The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented. This discussion should be read in conjunction with (a) our unaudited condensed consolidated financial statements and related notes contained elsewhere in Part I, Item 1, "Financial Statements" of this Quarterly Report, and (b) Part I, Item 1A "Risk Factors", Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes in our 2023 Annual Report. As discussed in the section above titled "Cautionary Statement Regarding Forward-Looking Statements," the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below and included under Part I, Item 1A in our 2023 Annual Report.
Amounts are expressed in United States dollars ("$" or "USD") unless otherwise stated to be in Canadian dollars ("CAD") or Euros ("€" or "EUR"). Amounts stated in foreign currencies include approximate USD amounts based on exchange rates on September 30, 2024. Variance, ratio, and percentage changes in this section are based on unrounded numbers. This section reports the Company's activities through September 30, 2024, unless otherwise indicated.
Overview of our Business
We are a multi-national cannabis company that manufactures and distributes consumer packaged goods and distributes medicinal cannabis and pharmaceutical products. Flora exists to create a world where the benefits of cannabis are accessible to everyone. Our primary businesses include JustCBD, Vessel and Phatebo. TruHC and Australian Vaporizers Pty Ltd were acquired in April 2024 and June 2024, respectively.
JustCBD
JustCBD is Flora's leading consumer packaged goods brand. JustCBD was launched in 2017 with a mission to bring high-quality, trustworthy and budget-friendly CBD products to market. The JustCBD offering currently consists of over 350 products across 15 categories, including CBD gummies, topicals, tinctures, and vape products and ships to over 11,500 independent retailers worldwide. JustCBD also sells direct to consumers with a customer base of approximately 350,000 people. JustCBD products are available for purchase in smoke and vape shops, clinics, spas and pet stores, as well as other independent non-traditional retail channels. JustCBD's products are both internally and third-party lab-tested to ensure quality.
Vessel
Vessel is Flora's cannabis accessory and technology brand currently servicing the United States and Canada through direct-to-consumer and retail sales. Vessel's products include cannabis consumption accessories, personal storage and travel accessories for the vape and dry herb categories, which are sold to consumers, dispensaries, smoke shops and cannabis brands. Vessel has positioned itself as a lifestyle brand, developing products for consumers interested in "elevating" the consumption experience, focusing primarily on the direct-to-consumer business and have garnered a customer base of approximately 150,000 people. Since our acquisition of Vessel in November 2021, Vessel has been fully integrated into JustCBD and now benefits from operational, logistical and sales synergies with JustCBD.
Phatebo
Based in Germany, Phatebo is a wholesale pharmaceutical distribution company with import and export capabilities of a wide range of pharmaceutical goods and medical cannabis products to treat a variety of health indications, including drugs related to cancer therapies, multiple sclerosis and anti-depressants, among others. Phatebo holds a License for the Trade in Narcotic Drugs (including the cannabis sales license amendment) and a Wholesale Trading License, both of which are issued by BfArM (the largest drug approval authority in Europe). Phatebo is focused on distributing pharmaceutical products within 28 countries globally, primarily in Europe, but also with sales to Asia, Latin America, and North America. In November 2018, Phatebo also received a medical cannabis import and distribution license. The Phatebo warehouse provides a logistics outpost for Flora's growing product portfolio and distribution network within the European Union.
TruHC
In April 2024, Flora acquired TruHC, an early-stage cannabis company based in Hamburg, Germany. TruHC holds a GDP wholesale and an EU-GMP processing and production license for medical cannabis. It also owns and operates an EU-GMP certified laboratory ready for instant cannabis analysis as required for the newly legalized cannabis social clubs. Moreover, the facility of TruHC is a flexible production space with EU-GMP certified modules that can be extended and customized for any production process from processing to extraction and enables a license extension for a future in country cultivation of medical cannabis and supply of cannabis dispensaries expected to be opened in 2025 during phase 3 of legalization in Germany. TruHC also holds a narcotic license with EU-GMP certified storage. These licenses allow TruHC to apply for new medical cannabis & cultivation licenses and become an official cannabis test lab for upcoming cannabis social clubs. It also enables extensive international import of seeds and flowers for future distribution in what is expected to become the largest federally legal recreational cannabis market in the world.
Australian Vaporizers Pty Ltd ("AV")
Based in Australia, AV was founded in 2010 and has become one of the largest online retailers of vaporizers, hardware, and accessories in Australia. It is an online expert for aromatherapy products, specializing in dry herb vaporizers. It has been providing vaporizers, accessories and knowledge to enthusiasts and newcomers alike through its website www.australianvaporizers.com. Due to new regulations by the Australian government, AV is in the process of modifying its business model to sell more products to pharmacies and wholesalers.
Colombian Related Subsidiaries
On July 5, 2023, the Company entered into a share purchase agreement with Lisan, a Delaware limited liability company, to sell all its shares in certain of its Colombian subsidiaries and its Colombian assets for a purchase price of CAD $0.8 million (USD $0.6 million). The sale relates to Flora's operations in Colombia, including its interest in (i) its 361-acre Cosechemos farm located in Giron, Colombia and its related processing facilities and inventory and (ii) all other assets relating to Flora Lab 2, Flora Lab 4 and Flora's Colombian food and beverage and consumer products business (collectively "Colombia Assets"). The sale enables the Company to concentrate on its core business divisions, which are lifestyle brands in the United States and international pharmaceutical distribution. The sale was part of several strategic changes to cut costs and streamline operations. The Company received proceeds of CAD $0.5 million during the quarter ended September 30, 2023. The Company and Lisan completed the sale of Cosechemos Ya S.A.S on November 1, 2023.
Factors Impacting our Business
Challenges in realization of overhead reductions. Management has taken, and continues to implement, various cost-saving initiatives to lower overhead costs. However, the Company has not yet reached the critical balance in reducing overhead to meet both the existing and potential market demand in aggregate. The Company strives to attain sufficient growth to cover its overhead to reach profitability. If the Company fails to grow its business or reduce its operating expenses further in the long term, it will continue to face significant cash flow deficiencies in the future and continue to be reliant on debt and/or equity financing to fund operations.
Consistent profitability and positive operating cash flows. A key determinant of the Company's success is to deliver profitable results and positive cashflows from operating activities. The Company's results have not yet achieved the prerequisite consistency to achieve self-sufficiency. Since its inception, only the third quarter of 2023 yielded net income and positive cashflows from operating activities. There is no assurance that the Company will be able to produce adequate levels of sustained profitability and cash flow positive, or at all. These factors, amongst others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2 of the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2024. For more information, see Item 1A "Risk Factors" in the Company's 2023 Annual Report.
Acquisition strategy disadvantages include significant transaction costs and liabilities of our acquirees. The Company has historically been opportunistic and pursues acquisitions from time to time that management believes will be complementary to or synergistic to the Company's existing business. However, any such acquisitions require the Company to incur heightened upfront transaction costs and require the Company to assume certain liabilities from the acquired companies. In addition, while the Company believes such acquisitions will provide enhanced value in the long term, it is possible that the anticipated synergies from the acquisition may never be realized.
Diversification of cashflows. Our sources of cash are diversified across geographic and product lines. Revenues are concentrated primarily in Germany and the United States, spanning pharmaceuticals, hemp and non-hemp consumer products and medicinal cannabis.
International cannabis developments. Flora's growth is embedded in the expansion, regulation and legalization of medicinal and recreational cannabis and cannabis derivative products across the world. While medicinal cannabis has been regulated at the federal level in multiple countries, the Company is focused on the most robust markets in Germany and the European Union. We remain tuned to international developments as potentially lucrative medicinal cannabis markets open.
Product evolution and brand acceptance. As the cannabis industry continues to change, divergent regulations and the corresponding resources required to introduce high-quality products are expected to impact our market share. Gaining access to continuously evolving and superior products remains a critical success factor. Our ultimate ability to produce and acquire products meeting stringent quality control standards drives the extent of consumer acceptance. Furthermore, the intrinsic value within our brands, including JustCBD and Vessel, is subject to evolving consumer sentiment.
Regulatory proficiency and adoption. The markets in which Flora operates are highly regulated and require extensive experience in navigating the associated complexities. We have assembled a team with deep knowledge of the regulatory and governance environments in which the Company operates. Fundamental expertise entails compliance with product approvals, import permits, export permits, distribution licenses and other pertinent licenses.
Integration of acquired companies. Our growth has been fueled substantially by the acquisition of JustCBD, Vessel and FGH. Our continued ability to extract incremental synergies from a group of diversified entities is a key determinant of our ability to expand organically.
Public Company Costs
We are a public company, which requires additional staff and the implementation of processes and procedures to address public company regulatory requirements and customary practices. We expect to continue to incur substantial additional annual expenses for, among other things, directors' and officers' liability insurance and additional internal and external costs for investor relations, accounting, audit, legal, and other functions.
Audit Committee Requirement
On December 6, 2023, the Company received a notification from Nasdaq, confirming that, due to having less than three independent audit committee members, the Company no longer complies with Nasdaq's audit committee requirements contained in Nasdaq Listing Rule 5605(c)(2)(A). As set forth in such notification, Nasdaq advised the Company that, under Nasdaq Rule 5605(c)(4), the Company was afforded a cure period in order to regain compliance (i) until the earlier of the Company's next annual shareholders' meeting or November 30, 2024, or (ii) if the next annual shareholders' meeting is held before May 28, 2024, then the Company must evidence compliance no later than May 28, 2024.
On May 2, 2024, the Board appointed Mr. Brendan Cahill as a director and member of each of the Company's audit committee, compensation committee and nominating and corporate governance committee.
After giving effect to Mr. Cahill's appointment, the audit committee of the Board has three independent members as required by Nasdaq Listing Rule 5605(c)(2)(A). As a result of the foregoing, the Company regained compliance with the audit committee composition requirements of Nasdaq Listing Rule 5605(c)(2)(A).
On August 26, 2024, Mr. Kevin Taylor resigned as director of the Company. After giving effect to Mr. Taylor's resignation, the audit committee no longer had three independent members as required by Nasdaq Listing Rule 5605(c)(2)(A). The Company informed Nasdaq of the foregoing on August 27, 2024.
On August 29, 2024, the Board appointed Mr. Harold Wolkin as an independent director and member of each of the Company's audit committee, compensation committee and nominating and corporate governance committee.
After giving effect to Mr. Wolkin's appointment, the audit committee of the Board has three independent members as required by Nasdaq Listing Rule 5605(c)(2)(A). As a result of the foregoing, the Company regained compliance with the audit committee composition requirements of Nasdaq Listing Rule 5605(c)(2)(A).
Key Components of Results of Operations
Revenue
The Company primarily generates revenue as a distributor of pharmaceutical goods, and a manufacturer and reseller of a range of cannabis-based and complementary products. The Company has two major revenue groups, which are also its two reportable segments:
(1) House of Brands; and
(2) Commercial and Wholesale.
These segments reflect how the Company's operations are managed, how the Company's Chief Executive Officer, who is the chief operating decision maker, allocates resources and evaluates performance, and how the Company's internal management financial reporting is structured.
The Company operates its manufacturing and distribution business through its subsidiaries in the United States, Germany and Australia. Until the sale of the Colombia Assets, the Company also was engaged in the growth, cultivation, and development of medicinal cannabis and medicinal cannabis derivative products in Colombia.
The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when or as the Company satisfies the performance obligations.
Revenue is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. Gross revenue excludes duties and taxes collected on behalf of third parties. Revenue is presented net of expected price discounts, sales returns, customer rebates and other incentives. The Company's cannabis consumption accessory products include a six-month warranty, which the Company accrues for the estimated liability based on historical and expected claim costs.
The Company's contracts with customers for the sales of products consist of one performance obligation. Revenue from product sales is recognized at the point in time when control is transferred to the customer, which is on shipment or delivery, depending on the contract terms. The Company's payment terms generally range from 0 to 30 days from the transfer of control, and sometimes up to six months.
Cost of sales
The Company includes the cost of raw materials and supplies, purchased finished goods and changes in inventory reserves in cost of sales for each of its two reportable segments. Raw materials include the purchase cost of the materials, freight-in and duty. Finished goods include the cost of direct materials and labor and a proportion of manufacturing overhead allocated based on normal production capacity. Inventory reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, the mix of products sold, third-party quality costs, transportation, overhead allocations and changes in inventory provisions.
Operating Expenses
The Company's operating expenses are apportioned based on the following categories:
- Consulting and management fees include salary and benefit expenses for employees, directors and consultants for the Company's corporate activities, other than those included in one of general and administrative, share based compensation, and research and development.
- Professional fees include legal, audit and other expenses incurred by third-party service providers.
- General and administrative include certain public company costs, merchant fees and temporary labor and subcontractor costs for the Company's operating subsidiaries.
- Promotion and communication expenses consist primarily of services engaged in marketing and promotion of our products and costs associated with initiatives and development programs and salary and benefit expenses for certain employees.
- Travel expenses relate to flight, lodging and incidental expenses for attending conferences, events and key business meetings.
- Share based compensation includes the cost of vesting of the Company's equity awards, including share options, restricted share awards and stock appreciation rights.
- Research and development expenses primarily consist of salary and benefit expenses for employees engaged in research and development activities, as well as other general costs associated with R&D activities.
- Operating lease expense represents the cost of the Company's operating leases, primarily consisting of real estate and equipment.
- Depreciation and amortization expense is provided on a straight-line basis over the corresponding assets' estimated useful lives.
- Bad debt expense consists of changes in the provision for the Company's expected credit losses. The Company utilizes a provision matrix to estimate lifetime expected credit losses.
- Asset impairment includes the difference between the fair value and carrying amount of the asset group. An impairment loss is recognized when the sum of projected undiscounted cash flows is less than the carrying value of an asset group.
- Other expenses (income), net include miscellaneous expenses that do not fit the criteria for recognition in another category.
Non-Operating (Income) Expenses
Non-operating expenses include interest income and expenses, foreign exchange losses and unrealized losses from changes in fair value. Interest is primarily related to the Company's operating lines of credit. Foreign exchange is largely related to the revaluation of balances denominated in foreign currencies to U.S. dollars. Unrealized losses from changes in fair value pertain to fluctuations in the fair values of the Company's investments and liabilities.
Income Tax
Income tax consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.
Income (Loss) from Discontinued Operations
Income (loss) from discontinued operations includes the net loss, net of tax, of the Colombian subsidiaries sold on July 5, 2023 and on November 1, 2023. It also includes an expected loss on the disposal as the carrying value of the assets being sold exceeded the expected sale price.
Results of Operations
The following tables provide sets forth the Company's consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands). The period-to-period comparisons of the Company's historical results are not necessarily indicative of the results that may be expected in the future. The results of operations data have been derived from our unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 included elsewhere in this Quarterly Report.
| | | For the three
months ended
September 30,
2024 | | | For the three
months ended
September 30,
2023 | | | For the nine
months ended
September 30,
2024 | | | For the nine
months ended
September 30,
2023 | |
| Revenue | $ | 12,465 | | $ | 17,317 | | $ | 46,179 | | $ | 58,096 | |
| Cost of sales | | 9,626 | | | 12,375 | | | 36,319 | | | 43,848 | |
| Gross profit | | 2,839 | | | 4,942 | | | 9,860 | | | 14,248 | |
| Consulting and management fees | | 2,479 | | | 2,346 | | | 7,130 | | | 9,679 | |
| Professional fees | | 650 | | | 415 | | | 2,249 | | | 1,080 | |
| General and administrative | | 416 | | | 340 | | | 1,445 | | | 1,376 | |
| Promotion and communication | | 1,206 | | | 1,142 | | | 3,435 | | | 3,713 | |
| Travel expenses | | 126 | | | 77 | | | 318 | | | 333 | |
| Share based compensation | | 406 | | | 4 | | | 428 | | | 996 | |
| Research and development | | 118 | | | 8 | | | 227 | | | 37 | |
| Operating lease expense | | 178 | | | 286 | | | 542 | | | 910 | |
| Depreciation and amortization | | 226 | | | 305 | | | 557 | | | 2,043 | |
| | | | | | | | | | | | | |
| Bad debt expense | | 47 | | | (14 | ) | | 266 | | | 33 | |
| Asset impairment | | 413 | | | - | | | 1,471 | | | 34,941 | |
| Other expenses, net | | 266 | | | 573 | | | 1,507 | | | 2,078 | |
| Operating loss | | (3,692 | ) | | (540 | ) | | (9,715 | ) | | (42,971 | ) |
| Non-operating loss (income) | | 272 | | | (1,119 | ) | | 187 | | | (2,176 | ) |
| Net (loss) income before taxes and discontinued operations | | (3,964 | ) | | 579 | | | (9,902 | ) | | (40,795 | ) |
| Income tax | | (164 | ) | | (51 | ) | | (71 | ) | | (1,247 | ) |
| Net (loss) income from continuing operations | | (3,800 | ) | | 630 | | | (9,831 | ) | | (39,548 | ) |
| Income (loss) from discontinued operations | | - | | | 492 | | | - | | | (7,791 | ) |
| Net (loss) income for the period | $ | (3,800 | ) | $ | 1,122 | | $ | (9,831 | ) | $ | (47,339 | ) |
Stop Sale Order by Florida Department of Agriculture and Consumer Services Division of Food Safety (the "Department")
On October 31, 2023, the Department issued 340 stop sale orders on hemp extract products distributed by Just Brands primarily on the basis that such products were determined to be attractive to children with the product and/or labels in the shape of an animal, human, or cartoon; or bears any reasonable resemblance to an existing candy product, or branded food product. As a result, Just Brands has stopped distributing these products in the State of Florida. There is no assurance that these products can be sold in another jurisdiction, or at all.
On January 22, 2024, the Department issued a stop sale order on 231 hemp extract and other products distributed by Just Brands primarily on the basis that such products were determined to be attractive to children with the product and/or labels in the shape of an animal, human, or cartoon; or bears any reasonable resemblance to an existing candy product, or branded food product. As a result, Just Brands has stopped distributing these products in the State of Florida. There is no assurance that these products can be sold in another jurisdiction, or at all.
On April 2, 2024, the Department issued a stop sale order on 84 hemp extract and other products distributed by High Roller primarily on the basis that such products were determined to be attractive to children with the product and/or labels in the shape of an animal, human, or cartoon; or bears any reasonable resemblance to an existing candy product, or branded food product. As a result, Higher Roller has stopped distributing these products in the State of Florida. There is no assurance that these products can be sold in another jurisdiction, or at all.
On May 7, 2024, Just Brands and the Department agreed to a settlement and general release, whereby Just Brands will remove the products subject to the Stop Sales Orders from the state of Florida, pay the Department $60,500 to reimburse the Department's attorney's fees, and accept a five-year revocation of its food permit in the state of Florida. By signing the release, Just Brands waived, settled and released all claims it had or might have against the Department.
On June 27, 2024, Just Brands and the Department agreed to a settlement and general release, whereby High Roller will remove the products subject to the Stop Sales Orders from the state of Florida, destroy products containing controlled substances, pay the Department $5,000 to reimburse the Department's attorney's fees, and accept a two-year suspension of the manufacture, distribution and sale of gummy hemp extract products in the state of Florida. By signing the release, High Roller waived, settled and released all claims it had or might have against the Department.
The Company estimates that the disruption from these stop sale orders had an unfavorable impact of $0.7 million on revenue during the nine months ended September 30, 2024. The total value of inventory impacted by the stop sale orders was $1.9 million. As per the agreement with the Department, all of the impacted inventory has been moved and is being sold outside the state of Florida.
For the Three Months Ended September 30, 2024, and 2023
Revenue
Revenue totaled $12.5 million and $17.3 million for the three months ended September 30, 2024 and 2023, respectively. The decrease was primarily driven by the following:
- JustCBD contributed $4.2 million in the three months ended September 30, 2024 compared to $6.5 million in the three months ended September 30, 2023. The decrease was driven by the Company's decision to discontinue several unprofitable product lines during 2023, increased competition and market saturation.
- Vessel contributed $1.1 million in the three months ended September 30, 2024, compared to $1.7 million in the three months ended September 30, 2023.
- FGH contributed $7.0 million in the three months ended September 30, 2024, compared to $9.1 million in the three months ended September 30, 2023.
- AV was acquired in June 2024 and contributed $0.2 million during the three months ended September 30, 2024.
Gross Profit
Gross profit totaled $2.8 million and $4.9 million for the three months ended September 30, 2024 and 2023, respectively. The decrease was primarily driven by the decreased sales at JustCBD, which contributed $1.7 million in the three months ended September 30, 2024 compared to $3.4 million in the three months ended September 30, 2023, Vessel, which contributed $0.6 million in the three months ended September 30, 2024 compared to $1.0 million in the three months ended September 30, 2023, and FGH, which contributed $0.5 million in the three months ended September 30, 2024 compared to $0.5 million in the three months ended September 30, 2024. TruHC and AV were acquired in 2024 and contributed a total of less than $0.1 million during the three months ended September 30, 2024. As a percentage of net sales, or gross margin, the Company reported 23% and 29% for the three months ended September 30, 2024 and 2023, respectively. The decrease is primarily due to lower margins at JustCBD.
Operating Expenses
Operating expenses totaled $6.5 million and $5.5 million for the three months ended September 30, 2024 and September 30, 2023, respectively. The increase was primarily driven by increased stock based compensation and asset impairments recorded in the three months ended September 30, 2024.
Consulting and Management Fees
Consulting and management fees were $2.5 million for the three months ended September 30, 2024 compared to $2.3 million for the three months ended September 30, 2023. These fees are related to employment and consulting contracts with most of the Company's management, as well as directors. The increase is primarily due to sales commissions paid at FGH during the three months ended September 30, 2024.
Professional Fees
Professional fees totaled $0.7 million for the three months ended September 30, 2024 compared to $0.4 million for the three months ended September 30, 2023. These expenses are associated with legal, accounting and audit services. The increase is due to increased legal and audit fees during the three months ended September 30, 2024.
General and Administrative Expenses
General and administrative expenses totaled $0.4 million for the three months ended September 30, 2024 compared to $0.3 million for the three months ended September 30, 2023. The primary expenses included in both periods were filing services and shareholder communications, as well as professional dues and subscriptions.
Promotion and Communication Expenses
Promotion and communication expenses totaled $1.2 million for the three months ended September 30, 2024 compared to $1.1 million for the three months ended September 30, 2023. Promotion expenses incurred in the period largely relate to the nature of JustCBD's business model, which is centered around promoting its products as a method for stimulating revenue growth.
Travel Expenses
Travel expenses totaled $0.1 million for both the three months ended September 30, 2024 and the three months ended September 30, 2023. These expenses were for various trips related to the subsidiaries and the Company's promotional activities.
Share Based Compensation Expenses
Share based compensation expenses totaled $0.4 million for the three months ended September 30, 2024 compared to less than $0.1 million for the three months ended September 30, 2023. These expenses represent the amortization of the fair value of share-based payments. The increase is primarily due to the granting of stock appreciation rights during the three months ended September 30, 2024.
Research and Development Expenses
Research and development expenses totaled $0.1 million for the three months ended September 30, 2024 compared to less than $0.1 million for the three months ended September 30, 2023. Research and development expenses consist primarily of contract research fees, manufacturing, consultant fees, and costs related to the launch of new brands for the Vessel business.
Operating Lease Expenses
Operating lease expenses totaled $0.2 million for the three months ended September 30, 2024 compared to $0.3 million for three months ended September 30, 2023. The decrease is due to the impairment of the right-of-use operating lease assets during 2023, causing reduced operating lease expense in 2024.
Depreciation and Amortization Expense
Depreciation and amortization expenses totaled $0.2 million for the three months ended September 30, 2024 compared to $0.3 million for the three months ended September 30, 2023. The decrease is primarily due to the impairment recorded on the Company's long-lived assets during 2023, causing reduced depreciation and amortization in 2024, partially offset by the acquisitions of TruHC and AV during 2024.
Bad Debt Expense
Bad debt expense totaled less than $0.1 million for both the three months ended September 30, 2024 and the three months ended September 30, 2023. The amounts reflect the Company's estimate of lifetime expected losses related to outstanding trade receivables.
Asset Impairment
Asset impairment totaled $0.4 million for the three months ended September 30, 2024 compared to $nil for the three months ended September 30, 2023. The amount for the three months ended September 30, 2024 represents impairment of the goodwill and brands at AV.
Other Expenses
Other expenses totaled $0.3 million for the three months ended September 30, 2024 compared to $0.6 million for the three months ended September 30, 2023. For both periods, these expenses consist mainly of insurance, repairs and maintenance and royalties partially offset by miscellaneous incomes. The decrease is due to increased sublease income during the three months ended September 30, 2024.
Non-operating Loss (Income)
Flora realized $0.3 million in non-operating loss for the three months ended September 30, 2024 compared to non-operating income of $1.1 million for the three months ended September 30, 2023. These amounts consist of unrealized (losses) gains from changes in fair value, interest (income) expense and foreign exchange loss (gain). The increase in loss is primarily due to a $0.3 million loss on the value of the contingent consideration related to the JustCBD acquisition during the three months ended September 30, 2024 compared to a $0.8 million gain during the three months ended September 30, 2023.
Income Tax
The Company recognized $0.2 million and $0.1 million in income tax benefit for the three months ended September 30, 2024 and 2023, respectively. The Company's effective tax rate during the periods ended September 30, 2024 and 2023 was 4.0% and -8.8%, respectively. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, we consider such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to believe our deferred tax assets are not more-likely-than-not to be realized and a full valuation allowance remains recorded against net deferred taxes as of September 30, 2024 and 2023. The income tax benefit in the three months ended September 30, 2024 is primarily related to the tax effect of the amortization on the intangible assets at TruHC and AV. The income tax benefit in the three months ended September 30, 2023 is primarily related to the tax effect of the amortization and impairment on the intangible assets at FGH.
Income from Discontinued Operations
Income from discontinued operations totaled $nil in the three months ended September 30, 2024 compared to income from discontinued operations of $0.5 million in the three months ended September 30, 2023. The sale of the Colombian subsidiaries was completed during the third and fourth quarters of 2023.
Net (Loss) Income
Flora recorded a net loss of $3.8 million for the three months ended September 30, 2024 compared to a net income of $1.1 million for the three months ended September 30, 2023. This increase in net loss is driven by lower gross profit, increased operating expenses and non-operating losses, and the income reported from the disposed Colombia operations in 2023.
For the Nine Months Ended September 30, 2024, and 2023
Revenue
Revenue totaled $46.2 million and $58.1 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was primarily driven by the following:
- JustCBD contributed $14.0 million in the nine months ended September 30, 2024 compared to $25.3 million in the nine months ended September 30, 2023. The decrease was driven by the Company's decision to discontinue several unprofitable product lines during 2023, increased competition and market saturation, as well as the stop sales orders discussed above.
- Vessel contributed $3.6 million in the nine months ended September 30, 2024, compared to $5.0 million in the nine months ended September 30, 2023.
- This was partially offset by an increase at FGH, which contributed $28.2 million in the nine months ended September 30, 2024, compared to $27.8 million in the nine months ended September 30, 2023.
- AV was acquired in June 2024 and contributed $0.4 million during the nine months ended September 30, 2024.
Gross Profit
Gross profit totaled $9.9 million and $14.2 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was primarily driven by the decreased sales at JustCBD, which contributed $6.0 million in the nine months ended September 30, 2024 compared to $10.4 million in the nine months ended September 30, 2023. In addition, $0.7 million of inventory impairment was recorded at JustCBD in the nine months ended September 30, 2024 related to inventory theft and recoveries of stolen inventory that is no longer saleable. Moreover, gross profit at Vessel decreased from $2.2 million in the nine months ended September 30, 2023 to $1.9 million in the nine months ended September 30, 2024. The remaining fluctuation is due to increased gross margins at FGH with $1.9 million in the nine months ended September 30, 2024 compared to $1.8 million in the nine months ended September 30, 2023. TruHC and AV were acquired in 2024 and contributed a total of $0.1 million during the nine months ended September 30, 2024. As a percentage of net sales, or gross margin, the Company reported 21% and 25% for the nine months ended September 30, 2024 and 2024, respectively. The decrease is primarily due to unfavorable mix, with increased sales at FGH which distributes relatively lower margin pharmaceuticals.
Operating Expenses
Operating expenses totaled $19.6 million and $57.2 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The decrease is seen across multiple expense categories and is due to management's cost-cutting initiatives implemented during the second half of 2023 as well as asset impairments recorded during the period ending September 30, 2023.
Consulting and Management Fees
Consulting and management fees were $7.1 million for the nine months ended September 30, 2024 compared to $9.7 million for the nine months ended September 30, 2023. These fees are related to employment and consulting contracts with most of the Company's management, as well as directors. The decrease is primarily due to a substantial reduction in the Company's total headcount across all its business units.
Professional Fees
Professional fees totaled $2.2 million for the nine months ended September 30, 2024 compared to $1.1 million for the nine months ended September 30, 2023. These expenses are associated with legal, accounting and audit services. The increase is due to costs related to the acquisitions of TruHC and AV during the nine months ended September 30, 2024, as well as credit memos received during the nine months ended September 30, 2023.
General and Administrative Expenses
General and administrative expenses totaled $1.4 million for the nine months ended September 30, 2024 compared to $1.4 million for the nine months ended September 30, 2023. The primary expenses included in both periods were filing services and shareholder communications, as well as professional dues and subscriptions.
Promotion and Communication Expenses
Promotion and communication expenses totaled $3.4 million for the nine months ended September 30, 2024 compared to $3.7 million for the nine months ended September 30, 2023. The decrease is due to reduced sales. Promotion expenses incurred in the period largely relate to the nature of JustCBD's business model, which is centered around promoting its products as a method for stimulating revenue growth.
Travel Expenses
Travel expenses totaled $0.3 million for both the nine months ended September 30, 2024 and the nine months ended September 30, 2023. These expenses were for various trips related to the subsidiaries and the Company's promotional activities.
Share Based Compensation Expenses
Share based compensation expenses totaled $0.4 million for the nine months ended September 30, 2024 compared to $1.0 million for the nine months ended September 30, 2023. These expenses represent the amortization of the fair value of share-based payments. The decrease is primarily due to the granting of fewer stock-based compensation awards during 2023 as well as a substantial reduction in total headcount across all its business units.
Research and Development Expenses
Research and development expenses totaled $0.2 million for the nine months ended September 30, 2024 compared to less than $0.1 million for the nine months ended September 30, 2023. Research and development expenses consist primarily of contract research fees, manufacturing, consultant fees, and costs related to the launch of new brands for the Vessel business.
Operating Lease Expenses
Operating lease expenses totaled $0.5 million for the nine months ended September 30, 2024 compared to $0.9 million for nine months ended September 30, 2023. The decrease is due to the impairment of the right-of-use operating lease assets during 2023, causing reduced operating lease expense in 2024.
Depreciation and Amortization Expense
Depreciation and amortization expenses totaled $0.6 million for the nine months ended September 30, 2024 compared to $2.0 million for the nine months ended September 30, 2023. The decrease is primarily due to the impairment recorded on the Company's long-lived assets during 2023, causing reduced depreciation and amortization in 2024, partially offset by the acquisitions of TruHC and AV during the nine months ended September 30, 2024.
Bad Debt Expense
Bad debt expense totaled $0.3 million for the nine months ended September 30, 2024 compared to less than $0.1 million for the nine months ended September 30, 2023. The amounts reflect the Company's estimate of lifetime expected losses related to outstanding trade receivables.
Asset Impairment
Asset impairment totaled $1.5 million for the nine months ended September 30, 2024 compared to $34.9 million for the nine months ended September 30, 2023. The amount for the nine months ended September 30, 2024 represents impairment of the long-lived assets at Vessel, JustCBD and AV, as well as the goodwill at AV. The amount for the nine months ended September 30, 2023 represents impairment of the goodwill at JustCBD and FGH and the long-lived assets at Vessel, JustCBD and FGH.
Other Expenses
Other expenses totaled $1.5 million for the nine months ended September 30, 2024 compared to $2.1 million for the nine months ended September 30, 2023. For both periods, these expenses consist mainly of insurance, repairs and maintenance and royalties partially offset by miscellaneous incomes. The decrease is primarily due to lower insurance expenses, as well as sublease income collected during the nine months ended September 30, 2024.
Non-operating Loss (Income)
Flora realized $0.2 million in non-operating loss for the nine months ended September 30, 2024 compared to non-operating income of $2.2 million for the nine months ended September 30, 2023. These amounts consist of unrealized losses (gains) from changes in fair value, interest (income) expense and foreign exchange loss (gain). The increase in loss is primarily due to a $0.1 million loss on the value of the contingent consideration related to the JustCBD acquisition during the nine months ended September 30, 2024 compared to a $1.9 million gain during the nine months ended September 30, 2023.
Income Tax
The Company recognized $0.1 million benefit and $1.2 million in income tax benefit for the nine months ended September 30, 2024 and 2023, respectively. The Company's effective tax rate during the periods ended September 30, 2024 and 2023 was 0.7% and 3.1%, respectively. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, we consider such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to believe our deferred tax assets are not more-likely-than-not to be realized and a full valuation allowance remains recorded against net deferred taxes as of September 30, 2024 and 2023. The income tax benefit in the nine months ended September 30, 2024 is primarily related to the tax effect of the amortization on the intangible assets at TruHC and AV. The income tax benefit in the nine months ended September 30, 2023 is primarily related to the tax effect of the amortization and impairment on the intangible assets at FGH.
Loss from Discontinued Operations
Loss from discontinued operations totaled $nil in the nine months ended September 30, 2024 compared to loss from discontinued operations of $7.8 million in the nine months ended September 30, 2023. The sale of the Colombian subsidiaries was completed during the third and fourth quarters of 2023.
Net Loss
Flora recorded a net loss of $9.8 million for the nine months ended September 30, 2024 compared to a net loss of $47.3 million for the nine months ended September 30, 2023. This decrease in net loss is driven by lower operating expenses and the loss from the disposed Colombia operations in 2023 partially offset by lower gross profit income and income tax benefit, as well as higher non-operating loss.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-U.S. GAAP financial measures that do not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. We calculate EBITDA as total net income (loss) from continuing operations, plus (minus) income taxes (recovery), plus (minus) interest expense (income), plus depreciation and amortization. We calculate Adjusted EBITDA as EBITDA plus (minus) non-operating expense (income), plus share based compensation expense, plus asset impairment charges, plus (minus) unrealized loss (gain) from changes in fair value, plus charges related to the flow-through of inventory step-up on business combinations, plus other acquisition and transaction costs. Management believes that EBITDA and Adjusted EBITDA provide meaningful and useful financial information as these measures demonstrate the operating performance of the business.
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net loss from continuing operations, the most directly comparable U.S. GAAP financial measure, for the nine months ended September 30, 2024 is presented in the table below:
| (In thousands of United States dollars) | | JustCBD
| | | Vessel
| | | Germany
(3) | | | Australian
Vaporizers | | | Corporate
& Other | | | Consolidated
| |
| Net loss from continuing operations | $ | (1,937 | ) | $ | (1,440 | ) | $ | (516 | ) | $ | (450 | ) | $ | (5,488 | ) | $ | (9,831 | ) |
| Income tax (recovery) expense | | - | | | - | | | (41 | ) | | (46 | ) | | 16 | | | (71 | ) |
| Interest (income) expense | | - | | | (1 | ) | | 110 | | | - | | | (85 | ) | | 24 | |
| Depreciation and amortization | | 139 | | | 48 | | | 358 | | | 12 | | | - | | | 557 | |
| EBITDA | | (1,798 | ) | | (1,393 | ) | | (89 | ) | | (484 | ) | | (5,557 | ) | | (9,321 | ) |
| Non-operating loss (income) (1) | | 1 | | | - | | | - | | | (4 | ) | | 109 | | | 106 | |
| Share based compensation | | - | | | - | | | - | | | | | | 428 | | | 428 | |
| Asset impairment | | 93 | | | 934 | | | - | | | 413 | | | 31 | | | 1,471 | |
| Unrealized (gain) loss from changes in fair value (2) | | (57 | ) | | - | | | - | | | | | | 114 | | | 57 | |
| Charges related to the flow-through of inventory step-up on business combinations | | - | | | - | | | - | | | 79 | | | - | | | 79 | |
| Other acquisition and transaction costs | | - | | | - | | | 216 | | | 41 | | | 165 | | | 422 | |
| Adjusted EBITDA | $ | (1,761 | ) | $ | (459 | ) | $ | 127 | | $ | 45 | | $ | (4,710 | ) | $ | (6,758 | ) |
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net (loss) income from continuing operations, the most directly comparable U.S. GAAP financial measure, for the nine months ended September 30, 2023 is presented in the table below:
| (In thousands of United States dollars) | | JustCBD
| | | Vessel
| | | Germany
(3) | | | Corporate &
Other | | | Consolidated
| |
| Net (loss) income from continuing operations | $ | (19,194 | ) | $ | (8,440 | ) | $ | 55 | | $ | (11,969 | ) | $ | (39,548 | ) |
| Income tax expense (recovery) | | - | | | - | | | 16 | | | (1,263 | ) | | (1,247 | ) |
| Interest expense (income) | | 7 | | | 2 | | | 61 | | | (3 | ) | | 67 | |
| Depreciation and amortization | | 578 | | | 720 | | | 21 | | | 724 | | | 2,043 | |
| EBITDA | | (18,609 | ) | | (7,718 | ) | | 153 | | | (12,511 | ) | | (38,685 | ) |
| Non-operating loss (income) (1) | | 3 | | | 2 | | | - | | | (83 | ) | | (78 | ) |
| Share based compensation | | - | | | - | | | - | | | 996 | | | 996 | |
| Asset impairment | | 20,073 | | | 7,402 | | | | | | 7,466 | | | 34,941 | |
| Unrealized gain from changes in fair value (2) | | (820 | ) | | - | | | - | | | (1,345 | ) | | (2,165 | ) |
| Charges related to the flow-through of inventory step-up on business combinations | | - | | | - | | | - | | | 45 | | | 45 | |
| Adjusted EBITDA | $ | 647 | | $ | (314 | ) | $ | 153 | | $ | (5,432 | ) | $ | (4,946 | ) |
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net loss from continuing operations, the most directly comparable U.S. GAAP financial measure, for the three months ended September 30, 2024 is presented in the table below:
| (In thousands of United States dollars) | | JustCBD
| | | Vessel
| | | Germany
(3) | | | Australian
Vaporizers | | | Corporate
& Other | | | Consolidated
| |
| Net loss from continuing operations | $ | (606 | ) | $ | (122 | ) | $ | (463 | ) | $ | (516 | ) | $ | (2,093 | ) | $ | (3,800 | ) |
| Income tax recovery | | - | | | - | | | (117 | ) | | (46 | ) | | (1 | ) | | (164 | ) |
| Interest (income) expense | | (1 | ) | | (1 | ) | | 45 | | | - | | | (16 | ) | | 27 | |
| Depreciation and amortization | | 29 | | | 14 | | | 174 | | | 9 | | | - | | | 226 | |
| EBITDA | | (578 | ) | | (109 | ) | | (361 | ) | | (553 | ) | | (2,110 | ) | | (3,711 | ) |
| Non-operating loss (income) (1) | | 1 | | | - | | | - | | | (5 | ) | | (73 | ) | | (77 | ) |
| Share based compensation | | - | | | - | | | - | | | - | | | 406 | | | 406 | |
| Asset impairment | | - | | | - | | | - | | | 413 | | | - | | | 413 | |
| Unrealized loss from changes in fair value (2) | | - | | | - | | | - | | | - | | | 322 | | | 322 | |
| Charges related to the flow-through of inventory step-up on business combinations | | - | | | - | | | - | | | 59 | | | - | | | 59 | |
| Other acquisition and transaction costs | | - | | | - | | | - | | | 8 | | | 145 | | | 153 | |
| Adjusted EBITDA | $ | (577 | ) | $ | (109 | ) | $ | (361 | ) | $ | (78 | ) | $ | (1,310 | ) | $ | (2,435 | ) |
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net income (loss) from continuing operations, the most directly comparable U.S. GAAP financial measure, for the three months ended September 30, 2023 is presented in the table below:
| (In thousands of United States dollars) | | JustCBD
| | | Vessel
| | | Germany
(3) | | | Corporate &
Other | | | Consolidated
| |
| Net income (loss) from continuing operations | $ | 563 | | $ | 653 | | $ | (43 | ) | $ | (543 | ) | $ | 630 | |
| Income tax recovery | | - | | | - | | | (23 | ) | | (28 | ) | | (51 | ) |
| Interest (income) expense | | (1 | ) | | 1 | | | 16 | | | - | | | 16 | |
| Depreciation and amortization | | 177 | | | 16 | | | 7 | | | 105 | | | 305 | |
| EBITDA | | 739 | | | 670 | | | (43 | ) | | (466 | ) | | 900 | |
| Non-operating loss (1) | | 1 | | | 2 | | | - | | | 95 | | | 98 | |
| Share based compensation | | - | | | - | | | - | | | 4 | | | 4 | |
| Unrealized gain from changes in fair value (2) | | (463 | ) | | - | | | - | | | (770 | ) | | (1,233 | ) |
| Adjusted EBITDA | $ | 277 | | $ | 672 | | $ | (43 | ) | $ | (1,137 | ) | $ | (231 | ) |
(1) Non-operating loss (income) includes foreign exchange losses (gains).
(2) Unrealized loss (gain) from changes in fair value includes changes in the value of the Company's contingent consideration associated with its acquisition of JustCBD and Original Hemp.
(3) Germany includes the Company's main operating entities in Germany, Phatebo and TruHC.
Liquidity and Capital Resources
Since the Company’s inception, we have funded our operations and capital spending through cash flows from product sales and proceeds from the sale of our capital stock. The Company is generating cash from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term to support our business growth and expansion. We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and unaudited condensed interim consolidated statements of cash flows. We expect to continue to incur operating losses and negative cash flows in the foreseeable future. Our current principal sources of liquidity are cash provided by our operations and prior equity offerings. Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents were $4.2 million and $4.4 million as of September 30, 2024, and December 31, 2023, respectively. As of September 30, 2024, the Company’s current working capital, anticipated operating expenses and net losses, and the uncertainties surrounding its ability to raise additional capital as needed, raise substantial doubt as to whether existing cash and cash equivalents will be sufficient to meet its obligations as they come due within twelve months from the date the unaudited condensed interim consolidated financial statements were issued. The unaudited condensed interim consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company's ability to execute its operating plans depends on its ability to obtain additional funding through equity offerings, debt financing, or other forms of financing to meet planned growth requirements and to fund future operations, which may not be available on acceptable terms, or at all. If we are unable to raise the requisite funds, we will need to curtail or cease operations. See Note 2 to the Company's unaudited condensed interim consolidated financial statements included elsewhere in this Quarterly Report and to the Company's audited consolidated financial statements for the years ended December 31, 2023, and 2022, included in the 2023 Annual Report, for more information, and "Part I., Item IA Risk Factors - Management has performed an analysis of our ability to continue as a going concern, and has determined that, based on our current financial position, there is a substantial doubt about our ability to continue as a going concern" in the Company's 2023 Annual Report. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. In the long term, we will be required to obtain additional financing to fund our current planned operations, which may consist of incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. There can be no assurance that the Company will be able to obtain additional funds on terms acceptable to it, on a timely basis or at all. The failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the results of operations, and financial condition. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing shareholders will be diluted. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
The Company's primary uses of cash are for working capital requirements and capital expenditures. Additionally, from time to time, it may use capital for acquisitions and other investing and financing activities. Working capital is used principally for the Company's personnel as well as costs related to the manufacture and production of its products. The Company's capital expenditures consist primarily of additional facilities, improvements in existing facilities and product development.
Cash Flows
The following table sets forth the major components of the Company's unaudited condensed interim consolidated statements of cash flows for the periods presented.
| (In thousands of United States dollars) | | For the nine
months ended
September 30,
2024 | | | For the nine
months ended
September 30,
2023 | |
| Cash used in operating activities | $ | (3,686 | ) | $ | (7,265 | ) |
| Cash from financing activities | | 3,111 | | | 2,446 | |
| Cash provided (used) in investing activities | | 203 | | | (272 | ) |
| Effect of exchange rate change | | 231 | | | 954 | |
| Change in cash during the period | | (141 | ) | | (4,137 | ) |
| Cash, beginning of period | | 4,385 | | | 8,935 | |
| Cash, end of period | $ | 4,244 | | $ | 4,798 | |
Cash used in Operating Activities
Net cash used in operating activities in the nine months ended September 30, 2024 was $3.7 million compared to net cash used in operating activities of $7.3 million for the nine months ended September 30, 2023. Cash flows used in operating activities for the periods ended September 30, 2024 and 2023 were due primarily to operating expenses exceeding the gross profit for the periods.
Cash provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 totaled $3.1 million compared to net cash provided in financing activities of $2.4 million for the nine months ended September 30, 2023. Cash flows provided from financing activities for the period ending September 30, 2024 were due to the sale of common shares of the Company in April 2024 as well as net borrowings on the credit facilities in Germany through the Company's Phatebo subsidiary. Cash flows provided in financing activities for the period ended September 30, 2023 were primarily due to the sales of equity securities in September 2023.
Cash provided (used) in Investing Activities
Net cash provided by investing activities for the nine months ended September 30, 2024 totaled $0.2 million compared to net cash used in investing activities for the nine months ended September 30, 2023 of $0.3 million. Cash flows provided by investing activities for the period ended September 30, 2024 were primarily proceeds from the sale of property, plant and equipment. Cash flows used in investing activities for the period ended September 30, 2023 were primarily related to the purchases of property, plant and equipment, and intangible assets.
Working Capital
As of September 30, 2024, we had working capital of $0.4 million, including $4.2 million of cash. The Company's primary cash flow needs are for the development of its operating activities, administrative expenses and for general working capital to support growing sales with related receivables and payables.
Funding Requirements
Our continued existence is dependent on our ability to generate positive cash flows through synergies within our operations, expanding our production capacity and geographic footprint, exploring strategic partnerships, and pursuing accretive acquisitions to supplement our organic growth. We are committed to attaining a level of sustained growth that will effectively offset our overhead costs, thereby paving the path to achieving profitability. We will be required in the future to raise additional capital through either equity or debt financings. To date, we have raised capital through multiple equity offerings. On April 8, 2024, the Company closed a registered direct offering of 1,700,000 Common Shares at a price of $1.90 per Common Share for net proceeds of $2.8 million. On April 26, 2024, the Company entered into an At-The-Market Issuance Sales Agreement with Aegis Capital Corp. (the "Agent") pursuant to which the Company may sell from time to time, at its option, Common Shares through the Agent in its capacity as sales agent, with an aggregate value of up to $3.8 million. On September 21, 2023, the Company closed a registered direct offering of 1,369,000 units of the Company at a price of $2.00 per unit for gross proceeds of $2.7 million. Each unit is comprised of one Common Share and one Common Share purchase warrant (1,369,000 total warrants) to purchase one additional Common Share at an exercise price of $2.50 per warrant share through March 21, 2029. There were no other equity offerings in the periods ended September 30, 2024 and September 30, 2023.
Debt
In addition to the equity offerings described above, the Company also has access to credit facilities through its FGH subsidiary. The credit facilities total 4.1 million Euros with three different German banks and are secured by default guarantees. On September 30, 2024, the outstanding amount was 2.0 million Euros ($2.2 million USD) and was due within the next twelve months. The credit facilities have interest rates ranging from 4.95% to 5.59% per year and does not have a set maturity date. The interest rate is reset every time a new amount is drawn.
Off-Balance Sheet Arrangements
As of September 30, 2024, the Company did not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.
Contractual Obligations
At September 30, 2024, the Company had the following contractual obligations to make future payments, representing contracts and other commitments that are known and committed:
| (In thousands of United States dollars) | | Total | | | Less than 1
Year | | | 1 - 3 Years | | | More than 3
Years | |
| Legal disputes (1) | $ | 4,234 | | $ | 4,234 | | $ | - | | $ | - | |
| Sales tax (1) | | 2,609 | | | 2,609 | | | - | | | - | |
| Contingent purchase consideration (2) | | 1,152 | | | 1,152 | | | - | | | - | |
| Operating lease obligations (3) | | 3,740 | | | 286 | | | 2,023 | | | 1,431 | |
| Debt (4) | | 2,235 | | | 2,235 | | | - | | | - | |
| Total | $ | 13,970 | | $ | 10,516 | | $ | 2,023 | | $ | 1,431 | |
(1) See Note 15 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.
(2) Contingent purchase consideration related to the February 2022 acquisition of JustCBD and the March 2023 acquisition of Original Hemp.
(3) See Note 11 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.
(4) See Note 10 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.
Critical Accounting Estimates
For information regarding our critical accounting policies and estimates, see "Critical Accounting Estimates" included in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Annual Report.
Recently Adopted Accounting Principles
There were no new accounting standards issued during the three months ended September 30, 2024 that impacted the Company. See Note 3, Significant Accounting Policies, of the notes to the consolidated financial statements for the year ended December 31, 2023 for a discussion of recently issued accounting standards.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and the regulations promulgated thereunder) as of September 30, 2024 (the "Evaluation Date"). Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings
There have been no material changes to the legal proceedings described in Item 3 of our 2023 Annual Report, other than as disclosed in Note 15 of the Company's unaudited condensed interim consolidated financial statements, included in Item 1 of Part I of this Quarterly Report.
Item 1A. Risk Factors
There have been no material changes to the risk factors described in the 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) Trading Plans.
During the three months ended September 30, 2024, none of the directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement," as that term is used in SEC regulations.
Item 6. Exhibits
# Indicates management contract or compensatory plan or arrangement.
* Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: November 13, 2024 | | Flora Growth Corp. |
| | | |
| | By: | /s/ Clifford Starke |
| | | Clifford Starke |
| | | Chief Executive Officer (Principal Executive Officer) |
| Dated: November 13, 2024 | | |
| | | |
| | By: | /s/ Dany Vaiman |
| | | Dany Vaiman |
| | | Chief Financial Officer (Principal Financial and Accounting Officer) |
