stan Bharti (“Mr. Bharti”) for consulting services to the Company in his capacity as Executive Chairman, dated March 13, 2019, pursuant to which Mr. Bharti is entitled to
compensation for the provision of such services of base fees of CAD$12,500 per month. This agreement provides for a severance payment of 24 months’ base fees on termination by the Company without cause. This agreement may be terminated at any time
for just cause without notice or payment in lieu of notice and without payment of any fees.
In the event that there is a change in control of the Company, either Mr. Bharti or the Company shall have one year from the date of such change in control to elect to have this agreement terminated. In the event that
such an election is made, the Company shall, within 30 days of such election, make a lump sum termination payment to Mr. Bharti that is equivalent to 36 months’ base fees plus an amount that is equivalent to all cash bonuses paid to Mr. Bharti in the
36 months prior to the change in control. Following a change in control, all options granted to Mr. Bharti shall be dealt with in accordance with the terms of the Company’s stock option plan; however, all options granted to Mr. Bharti, but not yet
vested, shall vest immediately. Similarly, following a change in control, all shares granted to Mr. Bharti under the Company’s share compensation plan, but not yet vested, shall vest immediately.
The Company has a contract with Damian Lopez Consulting Professional Corporation (“Lopez Procorp”), through an affiliated entity of Mr. Damian Lopez, for consulting services to the Company in Mr. Lopez’s capacity as
Chief Executive Officer, dated March 13, 2019, pursuant to which Lopez Procorp is entitled to compensation for the provision of such services of base fees of CAD$12,500 per month. This agreement provides for a severance payment of 36 months’ base
fees on termination by the Company without cause. This agreement may be terminated at any time for just cause without notice or payment in lieu of notice and without payment of any fees.
In the event that there is a change in control of the Company, either Lopez Procorp or the Company shall have one year from the date of such change in control to elect to have this agreement terminated. In the event
that such an election is made, the Company shall, within 30 days of such election, make a lump sum termination payment to Lopez Procorp that is equivalent to 36 months’ base fees plus an amount that is equivalent to all cash bonuses paid to Lopez
Procorp in the 36 months prior to the change in control. Following a change in control, all options granted to Lopez Procorp shall be dealt with in accordance with the terms of the Company’s stock option plan; however, all options granted to Lopez
Procorp, but not yet vested, shall vest immediately. Similarly, following a change in control, all shares granted to Lopez Procorp under the Company’s share compensation plan, but not yet vested, shall vest immediately.
The Company has a contract with Mr. Orlando Bustos (“Mr. Bustos”) for consulting services to the Company in his capacity as VP Corporate Development, dated March 13, 2019, pursuant to which Mr. Bustos is entitled to
compensation for the provision of such services of base fees of CAD$2,500 per month. This agreement provides for a severance payment of 24 months’ base fees on termination by the Company without cause. This agreement may be terminated at any time
for just cause without notice or payment in lieu of notice and without payment of any fees.
In the event that there is a change in control of the Company, either Mr. Bustos or the Company shall have one year from the date of such change in control to elect to have this agreement terminated. In the event that
such an election is made, the Company shall, within 30 days of such election, make a lump sum termination payment to Mr. Bustos that is equivalent to 36 months’ base fees plus an amount that is equivalent to all cash bonuses paid to Mr. Bustos in the
36 months prior to the change in control. Following a change in control, all options granted to Mr. Bustos shall be dealt with in accordance with the terms of the Company’s stock option plan; however, all options granted to Mr. Bustos, but not yet
vested, shall vest immediately. Similarly, following a change in control, all shares granted to Mr. Bustos under the Company’s share compensation plan, but not yet vested, shall vest immediately.
The Company has a contract with Jadan Consulting Corporation (“Jadan”), an affiliated entity of Deborah Battiston, for consulting services to the Company in Ms. Battiston’s capacity as Chief Financial Officer, dated
March 13, 2019, pursuant to which Jadan is entitled to compensation for the provision of such services of base fees of CAD$7,500 per month. This agreement provides for a severance payment of 24 months’ base fees on termination by the Company without
cause. This agreement may be terminated at any time for just cause without notice or payment in lieu of notice and without payment of any fees.
In the event that there is a change in control of the Company, either Jadan or the Company shall have one year from the date of such change in control to elect to have this agreement terminated. In the event that such
an election is made, the Company shall, within 30 days of such election, make a lump sum termination payment to Jadan that is equivalent to 36 months’ base fees plus an amount that is equivalent to all cash bonuses paid to Jadan in the 36 months
prior to the change in control. Following a change in control, all options granted to Jadan shall be dealt with in accordance with the terms of the Company’s stock option plan; however, all options granted to Jadan, but not yet vested, shall vest
immediately. Similarly, following a change in control, all shares granted to Jadan under the Company’s share compensation plan, but not yet vested, shall vest immediately.
The Company has a contract with Forbes & Manhattan, Inc. (“F&M”), of which Mr. Bharti is the Executive Chairman, for administrative and managerial services, dated March 14, 2019, pursuant to which F&M is
entitled to compensation for the provision of such services of base fees of CAD$12,500 per month. This agreement provides for a severance payment of 24 months’ base fees on termination by the Company without cause. This agreement may be terminated
at any time for just cause without notice or payment in lieu of notice and without payment of any fees.
In the event that there is a change in control of the Company, either F&M or the Company shall have one year from the date of such change in control to elect to have this agreement terminated. In the event that
such an election is made, the Corporation shall, within 30 days of such election, make a lump sum termination payment to F&M that is equivalent to 36 months’ base fees plus an amount that is equivalent to all cash bonuses paid to F&M in the
36 months’ prior to the change in control. Following a change in control, all options granted to F&M shall be dealt with in accordance with the terms of the Company’s stock option plan; however all options granted to F&M, but not yet vested,
shall vest immediately.
In August 2019 the Company entered into a loan agreement with Copper One Inc. for an amount up to $500,000, of which $345,747 has been drawn down. The loan bears interest at 10% annually and is payable on demand. Stan
Bharti and Deborah Battiston are the Executive Chairman and Chief Financial Officer of the Company and of Copper One, respectively. These funds have been utilized to fund activities at Cosochemos and to fund costs associated with the preparation and
filing of this Offering Circular.