CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report, including any
documents incorporated by reference herein, contains
“forward-looking information” and
“forward-looking statements” within the meaning of applicable securities laws
(collectively referred to herein as “
forward-looking statements”). All statements other
than statements of fact may be deemed to be forward-looking statements, including statements with regard to expected financial performance,
strategy and business conditions. The words
“believe”,
“plan”,
“intend”,
“estimate”,
“expect”,
“anticipate”,
“continue”, or
“potential”, and similar expressions, as well as future or conditional
verbs such as
“will”,
“should”,
“would”, and
“could” often identify forward-looking statements.
These statements reflect management’s current beliefs with respect to future events and are based on information currently available
to management as of the date of this Annual Report, or a document
incorporated by reference therein, including reasonable assumptions,
estimates, internal and external analysis and opinions of management considering its experience, perception of trends, current conditions
and expected developments as well as other factors that management believes to be relevant as at the date such statements are made.
Without limitation, this Annual Report contains forward-looking statements pertaining
to:
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the Company’s business objectives and milestones and the anticipated timing of execution; |
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the performance of the Company’s business, strategies and operations; |
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the Company’s plans to expand its sales channels, distribution, delivery and storage capacity, and reach to medical cannabis
patients; |
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the competitive conditions of the cannabis industry and the growth of medical or adult-use recreational cannabis markets in the jurisdictions
in which the Company operates; |
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the competitive conditions of the industry, including the Company’s ability to maintain or grow its market share and maintain
its competitive advantages; |
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statements relating to the Company’s commitment to responsible growth and compliance with the strictest regulatory environments;
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the Company’s focus on providing premium cannabis products to medical patients in the jurisdictions in which the Company conducts
business and any other jurisdiction in which the Company may conduct business in the future; |
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the Company’s plans to amplify its commercial and brand power to become a global high-quality cannabis player; |
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the Company’s primary goal of sustainably increasing revenue in its core markets; |
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the demand and momentum in the Company’s Israeli and Germany operations; |
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the efficiencies and synergies of the Company as a global organization with domestic expertise in Israel and Germany; |
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expectations that providing high-quality, reliable supply to the Company’s customers and patients will lead to recurring sales;
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expectations related to the Company’s introduction of new Stock Keeping Units (“ SKUs”);
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anticipated cost savings from the reorganization of the Company and the completion thereof upon the timelines disclosed herein;
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geographic diversification and brand recognition and the growth of the Company’s brands in the jurisdictions that the Company
operates in or may expand to; |
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expectations related to the Company’s ability to address the ongoing needs and preferences of medical cannabis patients;
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the Company’s retail presence, distribution capabilities and data-driven insights; |
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the future impact of the Regulations Amendment (as defined herein) regarding the transition reform from licenses to prescriptions
for medical treatment of cannabis; |
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the Company’s continued partnerships with third party suppliers and partners and the benefits thereof; |
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the Company’s ability to achieve profitability in 2024; |
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the number of patients in Israel licensed by the Israeli Ministry of Health (“MOH”)
to consume medical cannabis; |
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expectations relating to the number of patients paying out-of-pocket for medical cannabis products in Germany; |
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the anticipated decriminalization or legalization of adult-use recreational cannabis in Israel and Germany; |
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expectations related to the demand and the ability of the Company to source premium and ultra-premium cannabis products exclusively
and competition in this product segment; |
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the anticipated impact of inflation and liquidity on the Company’s performance; |
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expectations with respect to the Company’s operating budget and the assumptions related thereto; |
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expectations relating to the Company as a going concern and its ability to conduct business under the ordinary course of operations;
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expectations related to the collection the payment awarded in the Judgment and the chances of the claim advancing or the potential
outcome of the Test Kits Appeal (as defined herein); |
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the continued listing of the common shares in the capital of the Company (“ Common Shares”)
on the Nasdaq Stock Market (“ Nasdaq”) and Canadian Securities Exchange (“ CSE”);
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cannabis licensing in the jurisdictions in which the Company operates; |
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the renewal and/or extension of the Company’s licenses; |
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the Company’s anticipated operating cash requirements and future financing needs; |
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the Company’s expectations regarding its revenue, expenses, profit margins and operations; |
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the expected increase in revenue and margins in its Israeli medical cannabis market activities arising from its acquisitions;
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future opportunities for the Company in Israel, particularly in the retail and distribution segments of the cannabis market;
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future expansion and growth opportunities for the Company in Germany and Europe and the timing of such; |
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contractual obligations and commitments.; and |
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the Company completing the Potential Transaction with Kadimastem (each as defined herein). |
With respect to the forward looking-statements contained in this Annual Report, the
Company has made assumptions regarding, among other things:
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the Company has the ability to achieve its business objectives and milestones under the stated timelines; |
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the Company will succeed in carrying out its business, strategies and operations; |
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the Company will realize upon its intentions to expand the business, operations and potential activities of the Company; |
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the Company will expand its sales channels, distribution, delivery and storage capacity, and reach to medical cannabis patients;
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the competitive conditions of the cannabis industry and the growth of medical or adult-use recreational cannabis in the jurisdictions
in which the Company operates; |
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the competitive conditions of the industry will be favorable to the Company, and the Company has the ability to maintain or grow
its market share and maintain its competitive advantages; |
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the Company will commit to responsible growth and compliance with the strictest regulatory environments; |
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the Company will remain focused on providing premium cannabis products to medical patients in the jurisdictions in which the Company
conducts business and any other jurisdiction in which the Company may conduct business in the future; |
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the Company has the ability to amplify its commercial and brand power to become a global high-quality cannabis player; |
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the Company will maintain its primary goal of sustainably increasing revenue in its core markets; |
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the Company will carry out its plans to position its brands as stated; |
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the Company’s Company has the ability to realize upon the stated efficiencies and synergies the Company as a global organization
with domestic expertise in Israel and Germany; |
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providing a high-quality, reliable supply to the Company’s customers and patients will lead to recurring sales; |
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the Company will realize the anticipated cost savings from the reorganization; |
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the Company has the ability to achieve geographic diversification and brand recognition and the growth of the Company’s brands
in the jurisdictions that the Company operates in or may expand to; |
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the Company’s has the ability to address the ongoing needs and preferences of medical cannabis patients; |
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the Company has the ability to realize upon its retail presence, distribution capabilities and data-driven insights; |
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the future impact of the Regulations Amendment will be favorable to the Company; |
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the Company will maintain its partnerships with third parties, suppliers and partners; |
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the Company has the ability to achieve profitability in 2024; |
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the accuracy of number of patients in Israel licensed by the MOH to consume medical cannabis; |
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the accuracy of the number of patients paying out-of-pocket medical cannabis products in Germany; |
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the anticipated decriminalization or legalization of adult-use recreational cannabis in Israel and Germany will occur; |
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the Company has the ability to source premium and ultra-premium cannabis products exclusively and competition in this product segment;
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the anticipated impact of inflation and liquidity on the Company’s performance will be as forecasted; |
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the accuracy with respect to the Company’s operating budget and the assumptions related thereto; |
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a favorable outcome with respect to the collection the payment awarded in the Judgment and the chances of the claim advancing or
the potential outcome of the Test Kits Appeal; |
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the Company’s Common Shares will remain listed on the Nasdaq and CSE; |
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the Company has the ability to meet operating cash requirements and future financing needs; |
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the Company will meet or surpass its expectations regarding its revenue, expenses, profit margins and operations; |
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the Company will increase its revenue and margins in its Israeli medical cannabis market activities arising from its acquisitions;
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the Company has the ability to capitalize on future opportunities for the Company in Israel, particularly in the retail and distribution
segments of the cannabis market; |
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the Company will carry out its future expansion and growth opportunities for the Company in Germany and Europe and the timing of
such; |
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the Company will fulfill its contractual obligations and commitments; and |
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the Company will complete the Proposed Transaction with Kadimastem. |
Readers are cautioned that the above lists of forward-looking statements and assumptions
are not exhaustive. Since forward-looking statements address future events and conditions, by their very nature they involve inherent
risks and uncertainties. Actual results may differ materially from those currently anticipated or implied by such forward-looking statements
due to a number of factors and risks. These include:
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the Company’s inability to achieve its business objectives and milestones under the stated timelines; |
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the Company inability to carry out its business, strategies and operations; |
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the Company’s inability to realize upon its intentions to expand the business, operations and potential activities of the Company;
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the Company will not expand its sales channels, distribution, delivery and storage capacity, and reach to medical cannabis patients;
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the competitive conditions of the cannabis industry and the growth of medical or adult-use recreational cannabis markets will be
unfavorable to the Company in the jurisdictions in which the Company operates; |
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the competitive conditions of the industry will be unfavorable to the Company, and the Company’s inability to maintain or grow
its market share and maintain its competitive advantages; |
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the Company will not commit to responsible growth and compliance with the strictest regulatory environments; |
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the Company’s inability to remain focused on providing premium cannabis products to medical patients in the jurisdictions in
which the Company conducts business and any other jurisdiction in which the Company may conduct business in the future; |
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the Company inability to amplify its commercial and brand power to become a global high-quality cannabis player; |
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the Company will not maintain its primary goal of sustainably increasing revenue in its core markets; |
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the Company will not carry out its plans to position its brands as stated; |
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the Company’s inability to realize upon the stated efficiencies and synergies of the Company as a global organization with
domestic expertise in Israel and Germany; |
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providing a high-quality, reliable supply to the Company’s customers and patients will not lead to recurring sales; |
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the Company’s inability to realize upon the anticipated cost savings from the reorganization; |
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the Company’s inability to achieve geographic diversification and brand recognition and the growth of the Company’s brands
in the jurisdictions that the Company operates in or may expand to; |
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the Company’s inability to address the ongoing needs and preferences of medical cannabis patients; |
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the Company’s inability to realize upon its retail presence, distribution capabilities and data-driven insights; |
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the future impact of the Regulations Amendment will be unfavorable to the Company; |
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the Company will not maintain its partnerships with third party suppliers and partners; |
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the Company’s inability to achieve profitability in 2024; |
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the inaccuracy of number of patients in Israel licensed by the MOH to consume medical cannabis; |
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the inaccuracy of the number of patients paying out-of-pocket for medical cannabis products in Germany; |
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the anticipated decriminalization or legalization of adult-use recreational cannabis in Israel and Germany will not occur;
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the Company’s ability to source premium and ultra-premium cannabis products exclusively and competition in this product segment;
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the anticipated impact of inflation and liquidity on the Company’s performance will not be as forecasted; |
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the inaccuracy with respect to the Company’s operating budget and the assumptions related thereto; |
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an unfavorable outcome of the negotiations or the Construction Proceedings; |
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an unfavorable outcome with respect to the collection the payment awarded in the Judgment and the chances of the claim advancing
or the potential outcome of the Test Kits Appeal; |
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the Company’s Common Shares will not remain listed on the Nasdaq and CSE; |
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the Company’s inability to meet operating cash requirements and future financing needs; |
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the Company will not meet or surpass its expectations regarding its revenue, expenses, profit margins and operations; |
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the Company will not increase its revenue and margins in its Israeli medical cannabis market activities arising from its acquisitions;
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the Company’s ability to capitalize on future opportunities for the Company in Israel, particularly in the retail and distribution
segments of the cannabis market; |
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the Company will not carry out its future expansion and growth opportunities for the Company in Germany and Europe and the timing
of such; |
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the Company will not fulfill its contractual obligations and commitments; and |
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the Company will not complete the Proposed Transaction with Kadimastem. |
The foregoing list of risk factors is not exhaustive. Additional
information on these and other factors that could affect the business, operations or financial results of
the Company are detailed under
the heading
“Risk Factors” in this Annual Report. Unless otherwise indicated, forward-looking statements in this Annual Report
describe our expectations as of the date of this Annual Report.
The Company and management caution readers not to place undue reliance
on any forward-looking statements, which speak only as of the date made. Although
the Company believes that the expectations reflected
in the forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The
Company and management assume no obligation to update or revise them to reflect new events or circumstances except as required by applicable
securities laws.
Additional information about the assumptions, risks and uncertainties of
the Company’s
business and material factors or assumptions on which information contained in forward-looking statements is based is provided in the
Company’s disclosure materials, including in the Annual MD&A under “
Legal and Regulatory
– Risk Factors”, available on
the Company’s profile on SEDAR+ at
www.sedarplus.ca
and on EDGAR at
www.sec.gov/edgar.
CAUTIONARY NOTE REGARDING FUTURE ORIENTED FINANCIAL INFORMATION
This Annual Report may contain future oriented financial information (“
FOFI”)
within the meaning of Canadian securities legislation and analogous U.S. securities laws, about prospective results of operations, financial
position or cash flows, based on assumptions about future economic conditions and courses of action, which FOFI is not presented in the
format of a historical balance sheet, income statement or cash flow statement. The FOFI has been prepared by management to provide an
outlook of
the Company’s activities and results and has been prepared based on a number of assumptions including the assumptions
discussed under the heading above entitled “
Cautionary Note Regarding Forward-Looking Statements”
and assumptions with respect to the costs and expenditures to be incurred by
the Company, capital expenditures and operating costs, taxation
rates for
the Company and general and administrative expenses. Management does not have, or may not have had at the relevant date, firm
commitments for all of the costs, expenditures, prices or other financial assumptions which may have been used to prepare the FOFI or
assurance that such operating results will be achieved and, accordingly, the complete financial effects of all of those costs, expenditures,
prices and operating results are not, or may not have been at the relevant date of the FOFI, objectively determinable.
Importantly, the FOFI contained in this Annual Report are, or may be, based upon certain
additional assumptions that management believes to be reasonable based on the information currently available to management, including,
but not limited to, assumptions about: (i) the future pricing for
the Company’s products, (ii) the future market demand and trends
within the jurisdictions in which
the Company may from time to time conduct
the Company’s business, (iii)
the Company’s ongoing
inventory levels, and operating cost estimates, and (iv)
the Company’s financial results for 2024. The FOFI or financial outlook
contained in this Annual Report do not purport to present
the Company’s financial condition in accordance with IFRS as issued by
the International Accounting Standards Board, and there can be no assurance that the assumptions made in preparing the FOFI will prove
accurate. The actual results of operations of
the Company and the resulting financial results will likely vary from the amounts set forth
in the analysis presented in any such document, and such variation may be material (including due to the occurrence of unforeseen events
occurring subsequent to the preparation of the FOFI).
The Company and management believe that the FOFI has been prepared on a reasonable
basis, reflecting management’s best estimates and judgments as at the applicable date. However, because this information is highly
subjective and subject to numerous risks including the risks discussed under the heading above entitled “
Cautionary
Note Regarding Forward-Looking Statements” and under the heading “
Risk Factors”
in
the Company’s public disclosures, FOFI or financial outlook within this Annual Report should not be relied on as necessarily
indicative of future results.
Readers are cautioned not to place undue reliance on the FOFI, or financial outlook
contained in this Annual Report. Except as required by Canadian securities laws and analogous U.S. securities laws,
the Company does not
intend, and does not assume any obligation, to update such FOFI.
ITEM 1. IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER
STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY
INFORMATION
A. Reserved.
B. Capitalization
and Indebtedness
Not applicable.
C. Reasons
for the Offer and Use of Proceeds
Not applicable.
D. Risk
Factors
The Company’s operations and financial performance are subject to the normal
risks of its industry and are subject to various factors which are beyond the control of
the Company. Certain of these risk factors are
described below. The risks described below are not the only ones facing
the Company. Additional risks not currently known to
the Company,
or that it currently considers immaterial, may also adversely impact
the Company’s business, operations, financial results or prospects,
should any such other events occur.
Risks Relating to Our Business
There are certain risks associated with owning securities of
the Company that holders
should carefully consider. The risks and uncertainties below are not the only risks and uncertainties facing
the Company. Additional risks
and uncertainties not presently known to
the Company or that
the Company currently considers immaterial may also impair the business,
operations and future prospects of
the Company, cause the price of its securities to decline and cause future results to differ materially
from those described herein. If any of the following risks actually occur, the business of
the Company may be harmed, and its financial
condition and results of operations may suffer significantly. In that event, the trading price of
the Company’s securities could
decline, and holders may lose all or part of their investment.
The cannabis-related business and activities of the Group are heavily regulated in
all jurisdictions where it carries on business. The Group’s operations are subject to various laws, regulations and guidelines by
governmental authorities, particularly the MOH, and the Federal Opium Agency of Germany’s Federal Institute for Drugs and Medical
Devices in Germany (“BfArM”), relating to the grow, propagate, manufacture, marketing,
management, transportation, storage, distribution, sale, pricing and disposal of dried and fresh cannabis, cannabis plants and seeds,
edible cannabis, cannabis extracts, clones and plants and cannabis extracts. The Group’s operations are also subject to laws and
regulations relating to health and safety, insurance coverage, the conduct of operations and the protection of the environment.
The
Company consolidates certain financial results under IFRS 10 and any failure to maintain common control could result in a material adverse
effect on the business, results of operations and financial condition of the Company
The Company complies with IFRS 10, which applies a single consolidation model using
a definition of
“control” that requires an investor (as defined in IFRS 10) to consolidate an investee (as defined in IFRS
10) where: (i) the investor has power over the investee; (ii) the investor has exposure or rights to variable returns from involvement
with the investee; and (iii) the investor can use its power over the investee to affect the amount of the investor’s returns.
The Company analyzed the terms of the contractual agreements with Focus in accordance
with IFRS 10 to conclude whether it should continue to consolidate the accounts of Focus in its financial statements.
Under IFRS 10, consolidation occurs when an investor can exercise control over an
investee. Control is achieved through voting rights or other evidence of power. Where there are no direct holdings, under IFRS 10, an
investor (as defined in IFRS 10) should consider other evidence of power and ability to unilaterally direct an investee’s (as defined
in IFRS 10) relevant activities. In view of the contractual agreements and the guidance in IFRS 10, notwithstanding that
the Company has
no direct or indirect ownership of Focus, it has sufficient rights to unilaterally direct the relevant activities (a concept known as
“de facto control”), mainly due to the following:
1) |
the Company receiving economic benefits from Focus (and the terms of the Commercial Agreements (as defined herein) cannot be changed
without the approval of the Company); |
2) |
the Company having the option to purchase the divested 74% interest in Focus held by Oren Shuster, the Chief Executive Officer, director
and a promoter of the Company, and Rafael Gabay, a former consultant director, a former consultant and a promoter of the Company;
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3) |
Messrs. Shuster and Gabay each being a director of Focus (while Mr. Shuster concurrently being a director, officer and substantial
shareholder of the Company and Mr. Gabay concurrently being a substantial shareholder of the Company); and |
4) |
the Company providing management and support activities to Focus through the Services Agreement (as defined herein). |
Accordingly, under IFRS 10,
the Company has
“de facto control” over Focus,
and therefore consolidates the financial results of Focus in
the Company’s financial statements.
Any failure of
the Company or Messrs.
Oren Shuster and Rafael Gabay to maintain
“de
facto control” over Focus as defined under IFRS 10 could alter
the Company’s consolidation model, potentially resulting in
a material adverse effect on the business, results of operations and financial condition of
the Company.
For the period ended
December 31, 2023,
the Company analyzed the terms of the definitive
agreements with each of its Consolidated Entities (as defined within IFRS 10) in accordance with accounting criteria IFRS 10. Viewed as
effectively exercising control over their Consolidated Entities,
the Company consolidate the financial results of the Consolidated Entities
as of the date of signing each such definitive agreement.
The
regulatory authorities in Israel may determine that the Company is in contravention of Israeli cannabis regulations
There is a risk that regulatory authorities in Israel may determine that
the Company
is in contravention of Israeli cannabis regulations. Namely, prior approval of the Israeli Medical Cannabis Agency (“
IMCA”)
is required for any shareholder owning 5% or more of an Israeli company licensed to engage in cannabis-related activities. Any contravention
of Israeli cannabis regulations could jeopardize the good standing of
the Company’s licenses. Such a determination may adversely
affect
the Company’s ability to conduct sales and marketing activities and could have a material adverse effect on
the Company’s
business, operating results or financial condition.
The
Company is subject to governmental regulations in the markets in which it operates and any delays in obtaining, or failure to obtain regulatory
approvals could significantly delay the development of markets and products and could have a material adverse effect on the business,
results of operations, financial condition and prospects of the Company
Israel – MOH Regulation
Laws and regulations, applied generally, grant government agencies and self-regulatory
bodies broad administrative discretion over the activities of the Israeli
Subsidiaries and Focus, which can include the power to limit
or restrict business activities, the import and export of cannabis products and the imposition of additional quality criteria and disclosure
requirements on the products and services provided by Israeli
Subsidiaries and Focus. Achievement of the Israeli
Subsidiaries and
Focus business objectives are contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities
and obtaining all regulatory approvals, where necessary, for the production and sale of its products.
The Company cannot predict the time required for the Israeli
Subsidiaries or Focus
to secure all appropriate regulatory approvals for the products and activity, or the extent of testing and documentation that may be required
by governmental authorities. Any delays in obtaining, or failure to obtain regulatory approvals would significantly delay the development
of markets and products and could have a material adverse effect on the business, results of operations, financial condition and prospects
of
the Company.
Failure to comply with the laws and regulations applicable to its operations may lead
to possible sanctions including the revocation or imposition of additional conditions on licenses to operate the Israeli
Subsidiaries and/or
the
Focus business, the suspension or expulsion from a particular market or jurisdiction or
of its key personnel, and the imposition of fines and censures. To the extent that there are changes to the existing laws and regulations
or the enactment of future laws and regulations that affect the sale or offering of the Israeli
Subsidiaries and/or
Focus
products or services in any way, this could have a material adverse effect on the business, results of operations, financial condition
and prospects of
the Company.
Germany – BfArM Regulation
Legalization
At the end of March 2024, legalization in Germany applies only to cannabis stemming from cultivation for
medicinal purposes under state control and in preparations as finished medicinal products, in accordance with the Narcotic Convention.
Currently, the production, distribution, exportation and importation of medical cannabis products in Germany is legal, subject to regulations
and licensing requirements while operations involving adult-use recreational cannabis products remain illegal. Medical cannabis in
Germany must comply with the corresponding monographs of the German and European pharmacopoeia. Nevertheless, current German government
has declared in the coalition agreement its intention to open up the German market also in the adult-use recreational market. Medical
cannabis in Germany must comply with the corresponding monographs of the German and European pharmacopoeia. This legislative amendment
is now set to come into force on 1 April 2024 and will enable limited home cultivation as well as cultivation via so-called cultivation
associations. This change in the law also means that medical cannabis will no longer be classified as a narcotic and will therefore no
longer be covered by the Narcotics Act ("BtMG") but by the Medical Cannabis Act ("MedCanG").
At the end of March 2024, the import, export, manufacturing and distribution of medical
cannabis currently requires a wholesale permit pursuant to the German Medicines Act (the “AMG”)
and a distribution permit for narcotics pursuant to the BtMG (from 1 April, when the MedCanG comes into force, this would then be used
instead of the BtMG to obtain an additional licence). All BtMG permit applications must specify the strains and estimated quantities of
medical cannabis involved and any subsequent changes must be reported to the BopSt as division of the BfArM. The import of medical cannabis
from other European Union (“EU”) and non-EU countries requires quantity-based import
licenses pursuant to the BtMG (comparable regulations also exist under the MedCanG). In addition, if medical cannabis is to be imported
that has already undergone processing steps that fall under the EU GMP guidelines, compliance with these guidelines must be confirmed
by a European inspection and certificate. The importing company also requires an import and manufacturing authorisation in accordance
with the AMG in order to import these goods.
Until now, the cultivation of medicinal cannabis was only possible under public procurement
law. Such an award procedure was ultimately only carried out once in full. In this context, the BfArM formed a cannabis division to oversee
the cultivation, harvesting, processing, quality control, storage, packaging and distribution to wholesalers, pharmacists and manufacturers
(the “Cannabis Agency”). The Cannabis Agency also regulates pricing of German-produced
medical cannabis products and serves as an intermediary of medical cannabis product sales between manufacturers, wholesalers and pharmacies
on a non-profit basis. The Cannabis Agency has no influence on the actual retail price of medical cannabis products in general. It only
controlled the price of medicinal cannabis grown in Germany. The responsibilities of the Cannabis Agency are based on the requirements
of the Narcotic Convention. The Cannabis Agency is not responsible for the import of medical cannabis products and will therefore neither
purchase nor distribute imported medical cannabis products. As a wholesaler, the Cannabis Agency sells German-based medical cannabis products
in its own name. The Cannabis Agency contracted with a distributor that was selected in a tender procedure and commissioned it to carry
out the distribution of medical cannabis products in accordance with all pharmaceutical and narcotic legal requirements in Germany. Once
the MedCanG comes into force, cultivation will no longer be based on tenders but can be applied for in a completely regular authorisation
procedure.
The current regime (and also based on
the MedCanG) permits the importation of cannabis plants and plant parts for medicinal purposes grown in a country under state control
subject to the requirements under the Narcotic Convention. Pursuant to Narcotic Convention, Germany must estimate the expected demand
of medical cannabis products for medical and research purposes for the following year and report such estimates to the International Narcotics
Control Board.
As a prerequisite to obtaining a German
import license, the supplier must grow and harvest in compliance with EU-GACP-Guidelines and manufacture in compliance with EU-GMP-Guidelines
and certifications. All medical cannabis products imported to Germany must derive from plant material cultivated in a country whose regulations
comply with the Narcotic Convention and must comply with the relevant monographs described in the German and European pharmacopeias. While
these requirements also apply to the exportation of medical cannabis products, the current German regime does not allow domestically cultivated
medical cannabis products to be directly sold to commercial entities other than the Cannabis Agency. Medical cannabis products imported
pursuant to an import license under the BtMG (and MedCanG) and AMG permits are sold exclusively to wholesalers and pharmacies. Only the
pharmacies are authorised for final dispensing to patients on a prescription basis as ‘magistral preparations’, a term used
in Europe to refer to medical products prepared in a pharmacy in accordance with a medical prescription for an individual patient. In
addition to magistral preparations, medical cannabis products are also marketable as pre-packaged, licensed drugs.
Failure to comply with the laws and regulations
applicable to
the Company's operations may lead to possible sanctions, including revocation or suspension of licences (and thus
the Company's
inability to operate), recalls and withdrawals (both regulatory and as a result of competition law proceedings), the loss of eligibility
as a corporate body of a corporation or as a medicinal product or narcotics law functionary (and thus
the Company's inability to operate),
flanked by administrative fines for regulatory offences, fines and imprisonment for criminal offences as well as administrative orders
(requirements, prohibitions, etc.) as well as competition law warnings and proceedings (such as injunctions).
The
Company’ ability to produce, store, import, distribute and sell cannabis and derivative products in Israel, Canada and Germany is
dependent on licensing and any failure to maintain the respective licenses would have a material adverse impact on the business, financial
condition and operating results of the Company
Israel – Reliance on the Israeli Licenses
The Company’s ability to produce, store, import, distribute and sell cannabis
in Israel is dependent on the Israeli
Subsidiaries and Focus maintaining the Israeli Licenses with the IMCA. Failure to comply with the
requirements or any failure to maintain the Israeli Licenses would have a material adverse impact on the business, financial condition
and operating results of
the Company. There can be no guarantees that the IMCA will extend or renew any of Israeli Licenses as necessary
or, if it extended or renewed, that any of the Israeli Licenses will be extended or renewed on the same or similar terms. Should the IMCA not
extend or renew any of Israeli Licenses or should it renew any of the Israeli Licenses on different terms, the business, financial condition
and results of the operations of
the Company would be materially adversely affected.
Germany – Reliance on the Adjupharm Licenses
The Company’s ability to produce and distribute cannabis through Adjupharm’s
certification as an EU-GMP and EU-GDP producer and distributor in Germany with wholesale, narcotics handling, manufacturing, procurement,
storage and distribution authority is granted by German regulatory authorities. Failure to comply with the requirements of the BfArM issued
licenses or any failure to maintain their respective licenses would have a material adverse impact on the business, financial condition
and operating results of
the Company.
The
Company relies on licensed facilities in Israel and Germany to conduct its operations and any adverse changes or developments affecting
such facilities could have a material adverse effect on the Company’s business, financial condition, results of operations and prospects
The Israeli Facilities
The Israeli Licenses are specific to each respective facility holding such license
and therefore both the license and the facility must remain in good standing for each of
the Company’s pharmacies (Virona, Oranim
Plus and R.A Pharm Yarok, together the “
Israeli Pharmacies”) and
the Company’s
trading house to be able to conduct the Israeli cannabis activities authorized thereunder (the facilities of the Israeli Pharmacies and
trading house, together” “
Israeli Facilities”). Adverse changes or developments
affecting the Israeli Facilities, including but not limited to the failure to maintain all requisite regulatory and ancillary permits
and licenses, the failure to comply with state or municipal regulations, or a breach of security, could have a material adverse effect
on
the Company’s business, financial condition, results of operations and prospects.
Any breach of any lease agreement relevant to the operations of the Israeli Facilities
or any failure to renew such lease agreements, on materially similar or more favorable terms, may also have a material adverse effect
on
the Company’s business, financial condition, results of operations and prospects.
Germany – Reliance on Logistics Center
The Company’s EU-GMP logistics centre in Germany (the “
Logistics
Center”) allows Adjupharm to manage all aspects of its supply chain including the production, the repackaging and distribution
of bulk medical cannabis. Any breach of regulatory requirements, including any failure to comply with recommendations or requirements
arising from inspections by government regulators, could also have an impact on Adjupharm’s ability to maintain the licenses and/or
keep the Logistics Center in good standing, and to continue operating it under the licenses, could have a material adverse effect on the
Company’s business, financial condition, results of operations and prospects.
The
Company relies in Germany and in Israel on various supply and distribution agreements with third-parties, such as cannabis cultivators,
packaging suppliers, service providers and distribution partners. The loss of such suppliers and/or service providers and/or distributors
and/or their timely service would have a material adverse effect on the Company’s business and operational results
Israel – Supply, Manufacture and Distribution Agreements
Focus and the Israeli
Subsidiaries rely on and are substantially dependent on various supply agreements
with third-party cannabis cultivators in Israel and Canada, imported cannabis products, manufacture and packaging agreements and distribution
agreements to fulfill the supply requirements of its distribution and sales agreements with pharmacies in the Israeli medical cannabis
market. The Israeli
Subsidiaries and Focus acquire cannabis from third parties in amounts sufficient to operate its business. However,
there can be no assurance that there will continue to be a supply of cannabis available for
the Company to purchase to operate or expand.
Additionally, the price of cannabis and other inputs may rise which would increase the cost of goods. If any suppliers fail to supply
any contracted materials to Focus or the Israeli
Subsidiaries, the Israeli
Subsidiaries and Focus may fail to meet purchase commitments
from their distribution partners. If
the Company were unable to acquire the cannabis or other inputs required to operate or expand or
to do so on favorable terms or fail to maintain the manufacture agreements with IMC-GMP manufacture companies, it could have a material
adverse impact on
the Company’s business, financial condition and results of operations. If any of
the Company’s suppliers
fails to provide inputs meeting
the Company’s quality standards, it may need to source cannabis or other inputs from other suppliers,
which may result in additional costs and delay in the delivery of its products and services to distributors, pharmacies and patients.
There is no assurance that suppliers will be able to supply and deliver the required materials to
the Company in a timely manner or that
the materials they supply to
the Company will not be defective or substandard. Any delay in the delivery of materials, or any defect in
the materials, supplied to
the Company may materially and adversely affect or delay its production schedule and affect its product quality.
Consequently,
the Company relies on the suppliers of such supply agreements to provide necessary cannabis products to Focus and the Israeli
Subsidiaries. If
the Company cannot secure cannabis of similar quality and at reasonable prices from alternative suppliers in a timely
manner, or at all, Focus or the Israeli Licensed
may not be able to deliver its products to
distributors, pharmacies or patients on time with the required quality. The various suppliers and distributors may elect, at any time,
to breach or otherwise cease to participate in supply, service or distribution agreements, or other relationships, upon which
the Company’s
operations rely. Loss of its suppliers, service providers or distributors or their timely service would have a material adverse effect
on
the Company’s business and operational results.
Germany – Reliance on Supply and Distribution Agreements
in Germany
Adjupharm relies on its sales and distribution agreements to supply IMC-branded products
to distribution partners in Germany, which are then distributed to German pharmacies for sales to medical cannabis patients and on direct
sales by Adjupharm of IMC-branded products to German pharmacies.
Adjupharm relies on supply agreements with cannabis cultivators and producers to meet
the demands of their respective sales agreements with distribution partners and pharmacies. Consequently,
the Company relies on the suppliers
of such supply agreements to provide necessary cannabis products to Adjupharm. If any suppliers fail to supply any contracted materials
to Adjupharm, Adjupharm may fail to meet purchase commitments from their distribution partners and this could result a material adverse
effect on
the Company’s business, financial and operational results.
There
can be no assurances that income tax laws or the interpretation thereof in any of the jurisdictions in which the Company operates will
not be changed or interpreted or administered in a manner which adversely affects the Company and its shareholders
The Company is subject to the provisions of the ITA12 and to review by CRA13. The
Company files its annual tax compliance based on its interpretation of the
Income Tax Act (the
“
ITA”) and Canada Revenue Agency’s (the “
CRA”)
guidance. There is no certainty that the returns and tax position of
the Company will be accepted by CRA as filed. Any difference between
the Company’s tax filings and CRA’s final assessment could impact
the Company’s results and financial position.
There can be no assurance that income tax laws or the interpretation thereof in any
of the jurisdictions in which
the Company operates will not be changed or interpreted or administered in a manner which adversely affects
the Company and its shareholders. In addition, there is no assurance that CRA will agree with the manner in which
the Company calculates
taxes payable or that any of the other tax agencies will not change their administrative practices to the detriment of
the Company or
its shareholders.
If
operational cash flows continue to be negative, the Company may be required to fund future operations with alternative financing options
such as offerings of shares
During the year ended
December 31, 2023,
the Company had negative cash flows from
operating activities. There is no assurance that
the Company will generate positive cash flows from its future operating activities. If
operational cash flows continue to be negative,
the Company may be required to fund future operations with alternative financing options
such as offerings of shares.
The
Company may not be able to secure the funds necessary to implement its strategies, which could cause significant delays in carrying out
business objectives or result in a material adverse effect on the Company’s business, financial condition, operational results and
prospects
There is no assurance that
the Company will be able to secure the funds necessary
to implement its strategies. Additional debt incurred by
the Company from engagements such as major acquisitions may cause
the Company’s
debt level to increase and result in difficulties in completing or negotiating future debt financings. Any triggering of credit defaults
or failure to raise capital by
the Company may cause significant delays in carrying out business objectives or result in a material adverse
effect on
the Company’s business, financial condition, operational results and prospects.
Increased
competition could materially and adversely affect the business, financial condition and results of operations of the Group
There is potential that the Group will face intense competition from other companies
or groups of companies, some of which can be expected to have more financial resources, industry, manufacturing and marketing experience
than the Group. Because of the early stage of the industry in which the Group operates, as well as evolving legislation and governmental
initiatives in several jurisdictions, the Group expects to face additional competition from new entrants in the jurisdictions in which
it currently operates or is contemplating operations. If the number of users of medical cannabis products in Israel and Europe increases,
the demand for products in such areas will increase and
the Company expects that competition will become more intense, as current and
future competitors begin to offer an increasing number of diversified products and pricing strategies. Increased competition by larger
and better-financed competitors could materially and adversely affect the business, financial condition and results of operations of the
Group.
The
Group’s business and operating results may be hindered by applicable restrictions on promotion marketing and advertising activities
imposed by regulatory authorities
The development of the Group’s business and operating results may be hindered
by applicable restrictions on promotion marketing and advertising activities imposed by the MOH or BfArM. If the Group is unable to effectively
market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed
through the selling price for its products, the Group’s sales and operating results could be adversely affected.
The
cannabis industry is undergoing rapid growth and substantial change, which has resulted in an increase in competitors, consolidation and
formation of strategic relationships that could cause a material adverse effect on the business, financial condition, results of operations
and prospects of the Group
The cannabis industry is undergoing rapid growth and substantial change, which has
resulted in an increase in competitors, consolidation and formation of strategic relationships. It is possible that industry maturation
could create larger companies that may have increased geographic scope. Such acquisitions or other consolidating transactions could harm
the Group in several ways, including the loss of strategic partners (if they are acquired by or enter into relationships with a competitor),
customers, or revenue and market share, all of which could harm the Group’s operating results. The Group’s operating results
could also be harmed if the Group was forced to expend greater resources to meet new or additional competitive threats. Additional competition
from larger, better-financed competitors with geographic advantages could outcompete the Group by placing downward pressure on retail
prices for products and services. This could ultimately cause a material adverse effect on the business, financial condition, results
of operations and prospects of the Group.
The
Group is vulnerable to the political, economic, legal, social, regulatory, and military conditions affecting Israel and the Middle East
that could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects
The Group is vulnerable to the political, economic, legal, regulatory, and military
conditions affecting Israel and the Middle East. Armed conflicts between Israel and its neighbouring countries and territories occur periodically
in the region and may adversely affect the Group’s business, results of operations and financial condition. In addition, the Group
may be adversely affected by other events or factors affecting Israel such as the interruption or curtailment of trade between Israel
and its trading partners, or any restrictions or pressure on the Group’s partners or customers or others to prevent or discourage
them from doing business activities with Israel or Israeli businesses, a significant downturn in the economic or financial condition of
Israel, a significant downgrading of Israel’s internal credit rating, labour disputes and political instability, including riots,
uprisings and government failures. Restrictive laws or policies directed towards Israel or Israeli businesses could have a material adverse
effect on the Group’s business, results of operations, financial condition and prospects.
From April 2019 until March 2021, Israel held four general elections as efforts to
compose and approve a new government failed to find lasting success. As a result, the Israeli government was unable to pass a budget for
fiscal year 2021 and many legislative matters were delayed. In December of 2022, Israel’s new government took office as a result
of a coalition of six political parties; however, the continued uncertainty surrounding future elections and/or the results of such elections
in Israel may continue. Actual or perceived political instability in Israel or any negative changes in the political environment, may
individually or in the aggregate adversely affect the Israeli economy and, in turn, the Group’s business, financial condition, results
of operations and prospects.
Any armed conflicts, terrorist activities or political instability in the region could
adversely affect business conditions, could harm the Group’s results of operations, and could make it more difficult for us to raise
capital. Parties with whom the Group does business may decline to travel to Israel during periods of heightened unrest or tension, forcing
the Group to make alternative arrangements when necessary, in order to meet our business partners face to face. In addition, the political
and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they
are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further,
in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business
with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results,
financial condition or the expansion of our business.
Furthermore, under Israeli law, citizens and permanent residents of Israel are obligated
to perform military reserve duty for extended periods of time and are subject to being called to active duty at any time under emergency
circumstances. In response to increased hostilities, there have been periods of significant call-ups of military reservists. It is possible
that there will be additional call-ups in the future, which may include officers and key personnel of the Group’s, which could disrupt
business operations for a significant period of time.
On
October 7, 2023, a war between the terror organization Hamas and Israel began.
The war has had an impact on
the Company's business operations, which may or may not continue in the short and long term.
The Company
has experienced damages to its ability to function, affecting various aspects, including employees, supplies, imports, sales, and more. While
there are damages, it is still too early to fully assess the extent of their impact. However, the first and certain effect of the war
is the postponement of the medical cannabis reform, which was initially set to commence on
December 29, 2023. It is possible that there
will be additional call-ups in the future, which may include officers and key personnel of the Group’s, which could disrupt business
operations for a significant period of time.
The
Company may not be able to continue as a going concern
The Group’s current operating budget includes various assumptions concerning
the level and timing of cash receipts from sales and cash outlays for operating expenses and capital expenditures, including cost saving
plans and restructuring actions taken in 2022 and 2023.
The Company is managing its cash flow daily and will look for external funding
for its operations.
The Company’s board of directors (the “
Board”) approved a
cost saving plan, implemented in whole or in part, to allow
the Company to continue its operations and meet its cash obligations. The
cost saving plan consists of cost reduction due to efficiencies and synergies, which include mainly the following steps: discontinuing
operation of loss-making activities, reduction in payroll and headcount, reduction in compensation paid to key management personnel (including
layoffs of key executives), operational efficiencies and reduced capital expenditures.
These conditions raise substantial doubt about
the Company’s ability to continue
as a going concern. The 2023 Annual Financial Statements do not include any adjustments relating to the recoverability and classification
of assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.
The
Company is subject to certain credit exposure
The maximum credit exposure as of
December 31, 2023, is the carrying
amount of cash and cash equivalents, accounts receivable and other current assets.
The Company does not have significant credit risk with
respect to customers. All cash and cash equivalents are placed with major Israeli financial institutions.
Loan receivable credit risk is managed by each loan separately
according to
the Company’s policy, procedures and control relating to the borrower’s credit risk management. At the end of
each period, the individual loan values are assessed based on a credit risk analysis.
The expected credit loss analysis is generally based on management’s
understanding of the borrower’s experience/integrity, financial health, business plans, capacity, products, customers,
contracts,
competitive advantages/disadvantages, and other pertinent factors when assessing credit risk. This would also include the assessment of
the borrower’s forecasts as well as taking into consideration any security and/or collateral
the Company has on the outstanding
balance.
Conflict
and political instability in eastern Europe and Israel could negatively affect the Group’s revenues and capital markets activity
The first part of 2023 has seen significantly higher levels of volatility in global
markets due to market participants' reactions to, and uncertainty surrounding, the magnitude and timing of government and central bank
action to be taken in response to heightened inflation, as well as Russia's ongoing presence in Ukraine. This volatility has resulted
in a decline in the level of activity in the financial markets. Continued market volatility or uncertainty related to actions taken or
to be taken by central banks, a decline in the global macroeconomic outlook, including as a result of Russia's ongoing presence in Ukraine
and the threat, or outbreak of more widespread armed conflict in Eastern Europe could cause financial market activity to continue to decrease,
which would negatively affect the Group’s revenues and capital markets activity.
The Group is also vulnerable to political, economic, legal, regulatory, and military
conditions affecting Israel and Middle East. Armed conflicts between Israel and its neighbouring countries and territories occur periodically
in the region which may adversely affect the Group’s business, results of operations and financial condition. In addition, the Group
may be adversely affected by other events or factors affecting Israel such as the interruption or curtailment of trade between Israel
and its trading partners, or any restrictions or pressure on the Group’s partners, customers or others to prevent or discourage
them from doing business activities with Israel or Israeli businesses, a significant downturn in the economic or financial condition of
Israel, a significant downgrading of Israel’s internal credit rating, labour disputes and political instability, including riots,
uprisings and government failures. Restrictive laws or policies directed towards Israel or Israeli businesses could have a material adverse
effect on the Group’s business, results of operations, financial condition and prospects.
Any armed conflicts, terrorist activities or political instability in the region could
adversely affect business conditions, could harm the Group’s results of operations, and could make it more difficult for us to raise
capital. Parties with whom the Group does business may decline to travel to Israel during periods of heightened unrest or tension, forcing
the Group to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political
and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they
are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further,
in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business
with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results,
financial condition or the expansion of our business.
Furthermore, under Israeli law, citizens and permanent residents of Israel are obligated
to perform military reserve duty for extended periods of time and are subject to being called to active duty at any time under emergency
circumstances. In response to increased hostilities, there have been periods of significant call-ups of military reservists.
Political
risk in the markets in which the Group operates could have a material adverse effect on the Group’s business, financial condition,
operating results and prospects
Political risk is an additional risk that the Group may be exposed to when operating
in Israel and Europe markets. Examples of political risk include without limitation social unrest, threats or occurrences of war, organized
crime, political instability, changes of government and changes in taxation policies in domestic and international markets and jurisdictions
in which the Group operates.
While the Group actively analyzes risks and developments in markets that it currently
or will participate in, there is no assurance that unpredicted impacts will not occur. Depending on the magnitude of such unpredicted
impacts, there may be a material adverse effect on the Group’s business, financial condition, operating results, and prospects.
The
Group may not be able to effectively or successfully address macroeconomic risks and uncertainties or successfully implement operating
strategies to mitigate the impact of such risks and uncertainties, which could materially harm the Group’s business
Global economies are currently experiencing elevated inflation which could curtail
levels of economic activity, including in our primary production markets. This inflation is predominantly driven by costs of goods as
input costs continue to increase with the overall increase in costs caused by several external factors including but not limited to general
uncertainties caused by global supply chain constrictions, rising energy prices and the global COVID-19 pandemic. As such, delivery and
distribution costs, utility costs and other necessary supplies at an economic cost cannot be assured. These are integral requirements
for the Group’s business and it is reasonable to expect that inflation, supply shortages or increases in demand could impact the
Group’s future economic performance and competitiveness, as it may entail a meaningful increase in costs for various goods and services
that the Group may not be able to pass onto patients or customers. In addition, the operations of the Group could be affected by the economic
context should interest rates, inflation or unemployment levels reach levels that consumer trends and spending and, consequently, impact
the sales and profitability of the Group. The Group may not be able to effectively or successfully address such risks and uncertainties
or successfully implement operating strategies to mitigate the impact of such risks and uncertainties. In the event that the Group fails
to do so, such failure could materially harm the Group’s business.
The
Group’s facilities are subject to the risk of theft of its product and other security breaches, which could have an adverse effect
on the Group’s business, financial condition, results of operations and prospects
Due to the nature of the Group’s products and the limited legal channels for
distribution, the Israeli Facilities and the Logistics Center of the Group is subject to the risk of theft of its product and other security
breaches. A security breach in any one of the Group’s facilities and external cultivation, manufacturing and storage facilities
possessing of
the Company’s products could result in a significant loss of available product and as a result decrease in sales,
revocation of cannabis licenses, exposure to additional liability under applicable regulations and to potentially costly litigation or
increased expenses relating to insurance premiums and other resolutions and future prevention of security breaches, any of which could
have an adverse effect on the Group’s business, financial condition, results of operations and prospects.
In Israel, the Group stores products in the Israeli Pharmacies and other pharmacies
not owned by the Group, instead it is stored with Israeli trade houses, and external service providers such as cultivation, manufacturing,
and storage partners. In addition, in Germany, the Group stores products in the Logistics Center before distribution. Pursuant to the
applicable Israeli and German licensing requirements, the Israeli
Subsidiaries and Adjupharm are required to maintain certain standards
of storage for cannabis products. The risk of inventory theft from these facilities is mitigated by the Israeli
Subsidiaries and Adjupharm
through the implementation of the security measures required under applicable laws, such as usage of qualified storage units, designated
storage locations, locked storage vaults, access control, security cameras, and alert systems. Notwithstanding such security measures,
any breaches of security may result in losses of inventory, potential litigation, and increased costs to bolster security and insurance.
The
Group relies on business licenses, permits and approvals and the failure to maintain any of these licenses, permits and approvals could
have a material adverse effect on the business, financial condition and results of the operations of the Group
The Group is dependent on ancillary business licenses, permits and approvals granted
by government authorities or other third parties in order to operate effectively including, without limitation, building permits, municipal
permits, third-party licenses including distributors and suppliers, and foreign trade licenses. Should the Group fail to maintain any
of these licenses, permits and approvals, or should it fail to renew any of such licenses, permits and approvals on materially similar
or more favorable terms, the business, financial condition and results of the operations of the Group may be subject to a material adverse
effect.
Violations
of securities laws and breaches of fiduciary duty could result in civil liability, fines, sanctions, or the suspension or revocation of
the Group’s right to carry on its existing business
Given the nature of the Group’s business, it may from time to time be subject
to claims or complaints from investors or others in the normal course of business. The legal risks facing the Group, its directors, officers,
employees, or agents in this respect include potential liability for violations of securities laws, breach of fiduciary duty or misuse
of investors’ funds. Violations of securities laws and breach of fiduciary duty could result in civil liability, fines, sanctions,
or the suspension or revocation of the Group’s right to carry on its existing business. The Group may incur significant costs in
connection with such potential liabilities.
The
Group and its investees’ operations are subject to various laws, regulations and guidelines, and any potential noncompliance could
cause the business, financial condition and results of operations of the Group to be adversely affected
The Group and its investees’ operations are subject to various laws, regulations
and guidelines. The Group endeavours to and cause its investees to comply with all relevant laws, regulations and guidelines. However,
there is a risk that the Group’s and its investees’ interpretation of laws, regulations and guidelines, including, but not
limited to applicable stock exchange rules and regulations, may differ from each other, and the Group and its investees’ operations
may not be in compliance with such laws, regulations and guidelines. Any potential noncompliance could cause the business, financial condition
and results of operations of the Group to be adversely affected. Further, any amendment to or replacement of cannabis legislations and
applicable rules and regulations governing the activities of the investees may cause adverse effects to the Group’s operations.
The risks to the business of the Group associated with the decision to amend or replace cannabis legislation and regulation, could reduce
the addressable market for the Group’s products and could materially and adversely affect the business, financial condition and
results of operations of the Group.
The Group and its investees incur ongoing costs and obligations related to regulatory
compliance. Failure to comply with applicable laws and regulations 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 or remedial actions. Parties may be liable for civil or criminal fines or penalties imposed for violations of applicable
laws or regulations. Amendments to current laws, regulations and permitting requirements, or more stringent application of existing laws
or regulations, may have a material adverse impact on the Group’s and/or its investees, resulting in increased capital expenditures
or production costs, reduced levels of cannabis production or abandonment or delays in the development of facilities which could have
a material adverse effect on the business, results of operations and financial condition of the Group.
The introduction of new tax laws, regulations or rules, or changes to, or differing
interpretations of, or application of, existing tax laws, regulations or rules in any of the countries in which the Group invests could
result in an increase in the Group’s taxes, or other governmental charges, duties or impositions. No assurance can be given that
new tax laws, regulations or rules will not be enacted or that existing tax laws, regulations or rules will not be changed, interpreted
or applied in a manner which could result in the Group’s profits being subject to additional taxation or which could otherwise have
a material adverse effect on the Group.
The
Group’s operations are subject to a variety of laws, regulations, and guidelines, and any changes to such laws, regulations or guidelines
could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group
The Group’s operations are subject to a variety of laws, regulations, and guidelines
relating to the marketing, acquisition, manufacture, management, distribution (including import and export), transportation, storage,
sale, and disposal of cannabis products. The Group’s operations are also subject to laws and regulations relating to health and
safety, insurance coverage, the conduct of operations and the protection of the environment. Any changes to such laws and regulations
that are beyond the control of the Group could have a material adverse effect on the business, results of operations, financial condition,
and prospects of the Group.
Any
failure to successfully manage growth and integrate acquired businesses may result in a material adverse effect on the Company’s
business, financial condition, operating results and prospects
The Company may be subject to growth related risks including capacity constraints
and pressure on its internal systems and controls. The ability of
the Company to manage growth effectively will require it to continue
to implement and improve its operational and financial systems and to expand, train and manage its employee base. If
the Company is unable
to deal with this growth, any negative impact may have a material adverse effect on
the Company’s business, financial condition,
results of operation and prospects.
In addition, the realization of the benefits of acquisitions made by
the Company,
including the acquisition of certain operations from Panaxia, the Israeli Pharmacies and the trading house of Rosen High Way, depend in
part on successfully consolidating functions and integrating and leveraging operations, procedures and personnel in a timely and efficient
manner as well as
the Company’s ability to share knowledge and realize revenues, synergies and other growth opportunities from combining
the acquired businesses and operations with those of
the Company. The integration of acquired businesses may depend on a number of factors,
including without limitation: (i) the input of substantial management effort, time and resources; (ii) the successful incorporation of
key personnel from acquired companies for post-acquisition periods. Any failure in successfully integrating acquired businesses may result
in a material adverse effect on
the Company’s business, financial condition, operating results and prospects. The risks we face
in connection with an acquisition include:
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● |
diversion of management time and focus from operating our business to addressing acquisition integration challenges; |
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● |
coordination of research and development and sales and marketing functions; |
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● |
retention of employees from the acquired company; |
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● |
cultural challenges associated with integrating employees from the acquired company into our organization; |
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● |
integration of the acquired company's accounting, management information, human resources, and other administrative systems;
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● |
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective
controls, procedures, and policies; |
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● |
potential write-offs of intangible assets or other assets acquired in transactions that may have an adverse effect on our operating
results in a given period; |
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liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations
of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and |
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litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former
stockholders, or other third parties. |
Ability
to meet target production capacity may result in a material adverse effect on the Group’s business, financial condition
The Group’s sales capabilities are subject to estimates in target production
capacity. These estimates may prove to be inaccurate due to uncontrollable external factors such as genetic drifts in strain of plants
grown and general difficulties in estimating growth of cannabis plants and also unexpected delays in product supply by third party cultivation
partners and importation due to reasons related to regulation and the supplier and operational constrains. Any adverse misalignments between
the target production capacity and actual production capacity may result in a material adverse effect on the Group’s business, financial
condition.
The
Group’s operations are subject to environmental and occupational safety laws and regulations, any failure to comply with such environmental
and occupational safety laws and regulations could have a material adverse effect on the business, results of operations and financial
condition of the Group
The Group’s operations are subject to environmental and occupational safety
laws and regulations in certain jurisdictions, concerning, among other things, emissions and discharges to water, air and land, the handling
and disposal of hazardous and nonhazardous materials and wastes, and employee health and safety. The Group incurs ongoing costs and obligations
related to compliance with environmental and employee health and safety matters. Any failure to comply or maintain compliance with environmental
and occupational safety laws and regulations may result in additional costs for corrective measures, penalties or restrictions on manufacturing
operations and could have a material adverse effect on the business, results of operations and financial condition of the Group.
The
failure to secure suppliers or distribution partners could have a material adverse effect on the Group’s business, financial condition,
results of operations and prospects.
The Group’s success depends on its ability to secure suppliers and distribution
partners. There are many factors which could impact the Group’s ability to secure suppliers and distribution partners, including
but not limited to IMC and other brand awareness, the Group’s ability to continually produce desirable and effective cannabis products,
compliance with regulatory requirements in connection with import and export of cannabis products, and the successful implementation of
new partnership plans. The failure to secure suppliers or distribution partners could have a material adverse effect on the Group’s
business, financial condition, results of operations and prospects.
The
Group relies on key business inputs and any failure to secure required supplies and services or to do so on appropriate terms could also
have a material adverse effect on the business, financial condition, and operating results of the Group
The Group’s business is dependent on a number of key inputs and their related
costs including raw materials and supplies related to its growing and distribution operations as well as electricity, water, and other
utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs (e.g. rising
energy costs) could cause a material adverse effect on the business, financial condition, and operating results of the Group. Any failure
to secure required supplies and services or to do so on appropriate terms could also have a material adverse effect on the business, financial
condition, and operating results of the Group.
The
failure to effectively compete in the Group’s markets and introduce new product offerings may cause a material adverse effect on
the Group’s business, results of operations, financial condition and prospects
In addition to being subject to general business risks applicable to a business involving
an agricultural product and a regulated consumer product, the Group will need to make investments in its business strategy. These investments
include the procurement of raw material, new cannabis strains supplier and distributor outreach projects, marketing efforts and research
and development projects. The Group expects that competitors will undertake similar investments to compete with it. Competitive conditions,
third-party partner preferences, patient requirements and spending patterns in this industry and market are relatively unknown and may
have unique circumstances that differ from other existing industries and markets and contribute to unsuccessful future business development
or expansion efforts by the Group or other undesirable consequences. As a result, the Group may not be successful in its efforts to secure
suppliers or distribution partners or to develop new cannabis products and produce and distribute these cannabis products. In addition,
these activities may require significantly more resources than
the Company currently anticipates in order to be successful.
Any new cannabis products that the Group develops or distributes may be subject to
time-intensive regulatory approval procedures that might delay any release schedules or lead to adverse market conditions that might affect
product profitability. The Group may ultimately fail to effectively bring new product offerings to market for reasons that include, but
are not limited to, stringent regulatory approval procedures. Any inability to introduce new product offerings may cause a material adverse
effect on the Group’s business, results of operations, financial condition and prospects.
The
Group relies on international third-party transportation services to deliver and receive product-related shipments, which may cause delays
and impact the Group’s profitability
The Group relies on international third-party transportation services to deliver and
receive product-related shipments. In the process of the deliveries, time delays, labor strikes, COVID-19-related issues, Israel-Hamas
war related issues, product storage issues or other logistical problems may occur and force late delivery or receipt of items or receipt
of damaged items. Such delays, receipt of damaged items or other logistical problems may cause a material adverse effect on the Group’s
business, operations or financial condition. Rising costs associated with courier services used by the Group may also adversely impact
the business of the Group and its ability to operate profitably.
In addition, any breach of security of the products’ package during the possession
of the third-party transportation service may result in violations of regulations regarding possession of cannabis products and thus may
have a material adverse effect on the Group’s business, financial condition and operating results.
In
pursuit of new opportunities in the cannabis industry, the Company may fail to select appropriate investment candidates and negotiate
acceptable arrangements, which could adversely affect the Company’s ability to enter into new investments
As part of
the Company’s business strategy, it seeks new opportunities in the cannabis industry.
In pursuit of such opportunities,
the Company may fail to select appropriate investment candidates and negotiate acceptable arrangements.
The Company cannot provide assurance that it can complete any investment that it pursues or is pursuing, on favorable terms, or that any
investment completed will ultimately benefit
the Company. In addition,
the Company’s capital solutions may not attract a following
in the cannabis industry. In the event that
the Company chooses to raise debt capital to finance any acquisition or other arrangement,
the Company’s leverage will be increased. In addition, the introduction of new tax laws or regulations, or accounting rules or policies,
or rating agency policies, or changes to, or differing interpretations of, or application of, existing tax laws or regulations or accounting
rules or policies or rating agency policies, could make the productivity and services offered by
the Company less attractive to investees.
Such changes could adversely affect
the Company’s ability to enter into new investments.
Strategic
alliances that the Group enters into could present unforeseen integration obstacles or costs, may not enhance the Group’s business,
and may involve risks that could adversely affect the Group
The Group may enter into further strategic alliances with third parties that it believes
will complement or augment its existing business. The Group’s ability to complete strategic alliances is dependent upon, and may
be limited by, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration
obstacles or costs, may not enhance the Group’s business, and may involve risks that could adversely affect the Group, including
significant amounts of management time that may be diverted from investment activities operations to pursue and complete such transactions
or maintain such strategic alliances. Future strategic alliances could result in the incurrence of additional debt, costs and contingent
liabilities, and there can be no assurance that future strategic alliances will achieve the expected benefits to the Group’s business
or that the Group will be able to consummate future strategic alliances on satisfactory terms, or at all.
While
the Company conducts due diligence with respect to investees, there are risks
inherent in any investment. Specifically, there could be unknown or undisclosed risks or liabilities of investees for which
the Company
is not or will not be sufficiently indemnified. Any such unknown, undisclosed or unmitigated risks or liabilities could materially and
adversely affect
the Company’s financial performance and results of operations.
The Company could encounter additional transaction
and enforcement related costs or other factors such as the failure to realize all of the benefits from its investments. Any of the foregoing
risks and uncertainties could have a material adverse effect on Group’s business, financial condition and results of operations.
Unfavorable
divestments could have a material adverse effect on the Company
In certain circumstances,
the Company may decide, or be required, to divest any of its direct or indirect
interests in certain investees. In particular, if any of the investees violate any applicable laws and regulations,
the Company may be
required to divest its indirect or direct interest in such investee or risk significant fines, penalties, administrative sanctions, convictions
or settlements. There is no assurance that these divestitures will be completed on terms favorable to
the Company, or at all. Any opportunities
resulting from these divestitures, and the anticipated effects of these divestitures on
the Company may never be realized, or may not
be realized to the extent
the Company anticipates. Any required divestiture or an actual or perceived violation of applicable laws or
regulations could have a material adverse effect on
the Company, including its reputation and ability to conduct business, its holdings
(directly or indirectly) in the investees, the listing of its securities on applicable stock exchanges, its financial position, operating
results, profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for
the Company to
estimate the time or resources that may be required for the investigation of any such matters or its final resolution because, in part,
the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities
involved, and such time or resources could be substantial.
The
Company relies upon the ability, judgment, discretion and good faith of key personnel, and the inability to attract, develop, motivate
and retain highly qualified employees could have a material adverse effect on the Company’s business, financial condition and results
of operations
The Company has relied upon the ability, judgment, discretion and good faith of its
executive management team.
The Company’s future success depends on its continuing ability to attract, develop, motivate and retain
highly qualified employees, especially its key personnel. If
the Company were to lose any members of the executive management or key employees,
any inability to find suitable replacements at reasonable costs may have a material adverse effect on
the Company’s business, financial
condition and results of operations. Further, certain key personnel of
the Company are subject to a security clearance by IMCA. There
is no assurance that any of
the Company’s key personnel who presently or may in the future require a security clearance will be
able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by
any of those individuals to maintain or renew his or her security clearance, could result in a material adverse effect on
the Company’s
business, financial condition and results of operations. In addition, if any such individual leaves
the Company, and
the Company is unable
to find a suitable replacement that has a security clearance required by applicable law, or at all, there could occur a material adverse
effect on
the Company’s business, financial condition and results of operations.
The
Group relies on international advisors and consultants for its operations in foreign countries
The legal, regulatory, tax and accountant requirements in the foreign countries in
which the Group may invest or operate in with respect to the cultivation and sale of cannabis, banking systems and controls, as well as
local business culture and practices are different from those in Canada. The Group’s officers and directors must rely, to a great
extent, on local legal and financial counsels and consultants in order to keep abreast of material legal, regulatory and governmental
developments as they pertain to and affect the Group’s business operations, and to assist with governmental relations. The Group
must rely, to some extent, on those members of management and the Board who have previous experience working and conducting business in
these countries, if any, in order to enhance the Group’s understanding of and appreciation for the local business culture and practices.
The Group also relies on the advice of local experts and professionals in connection with current and new regulations that develop in
respect of the cultivation and sale of cannabis as well as in respect of banking, financing, labour, litigation and tax matters in these
jurisdictions. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices are beyond
the Group’s control. The impact of any such changes may cause a material adverse effect to the Group’s business, financial
condition, operating results and prospects.
Foreign
market participation subjects the Group to the global capital markets and government authorities, which could have a material adverse
effect on the Group’s business, financial condition and results of operations
Global capital markets have also recently experienced extreme volatility which may,
in conjunction with the factors set out above and despite the actions of government authorities, contribute to a worsening of general
economic conditions including, rising interest rates, high levels of inflation and unemployment, the unavailability of credit or the devaluation
of currencies. Unexpected changes in these factors and financial market and economic conditions Group’s financial condition, profitability
and cash flows, and may also have a negative effect on the valuation of, and the ability of the Group to exit or partially divest from,
investment positions. Depending on conditions, the Group may incur substantial realized and unrealized losses in future periods, all of
which may materially adversely affect its results of operations and the value of any investment in the Group.
The Group continues to monitor developments and policies in the foreign markets in
which it operates or invests and assess the impact thereof to its operations; however, such developments cannot be accurately predicted.
The realization of any of these risks may significantly impair the Group’s local operations and have a material adverse effect on
the Group’s business, financial condition and results of operations.
These risks may also limit or disrupt the Group’s strategic alliances or investments,
restrict the movement of funds, increase the Group’s costs, or result in the deprivation of
contract rights or the taking of property
by nationalization or expropriation without fair compensation, and may have a material adverse effect on the Group’s financial position
and/or results of operations. In addition, the enforcement by the Group of its legal rights in foreign countries, including rights to
exploit properties or utilize permits and licenses and contractual rights may not be recognized by the court systems in such foreign countries
or enforced in accordance with the rule of law.
Future
acquisitions or dispositions could result in the failure to realize anticipated benefits of such transactions
Material acquisitions, dispositions and other strategic transactions involve a number
of risks, including but not limited to the potential disruption of the Group’s ongoing business, distraction of management, the
Company may become more financially leveraged, the failure to realize anticipated benefits of those transactions fully or at all, or may
take longer to realize than expected, and loss or reduction of control over certain Group assets.
Despite
the Company’s due diligence efforts, the presence of one or more material
liabilities of an acquired company that are unknown to
the Company at the time of acquisition could have a material adverse effect on
the business, results of operations, prospects and financial condition of
the Company. A strategic transaction may result in a significant
change in the nature of
the Company’s business, operations and strategy. In addition,
the Company may encounter unforeseen obstacles
or costs in implementing a strategic transaction or integrating any acquired business into
the Company’s operations.
In addition,
the Company’s strategic transaction decisions are based on the
economic assessments made by
the Company and its external advisors. Such economic assessments involve a series of assumptions regarding
factors such as future cannabis prices, production requirements, expected revenue growth, cash flow and financing requirements, future
capital expenditures and operating costs. Many of these factors are subject to change and are beyond the control of
the Company. In addition,
future acquisition or international expansion could require the Group to incur a number of up-front expenses, including those associated
with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, buildout,
staff and regulatory compliance. If there is any significant negative change in any of these factors, the Group may experience a material
adverse effect on its business, financial condition, operating results and prospects.
Foreign
expansion efforts and operations could subject the Group to additional business risks, and the potential failure of the Group’s
operating infrastructure to support such expansions could result in operational failures and regulatory fines or sanctions
The Group’s expansion into foreign jurisdictions is subject to additional business
risks, including new or unexpected risks or could significantly increase the Group’s exposure to one or more existing risk factors,
including economic instability, changes in laws and regulations, and the effects of competition, as well as operational, regulatory, compliance
and reputational and foreign exchange rate risk. The failure of the Group’s operating infrastructure to support such expansions
could result in operational failures and regulatory fines or sanctions. Additionally, there is no guarantee that the Group will be able
to realize any of the anticipated benefits of any transactions related to the Group expansion strategy.
The
Company has no U.S. operations
The Company and, to its knowledge, its
subsidiaries do not currently engage in any
U.S. cannabis-related activities as defined in Canadian Securities Administrators’ Staff Notice 51-352 (Revised) -
Issuers
with U.S. Marijuana-Related Activities (“
CSA Staff Notice 51-352”). To date,
the Company has caused its investees to only conduct business and invest in entities in federally-legal jurisdictions by including appropriate
representations, warranties and covenants in its agreements with investees. However, an investee may breach such obligations. Any such
violation of such obligation would result in a breach of the applicable agreement and, accordingly, may have a material adverse effect
on the business, operations and financial condition of Company.
The
Company is subject to risks inherent in the agricultural business
The Company’s business involves the growing of cannabis products by third party
suppliers, which are agricultural products. As such, the business is subject to the risks inherent in the agricultural business, such
as pests, plant diseases and similar agricultural risks. Although, the third-party cultivators
the Company partners with carefully monitor
the growing conditions with trained personnel and applicable equipment, there can be no assurance that natural elements will not have
a material adverse effect on the production of its products and results of operations. Any decline in production could have a material
adverse effect on the Group’s business, operating results or financial condition.
Illegal
market competition in the cannabis market could have a material adverse effect on Group’s business, operating results and prospects
As a participant of the cannabis market in international jurisdictions with varying
regulations, the Group may be subject to competition from entities that conduct illegal cannabis business operations. Such entities may
resort to competitive measures such as producing products with prohibited concentrations of Delta-9 tetrahydrocannabinol (“THC”)
and industrial Hemp-based cannabidiol (“CBD”) or producing imitations of the Group’s
products without the authorization or endorsement of the Group. If demand for these illegal products increases and local governments fail
to regulate markets accordingly, the Group may experience a material adverse effect on its business, operating results and prospects.
Consumer
perception of the Group’s products can be significantly influenced by scientific research or findings, regulatory investigations,
litigation, media attention and other publicity regarding the consumption of medical cannabis products
The Group believes the medical cannabis industry is highly dependent upon consumer
perception regarding the safety, efficiency and quality of the medical cannabis products produced. Consumer perception of the Group’s
products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and
other publicity regarding the consumption of medical cannabis products.
There can be no assurance that future scientific research, findings, regulatory proceedings,
litigation, media attention or other research findings or publicity will be favorable to the medical cannabis market or any particular
product, or consistent with earlier publicity.
Future research reports, findings, regulatory proceedings, litigation, media attention
or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could
have a material adverse effect on the demand for products bearing the brands marketed and sold by the Group and the business, results
of operations, financial condition, prospects and the Group’s cash flows.
Further, adverse publicity reports or other media attention regarding the safety,
efficacy and quality of medical cannabis products in general, or the Group’s products specifically, or associating the consumption
of medical cannabis products with illness or other negative effects or events, could have a material adverse effect. Such adverse publicity
reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’
failure to consume such products appropriately or as directed.
Group’s
products could have certain side effects if not taken as directed or if taken by an end user that has certain known or unknown medical
conditions
If the products the Group sells are not perceived to have the effects intended by
the end user, its business may suffer. There is little long-term data with respect to efficacy, unknown side effects and/or interaction
with individual human biochemistry of various cannabis products. As a result, the Group’s products could have certain side effects
if not taken as directed or if taken by an end user that has certain known or unknown medical conditions.
Reputational
risk to third parties could result in the failure to establish or maintain business relationships
The parties outside of the cannabis industry with which the Group does business may
perceive that they are exposed to reputational risk as a result of the Group’s cannabis business activities. Failure to establish
or maintain business relationships could have a material adverse effect on the Group’s business, financial condition, results of
operations and prospects.
The
failure of the Group’s IT systems or a component of IT systems could, depending on the nature of any such failure, adversely impact
the Group’s financial condition, operating results and reputation
The Group’s operations will depend, in part, on how well it and its supply and
distribution partners protect networks, equipment, information technology systems (“IT Systems”)
and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters,
intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. The Group’s operations also
will depend on the timely maintenance, upgrade and replacement of networks, equipment, IT Systems and software, as well as pre-emptive
expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase
in capital expenses. The failure of IT Systems or a component of IT Systems could, depending on the nature of any such failure, adversely
impact the Group’s financial condition, operating results and reputation.
Cybersecurity
risks could adversely impact the Group’s financial condition, operating results and reputation
The Group’s information systems and its third-party service providers and vendors
are vulnerable to increasing threat of continually evolving cybersecurity risks, resulting in data breaches and data losses. These risks
arising from events including without limitation malware, computer viruses, employee error, extortion, malfeasance, system errors, and
hacking. In order to minimize the risk of these events from occurring, the Group is performing timely maintenance, upgrade and replacement
of networks, equipment, IT systems and software and other protective measures. However, any failure or delay in maintaining, upgrading
or replacing such systems and software could materially increase the risk of cybersecurity incident and data breach or data loss, and
the Group may experience operational delays, information system failures, and/or increases in capital expenses. Ultimately, the Group’s
business, financial condition, operating results and reputation may be impacted adversely by such occurrences.
The Group has not experienced any material losses to date relating to cybersecurity-attacks
or other information security breaches, but there can be no assurance that the Group will not incur such losses in the future. The Group’s
risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As
a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems,
computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve,
the Group may be required to expend additional resources to modify or enhance protective measures or to investigate and remediate any
security vulnerabilities.
Any
theft of personal information about the Group’s patients and customers or privacy breach could have a material adverse effect on
the Group’s business, financial condition and results of operations
The Group collects and stores certain personal information about its patients and
customers and is responsible for protecting that information from privacy breaches. A privacy breach may occur through certain threats,
including, without limitation, procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions,
computer viruses, and cyber-attacks. Theft of data for competitive purposes is an ongoing risk whether perpetrated via employee collusion
or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse effect on the Group’s
business, financial condition, and results of operations.
In addition, there are several Israeli, German and European federal and provincial
laws, rules and regulations protecting the privacy and confidentiality of certain patient health information, and private information
including patient records, and employee information, and restricting the collection, use transfer, storage, disposal and disclosure of
that protected information. The interpretation and enforcement of such laws and regulations are uncertain, are subject to change and may
require the Group to incur substantial costs to monitor and implement compliance with any additional requirements.
In the EU’s General Data Protection Regulation (“GDPR”)
governs the collection and use of personal data in the EU. The GDPR, which is wide-ranging in scope, will impose several requirements
relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security
and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing
of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the EU to the U.S., enhances enforcement
authority and imposes large penalties for noncompliance, including the potential for fines of up to EUR 20,000 or four percent of the
annual global revenues of the infringer, whichever is greater. In addition, certain breaches of the GDPR may result in regulatory investigations,
reputational damage and civil lawsuits including class action lawsuits. In the State of Israel, privacy rights and obligations are mainly
regulated under the Protection of Privacy Law, 5741-1981 (the “Israeli
Privacy Law”) and the regulations promulgated thereunder (mainly the Protection of Privacy
(Data Security) Regulations, 5777-2017 and the Protection of Privacy (Transfer of Data Abroad)
Regulations, 5761-2001) (the “Israeli Privacy Regulations”). Under the Israeli
Privacy Law, ‘information’ and ‘sensitive information’ includes information such as those related to a person’s
health, personality, intimate affairs, financial condition, faith and opinions. The Israeli Privacy Law impose obligations related to
database registration, notice, disclosure and use restrictions on an ‘owner’ of a database, and the Israeli Privacy Regulations
set forth the security measurements to be implemented and the rules related to the transfer of personal information. Violation of the
Israeli Privacy Law could lead to a criminal investigation or an administrative enforcement procedure on behalf of the Israeli Privacy
Protection Authority, as well as an administrative fine imposed pursuant to the Administrative Offenses
Law, 5746-1985. In addition, legal remedies such as statutory compensation of up to NIS 50,000 are available to successful claimants
of privacy violations.
Additional jurisdictions in which the Group operates or in which it may enter in the
future, also have data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal,
and protection of sensitive personal information. The interpretation and enforcement of such laws and regulations are uncertain, are subject
to change and may require the Group to incur substantial costs to monitor and implement compliance with any additional requirements. Failure
to comply with data protection laws and regulations could result in government enforcement actions, litigation and/or adverse publicity
and could negatively affect the Group’s operating results, business and prospects.
The
price of cannabis products is affected by numerous factors beyond the Group’s control
The cannabis industry is a margin-based business in which gross profits depend on
the excess of sales prices over costs. Consequently, profitability is sensitive to fluctuations in wholesale and retail prices caused
by changes in supply (which itself depends on other factors such as weather, fuel, equipment and labour costs, shipping costs, economic
situation, government regulations and demand), taxes, government programs and policies for the cannabis industry (including price controls
and wholesale price restrictions that may be imposed by government agencies responsible for the sale of cannabis), and other market conditions,
all of which are factors beyond the control of the Group. The Group’s operating incomes may be significantly and adversely affected
by a decline in the price of cannabis products and will be sensitive to changes in the price of cannabis products and the overall condition
of the cannabis industry, as the Group’s profitability is directly related to the price of cannabis products. The price of cannabis
products is affected by numerous factors beyond the Group’s control. Any price decline may have a material adverse effect on the
Group’s business, financial condition and results of operations.
Fraudulent
or illegal activity may cause a material adverse effect on the Group’s business, reputation, financial condition, and results of
operations.
The Group’s employees, independent contractors and consultants may expose the
Group to additional risk if they engage in fraudulent or other illegal activity prohibited by relevant laws. Although the Group has set
preventative measures in place to minimize such fraud or illegal activities from occurring, there is no guarantee that the measures will
be effective. If the measures fail and fraud or illegal activities take place, the Group may be subject to lawsuits for failure to comply
with regulations and be ordered to pay such penalties as prescribed by the court if found to be in violation. Thus, the occurrence of
fraud or illegal activities may cause a material adverse effect on the Group’s business, reputation, financial condition and results
of operations.
Corruption
and anti-bribery law violations could cause severe penalties and other consequences that may have a material adverse effect on its business,
reputation, financial condition and results of operations
The Group’s business is subject to applicable anti-corruption or anti-bribery
laws to which the Group is or may become subject, which generally prohibit companies and employees from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining business. In addition, the Group is subject to the anti-bribery
laws of any other countries in which it conducts business now or in the future. The Group’s employees or other agents may, without
its knowledge and despite its efforts, engage in prohibited conduct under the Group’s policies and procedures and anti-bribery laws
for which the Group may be held responsible. The Group’s policies mandate compliance with these anti-corruption and anti-bribery
laws. However, there can be no assurance that the Group’s internal control policies and procedures will always protect it from recklessness,
fraudulent behaviour, dishonesty or other inappropriate acts committed by its affiliates, employees, contractors or agents. If the Group’s
employees or other agents are found to have engaged in such practices, the Group could suffer severe penalties and other consequences
that may have a material adverse effect on its business, reputation, financial condition and results of operations.
The
Group uses intellectual property protections such as trademarks, trade secrets and contractual confidentiality obligations in order to
protect its products, brands and technologies
The Group uses intellectual property protections such as trademarks, trade secrets
and contractual confidentiality obligations in order to protect its products, brands and technologies. The administrative task of maintaining
such protections across multiple jurisdictions can result in high costs to the Group. The Group would also be required to pay for any
costs attributed to the enforcement of intellectual property protections. In addition, in any infringement proceeding, some or all of
the Group’s intellectual property rights or other proprietary know-how, may be found invalid, unenforceable, anti-competitive or
not infringed. An adverse result in any litigation or defense proceedings could create the risk of invalidation or narrow interpretation
of the Group’s affected intellectual property rights. Such results could cause a material adverse effect on the Group’s business,
financial condition, results of operations and prospects.
Furthermore, the possession of intellectual property protections does not completely
eliminate the risk of litigation. Even with such protections properly registered, the Group is still vulnerable to infringement claims
and would be liable for the costs of defending such claims. If the claims succeed, the Group would be liable for the costs of the resulting
court orders and may need to negotiate licensing of the intellectual property rights from third-party owners.
In addition, despite any intellectual property protections in place, unauthorized
parties may attempt to replicate or otherwise obtain and use the Group’s trademarks, know-how, trade secrets, products or technology.
Identifying unauthorized use of intellectual property rights is difficult as the Group may be unable to effectively monitor and evaluate
the products being distributed by its competitors, including parties such as illegal distributers, and the processes used to produce such
products. The Group makes no assurance that it will successfully identify unauthorized replication, acquisition or use of the Group’s
trademarks, know-how, trade secrets, products, or technology before the effects of such actions cause a material adverse effect on the
Group’s business, financial condition, results of operation and prospects.
Company
is subject to the rules and regulations of the Canadian Stock Exchange and the Nasdaq Capital Market
The Company is subject to the rules and regulations of Nasdaq and CSE. Further, in
order to maintain compliance with all continued listing requirements,
the Company pays legal, accounting and compliance fees to advisors
and regulatory organizations and will have to continue to pay additional fees if its Common Shares remain listed on Nasdaq. Any changes
to rules, regulations policies or guidelines issued by regulatory authorities may impact any such fees paid and increase the risk of non-compliance.
There is no assurance that
the Company will be able to comply with the applicable Nasdaq or CSE continued listing standards within any
projected timeframes, or at all, and maintain listing status on either Nasdaq or CSE.
In the past,
the Company was subject to a deficiency notice from Nasdaq that was resolved
via a share consolidation; however, currently,
the Company is once against subject to such deficiency and received notice from the Nasdaq.
The Company is in the process of satisfying the Nasdaq’s listing deficiencies. Any failure to comply with applicable continued listing
requirements and regulations may result in the delisting of
the Company’s Common Shares and/or warrants from the CSE and/or the
Common Shares from Nasdaq. Such events may have material adverse effects on
the Company’s business and financial condition.
Sales of a substantial number of Common Shares or other equity-related securities
in the public markets by
the Company or its shareholders could depress the market price of
the Company’s securities and impair the
Company’s ability to raise capital through the sale of additional equity securities.
The Company cannot predict the effect that
future sales of Common Shares or other equity-related securities would have on the market price of the Common Shares. The price of the
Common Shares could be affected by possible sales of the Common Shares by hedging or arbitrage trading activity.
The
Company may issue additional securities in the future, which may dilute a shareholder’s holdings in the Company
The Company may issue additional securities in the future, which may dilute a shareholder’s
holdings, or a holder of a convertible security’s underlying relative interest, in
the Company.
The Company’s articles permit
the issuance of an unlimited number of Common Shares, and shareholders will have no pre-emptive rights in connection with any such further
issuance. The directors of
the Company have discretion to determine the price and the terms of further issuances, subject to applicable
stock exchange policies. Moreover, additional Common Shares will be issued by
the Company on the full exercise of stock options, restricted
share units and warrants, issued or to be issued by
the Company in the future, and the exercise of any resulting convertible securities
of such as applicable.
The
Company’s cash flows and ability to pursue future business and expansion opportunities are dependent on the earnings of its subsidiaries
and investees and the distribution of those earnings to the Company
IMC is a holding company. Substantially all of
the Company’s operating assets
are the capital stock of its
Subsidiaries and arrangements with investees. Substantially all of
the Company’s business is conducted
through
Subsidiaries or investees, which are separate legal entities. Consequently,
the Company’s cash flows and ability to pursue
future business and expansion opportunities are dependent on the earnings of its
subsidiaries and investees and the distribution of those
earnings to
the Company. The ability of these entities to pay dividends and other distributions will depend on their operating results
and will be subject to applicable laws and regulations which require that solvency and capital standards be maintained by such companies
and contractual restrictions contained in the instruments governing their debt. In the event of a bankruptcy, liquidation or reorganization
of any of
the Company’s
Subsidiaries, holders of indebtedness and trade creditors will generally be entitled to payment of their
claims from the assets of those
subsidiaries before any assets are made available for distribution to
the Company.
The
Company has not paid any dividends on the outstanding Common Shares and maintains no current intention to declare dividends in the foreseeable
future
The Company has not paid any dividends on the outstanding Common Shares, and
the Company
maintains no current intention to declare dividends on the Common Shares in the foreseeable future. Any decision to pay dividends on the
Common Shares in the future will be at the discretion of the Board and will depend on, among other things,
the Company’s results
of operations, current and anticipated cash requirements and surplus, financial condition, any future contractual restrictions and financing
agreement covenants, solvency tests imposed by corporate law and other factors that the Board may deem relevant.
The
market price of the Company’s Common Shares and warrants may fluctuate, which may have a material adverse effect on the Company’s
operations, financial condition and operating results
The market price of the Common Shares and warrants may fluctuate to a wide degree
as a result of a number of factors, including without limitation market conditions, financial analyst predictions, changes in law, press
releases and public filings of
the Company, operational activity and results and competitor activity. In particular, the dual-listing
of the Common Shares on the CSE and Nasdaq may result in higher volatility as a result of the exposure to both U.S. and Canadian financial
market conditions. Overall, such factors, whether related or unrelated to operational performance of
the Company, may cause a temporary
or non-temporary negative pressure on prices of
the Company’s securities or assets. If the negative pressure on prices arising from
these factors persist, impairment losses may be recorded and
the Company could experience a material adverse effect on its operations,
financial condition and operating results.
The
failure to design, develop or maintain effective internal controls may affect the Company’s ability to prevent fraud, detect material
misstatements, and fulfill reporting obligations
Effective internal controls are required for
the Company to provide reasonable assurance
that its financial results and other financial information are accurate and reliable. Any failure to design, develop or maintain effective
controls, or difficulties encountered in implementing, improving or remediation lapses in internal controls may affect
the Company’s
ability to prevent fraud, detect material misstatements, and fulfill our reporting obligations. As a result, investors may lose confidence
in
the Company’s ability to report timely, accurate and reliable financial and other information, which may expose
the Company to
certain legal or regulatory actions, thus negatively impacting its business and financial condition, including the liquidity and/or market
value of its securities.
The
possible lack of liquidity of securities may cause difficulty for security holders to re-sell securities at desired prices
Despite the listing of the Common Shares and warrants on public exchanges, there is
no guarantee to security holders that the securities will be sufficiently liquid to any degree without a substantial decrease in price,
particularly if selling significant quantities within a short time frame. Accordingly, there is a possibility that a lack of liquidity
may cause difficulty for security holders to re-sell securities at desired prices.
The
Group’s debtors may default on payments owed to the Group
The Group may be owed current or long-term debts such as accounts receivables over
the course of its operations. As a result, the Group may be exposed to the risk of debtor defaults on payments as they come due.
The Company
makes no guarantee on the level of credit risk that it will hold at any given time but intends to minimize this risk as determined by
the Board.
The
Group is subject to the inherent liquidity risk that it will not be able to pay its financial obligations as they become due
The Group is subject to the inherent risk that it will not be able to pay its financial
obligations as they become due. In light of its recent negative cash flows,
the Company monitor liquidity risk carefully and plan its
liquid holdings strategically to avoid any payment defaults. The Group’s liquidity risk is the risk that the Group will not be able
to meet its financial obligations as they become due. The Group manages its liquidity risk by reviewing its capital requirements on an
ongoing basis. Based on the Group's working capital position at
December 31, 2023, management considers liquidity risk to be high.
There
is a risk that losses will be incurred by the Group if there is an adverse shift in exchange rates or increases in prevailing interest
rates
Market risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market prices. Market risk includes exchange rate risk and interest rate risk.
Exchange rate risk is the risk of loss arising from changes to foreign exchange rates.
As the Group is a party to certain international
contracts that require the Group to make or receive payments in foreign currencies, there
is a risk that losses will be incurred if there is an adverse shift in exchange rates.
Interest rate risk pertains to the risk of loss arising from changes in prevailing
interest rates. Any increases in prevailing interest rates may increase interest expenses paid by the Group on any long-term debt.
The
Company is dependent upon the global capital markets to raise capital by equity or debt financing
An economic downturn of the global capital markets has been shown to make the raising
of capital by equity or debt financing more difficult.
The Company will be dependent upon the capital markets to raise additional financing
in the future, while it continues to develop its operations. As such,
the Company is subject to liquidity risks in meeting its development
and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable.
These factors may impact
the Company’s ability to raise equity or obtain loans and other credit facilities in the future and on
terms favorable to
the Company and its management. If uncertain market conditions persist,
the Company’s ability to raise capital
could be jeopardized, which could have an adverse impact on
the Company’s operations and the trading price of
the Company’s
securities.
Future crises may be precipitated by any number of causes, including natural disasters,
public health crises, geopolitical instability, war, natural disasters, changes to energy prices or sovereign defaults. These factors
may impact the ability of
the Company to obtain equity or debt financing in the future and, if obtained, on terms favorable to
the Company.
Increased levels of volatility and market turmoil can adversely impact the Group’s operations and the value, and the price of the
Common Shares and/or Warrants could be adversely affected.
In addition, there is a risk that one or more of the Group’s current service
providers may themselves be adversely impacted by difficult economic circumstances, which could have a material adverse effect on the
Group’s business, financial condition, results of operations and prospects.
A
judgment against any member of the Group in excess of available insurance coverage could have a material adverse effect on the Group in
terms of damages awarded and negatively impact the reputation of the Group
The Group maintains various types of insurance which may include product liability
insurance, errors and omission insurance, directors and officers’ insurance, trustees’ insurance, property coverage and general
commercial insurance. There is no assurance that claims will not exceed the limits of available coverage, that any insurer will remain
solvent or willing to continue providing insurance coverage with sufficient limits or at a reasonable cost; or, that any insurer will
not dispute coverage of certain claims due to ambiguities in the policies. A judgment against any member of the Group in excess of available
coverage could have a material adverse effect on the Group in terms of damages awarded and negatively impact the reputation of the Group.
The
insurance purchased by the Group cannot cover all risks that the Group is exposed to, and any uninsured amounts of liabilities incurred
by member(s) of the Group may be paid directly by such members
The insurance purchased by the Group cannot cover all risks that the Group is exposed
to. Additionally, some insurance policies are outside of budget limitations and are therefore elected to be excluded. There is no guarantee
that any insurance coverage maintained by any member(s) of the Group will sufficiently cover any or all liabilities incurred by that Group
member. Any uninsured amounts of liabilities incurred by member(s) of the Group may be paid directly by such members. Accordingly, such
direct payments may have a material adverse effect on the Group’s business, results of operations, and financial condition.
The
Group’s products face an inherent risk of exposure to product liability claims, regulatory action and litigation if such products
are alleged to have caused significant loss or injury
Focus, Adjupharm and the Israeli
Subsidiaries are producers, importers, distributors
and/or sellers of products designed to be ingested or inhaled by humans. Such products face an inherent risk of exposure to product liability
claims, regulatory action and litigation if such products are alleged to have caused significant loss or injury. In addition, the manufacture
and sale of such products involve the risk of injury or loss to consumers or patients due to tampering by unauthorized third parties,
product contamination, unauthorized use by consumers or patients or other third parties. Previously unknown adverse reactions resulting
from human consumption of cannabis products alone or in combination with other medications or substances could occur.
The Group may be subject to various product liability claims, including, among others,
that products manufactured, imported, distributed, stored or sold by the Group or bearing one of the Group’s brands caused injury,
illness or loss, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions
with other substances. A product liability claim or regulatory action against the Group could result in increased costs, could adversely
affect the Group’s reputation with its clients, patients and consumers generally, and could have a material adverse effect on the
Group’s results of operations and financial condition.
There can be no assurances that the Group 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 the Group’s products.
Members
and/or representatives of the Group are or may become parties to litigation from time to time in the ordinary course of business that
could adversely affect the Group’s business
Certain members and/or representatives of the Group are parties to certain legal proceedings
or investigations and certain legal proceedings as described in “Legal Proceedings”
below. Should such Group members and/or representatives fail to receive favorable decisions
at the conclusion of these legal proceedings or incur significant costs in litigation thereof, the Group’s business, financial condition
or operating results may be subject to a material adverse effect.
Members and/or representatives of the Group are or may become parties to litigation
from time to time in the ordinary course of business that could adversely affect its business. Should any litigation in which the Group
members and/or representatives become involved be determined against such Group members and/or representatives, such a decision could
adversely affect the Group’s ability to continue operating and the market price for the Common Shares and/or warrants. Even if such
Group members and/or representatives are involved in litigation and win, the litigation process can consume significant resources of the
Group.
A
failure of the Group’s quality control systems could result in significant costs incurred in replacing, destroying or repurposing
defective inventory, providing replacement products to its customers or recalling such products
The quality and safety of the Group’s products and products purchased from third
party suppliers are critical to the success of the Group’s business and operations. As such, it is imperative that the Group’s
(and its service providers’) quality control systems operate effectively and successfully. Quality control systems can be negatively
impacted by the design of the quality control systems, the quality training program, and adherence by employees to quality control guidelines.
Although the Group strives to ensure that it and all of its service providers have implemented and adhere to high calibre quality control
systems, the Group could experience a significant failure or deterioration of such quality control systems. A failure of the Group’s
quality control systems could result in significant costs incurred in replacing, destroying or repurposing defective inventory, providing
replacement products to its customers or recalling such products. The Group may be unable to meet customer demand and may lose customers
who have to purchase alternative brands or products. In addition, consumers may lose confidence in the Group’s brands whether affected
or not and such brand reputation may be materially damaged. Any loss of sales volume from a contamination event may affect the Group’s
ability to fulfill its contractual obligations. During this time, the Group’s competitors may benefit from an increased market share
that could be difficult and costly to regain.
If
the Group’s products are recalled due to an alleged product defect or for any other reason, the Group could be required to incur
the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall and may lose a significant
amount of sales
Manufacturers and distributors of products are sometimes subject to the recall or
return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or
interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If products are recalled due to
an alleged product defect or for any other reason, the Group could be required to incur the unexpected expense of the recall and any legal
proceedings that might arise in connection with the recall.
The Group 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.
Although the Group has detailed procedures in place for testing finished products,
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 one of the Group’s significant brands were subject to recall, the image of that
brand and the Group could be harmed. A recall for any one of the foregoing reasons could lead to decreased demand for the Group’s
products and could have a material adverse effect on the results of operations and financial condition of the Group. Additionally, product
recalls may lead to increased scrutiny of the Group’s operations by the applicable regulatory body, including but not limited to
MOH or BfArM or other regulatory agencies, requiring further management attention and potential legal fees and other expenses.
Inaccuracies
in forecasting market conditions could have a material adverse effect on the Group’s business, financial condition and results of
operations
The Group’s sales forecasts are largely dependent on the Group’s own market
research. There is no assurance pertaining to the accuracy of the Group’s predictions regarding the cannabis industry. Any assumptions
made in producing forecasts may be inaccurate as a result of external factors that are unpredictable to the Group. Such inaccuracies could
have a material adverse effect on the Group’s business, financial condition and results of operations.
The
Group’s business may be negatively impacted by catastrophic events, natural disasters, severe weather and disease
The Group’s business may be negatively impacted by a number of events that are
beyond its control, including cyber-attacks, energy blackouts, pandemics, terrorist attacks, acts of war, earthquakes, hurricanes, tornados,
fires, floods, ice storms or other catastrophic events. Further, the Group relies on certain suppliers and distribution partners whose
businesses may be impacted by the occurrence of any of the foregoing events. Catastrophic events can evolve rapidly and their impacts
can be difficult to predict. There can be no assurance that the occurrence of a catastrophic event or the associated consequences will
not disrupt the Group’s operations, ability to carry on business or supply and distribution chains. In addition, liquidity and volatility,
credit availability, market and financial conditions and cannabis cultivation, supply and distribution conditions, among other critical
factors to the Group’s business, could change at any time as a result. These events and any associated consequences may cause a
material adverse effect on the business, financial condition and results of operations of the Group. A catastrophic event, including an
outbreak of infectious disease, a pandemic or a similar health threat, such as the COVID-19 pandemic, or fear of any of the foregoing,
could adversely impact the Group and its ability to maintain normal operations.
The
Group is subject to a variety of anti-money laundering laws and regulations
The Group is subject to a variety of laws and regulations domestically and internationally
that involve money laundering, financial recordkeeping and proceeds of crime, including any related or similar rules, regulations or guidelines,
issued, administered or enforced by governmental authorities internationally. In the event that any of the Group’s investments,
or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such investments were found
to be contrary to money laundering legislation, such transactions may be viewed as proceeds of crime under one or more of the statutes
noted above or any other applicable legislation. This could restrict have a material adverse effect on the Group’s business, financial
condition and results of operations.
The
Group may not be able to effectively enforce security over underlying assets, which could have a material adverse effect on the Group
There is no guarantee that the Group will be able to effectively enforce any guarantees,
indemnities or other security interests it may have. Should a bankruptcy or other similar event occur that precludes an investee from
performing its obligations under an agreement with any member of the Group, the Group would have to enforce its security interest. In
the event that the investee has insufficient assets to pay its liabilities, it is possible that other liabilities will be satisfied prior
to the liabilities owed to the Group. In addition, bankruptcy or other similar proceedings are often a complex, lengthy and expensive
process, the outcome of which may be uncertain and could result in a material adverse effect on
the Company.
If the Group is unable to enforce its security interests due to any reasons including
regulatory reasons related to its cannabis activity, there may be a material adverse effect on the Group.
The
Company, its officers and directors may be subject to various potential conflicts of interest, which could adversely affect Company operations
The Company may be subject to various potential conflicts of interest because of the
fact that some of its officers and directors may be engaged in a range of business activities. In some cases, the executive officers and
directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to
the Company and its affairs, and that could adversely affect Company operations. These business interests could require significant time
and attention of
the Company’s executive officers and directors. In addition,
the Company may also become involved in other transactions
which conflict with the interests of
the Company’s directors and officers who may from time to time deal with persons, firms, institutions
or corporations with which
the Company may be dealing, or which may be seeking investments similar to those
the Company desires. The interests
of these persons could conflict with
the Company’s interests.
In addition, from time to time, these persons may be competing with
the Company for
available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable
laws. In particular, in the event that such a conflict of interest arises at a meeting of directors, a director who has such a conflict
will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, directors
are required to act honestly, in good faith and in
the Company’s best interests.
The
Company is a foreign private issuer under United States Securities Laws
The Company is a
“foreign private issuer”, as defined in Rule 405 under
the Securities Act of 1933, as amended (the “
U.S. Securities Act”), and Rule 3b-4 under
the Securities Exchange Act of 1934, as amended (the “
Exchange Act”). It is therefore
not subject to the same requirements that are imposed upon U.S. domestic issuers by the United States Securities and Exchange Commission
(the “
SEC”). Under the Exchange Act,
the Company is subject to reporting obligations
that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result,
the Company
does not file the same reports that a U.S. domestic issuer would file with the SEC, although
the Company is required to file with or furnish
to the SEC the continuous disclosure documents that it is required to file in Canada under Canadian securities laws. In addition, the
Company’s officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
of Section 16 of the Exchange Act. Therefore,
the Company’s shareholders may not know on as timely a basis when
the Company’s
officers, directors and principal shareholders purchase or sell Common Shares, as the reporting periods under the corresponding Canadian
insider reporting requirements are longer.
As a foreign private issuer,
the Company is exempt from the rules and regulations
under the Exchange Act related to the furnishing and content of proxy statements.
The Company is also exempt from Regulation FD, which
prohibits issuers from making selective disclosures of material non-public information. While
the Company complies with the corresponding
requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements
differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same
time as such information is provided by U.S. domestic companies. In addition,
the Company may not be required under the Exchange Act to
file annual and quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange
Act.
In addition, as a foreign private issuer,
the Company has the option to follow certain
Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that
the Company discloses the requirements it is not following and describes the Canadian practices it follows instead.
The Company may in
the future elect to follow home country practices in Canada with regard to certain corporate governance matters. As a result,
the Company’s
shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance
requirements.
Loss
of foreign private issuer status under United States securities laws could increase the Company’s regulatory and compliance costs
In order to maintain its status as a foreign private issuer, a majority of the Common
Shares must be either directly or indirectly owned by non-residents of the U.S. unless
the Company also satisfies one of the additional
requirements necessary to preserve this status.
The Company may in the future lose its foreign private issuer status if a majority of
its Common Shares are held in the U.S. and if
the Company fails to meet the additional requirements necessary to avoid loss of its foreign
private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly
more than the costs incurred as a foreign private issuer. If
the Company is not a foreign private issuer, it would not be eligible to
use the Multijurisdictional Disclosure System or other foreign issuer forms and would be required to file periodic and current reports
and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available
to a foreign private issuer. In addition,
the Company may lose the ability to rely upon exemptions from Nasdaq corporate governance requirements
that are available to foreign private issuers.
Loss
of emerging growth company status under United States securities laws could increase the Company’s regulatory and compliance costs
The Company is an
“emerging growth company” as defined in section 3(a)
of the Exchange Act (as amended by the JOBS Act, enacted on
April 5, 2012), and
the Company will continue to qualify as an emerging growth
company until the earliest to occur of: (a) the last day of the fiscal year during which
the Company has total annual gross revenues of
US$1,235,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of the fiscal year of the
Company following the fifth anniversary of the date of the first sale of common equity securities of
the Company pursuant to an effective
registration statement under the U.S. Securities Act; (c) the date on which
the Company has, during the previous three year period, issued
more than US$1,000,000 in non-convertible debt; and (d) the date on which
the Company is deemed to be a
“large accelerated filer”,
as defined in Rule 12b–2 under the Exchange Act.
The Company will qualify as a large accelerated filer (and would cease to be an
emerging growth company) at such time when on the last business day of its second fiscal quarter of such year the aggregate worldwide
market value of its common equity held by non-affiliates will be US$700,000 or more.
For so long as
the Company remains an emerging growth company, it is permitted to
and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging
growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act.
The Company cannot predict whether investors will find the Common Shares less attractive because
the Company relies
upon certain of these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading
market for the Common Shares and the Common Share price may be more volatile. On the other hand, if
the Company no longer qualifies as
an emerging growth company,
the Company would be required to divert additional management time and attention from
the Company’s
development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting
requirements, which could negatively impact
the Company’s business, financial condition and results of operations.
The
Group operates in multiple jurisdictions and is subject to currency fluctuations
The Group currently has assets and operations in Israel and Germany and transacts
business in such jurisdictions and in additional jurisdictions such as Canada in the local currency. As of
December 31, 2023, a portion
of the Group’s financial assets and liabilities held in NIS, Euros, Canadian and U.S. dollars consist of cash and cash equivalents.
The Group’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting,
to the greatest extent possible, with third parties as applicable. The Group's objective in managing its foreign currency risk is to minimize
its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in NIS. The Group
does not currently use foreign exchange
contracts to hedge its exposure of its foreign currency cash flows as management has determined
that this risk is not significant at this point of time. Currency fluctuations could have a material adverse effect on the Group’s
business, financial condition and results of operations.
The
Company’s shareholding in other entities is subject to price fluctuations
The Company’s investments in unlisted shares are sensitive to the market price
risk arising from uncertainties about the future value of these investments.
The Company manages the price risk through diversification
and tight management attention. The Board reviews and approves all decisions related to investments in shares.
Judicial
and legislative reforms in Israel
Israel is and has been undergoing political and social instability relating to the
judicial and legislative reforms proposed by the newly elected government, creating certain instability and uncertainty. This instability,
which has a certain effect on the activity of the financial markets, may cause material impact on the Groups’ ability to operate
in the Israeli market, which derives, among other, from: exposure to currency exchange rate and interest rate, reduced sales due to disruptive
days and lower probability for capital investments.
CCAA
Proceedings
For more information of
the Company’s Companies’ Creditors Arrangement
Act (“
CCAA”) proceedings, please see the section entitled
“Canadian
Restructuring”.
Name, Address and Incorporation
The Company was incorporated on March 7, 1980 under the name
“Nirvana Oil &
Gas Ltd.” pursuant to the
Business Corporations Act (British Columbia) (the “
BCBCA”).
Since 2019,
the Company is acting in the medical cannabis industry.
The Common Shares trade under the ticker symbol
“IMCC” on both the Nasdaq
and CSE effective
March 1, 2021 and
November 5, 2019, respectively, and certain warrants of
the Company are listed and posted for trading
on the CSE under the symbol
“IMCC.WT”.
On
October 4, 2019, in connection with the reverse take over transaction by IMC Holdings,
the Company completed a consolidation of its Common Shares on a 2.83:1 basis, changed its name to
“IM Cannabis Corp.” and
changed its business from mining to the international medical cannabis industry.
On
February 12, 2021, in connection with its Nasdaq listing application,
the Company
completed a consolidation of its Common Shares on a 4:1 basis.
On
November 17, 2022, in connection with regaining compliance with Nasdaq’s
continued listing standards,
the Company competed a 10:1 consolidation of its Common Shares, which was approved by shareholders at the
Company’s annual and special meeting of shareholders held on
October 20, 2022.
The Company’s head office is located at Kibbutz Glil Yam, Israel and its registered
office is located at 833 Seymour Street, Suite 3606, Vancouver, British Columbia, V6B 0G4, Canada.
The company does not have a telephone
number associated with its registered office.
The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with the SEC. Our internet site is
https://www.imcannabis.com.
Events in the Development
of the Business
WAGNERS™ Brand
Update
On
January 19, 2022, Focus imported premium indoor-grown Canadian cannabis flowers
from Trichome JWC Acquisition Corp. (“
TJAC”), and an additional supply partner. The
Group commenced the sale of imported cannabis flowers under its WAGNERS™ brand in the Israeli medical cannabis market as of February
2022. In Q3 of 2023, The WAGNERS™ brand relaunched
“Cherry Jam”,
“Pink Bubba”,
“Golden Ghost”,
“Tiki Rain”,
“Rain”,
“Forest Crunch” and
“Silverback”. For more information,
please
see the section entitled
“Israeli Medical Cannabis Business”.
Revolving Credit Facility
Agreement with an Israeli Bank - Bank Mizrahi
In January 2022, Focus entered into a revolving credit facility with an Israeli bank,
Bank Mizrahi (the “
Mizrahi Facility”). The Mizrahi Facility is guaranteed by Focus
assets. Advances from the Mizrahi Facility will be used for working capital needs. The Mizrahi Facility has a total commitment of up to
NIS 15,000 (approximately $6,000) and has a one-year term for on-going needs and 6 months term for imports and purchases needs. The Mizrahi
Facility is renewable upon mutual agreement by the parties. The borrowing base available for draw at any time throughout the Mizrahi Facility
and is subject to several covenants to be measured on a quarterly basis (the “
Mizrahi Facility Covenants”).
The Mizrahi Facility bears interest at the Israeli Prime interest rate plus 1.5%. During the first quarter of 2023,
the Company
reduced total commitments to NIS 10,000 (approximately, C$3,600) and as of
December 31, 2023, Focus has drawn down $3,227 in respect of
the Mizrahi Facility as at
December 31, 2023.
On
May 17, 2023,
the Company and the Mizrahi Facility entered into a subsequent revolving
credit facility arrangement with a total commitment of up to NIS 10,000 (approximately C$3,600) (the “
New
Mizrahi Facility”). The New Mizrahi Facility consists of a (i) NIS 5,000 credit line; and (iii) a NIS 5,000 loan to be settled
with 24 monthly installments that commenced on
May 17, 2023. The loan portion of the New Mizrahi Facility bears interest at the Israeli
Prime interest rate plus 2.9%. As of December 2023, Focus has drawn down C$3,227 in respect the New Mizrahi Facility (comprised of approximately
$1,827 from (i) the credit line; and $1,500 from the loan portion). The New Mizrahi Facility is also subject to several covenants to be
measured on a quarterly basis which were not met as of
December 31, 2023; therefore, the loan is classified as short-term loan.
The Company’s Chief Executive Officer and director, provided the Mizrahi Facility
a personally guarantee in the amount of the outstanding borrowed amount, allowing the New Mizrahi Facility to remain effective.
Panaxia Transaction Update
On
February 13, 2023,
the Company provided an update on its previously announced transaction
with Panaxia Pharmaceutical Industries Israel Ltd., and Panaxia Logistics Ltd., part of the Panaxia Labs Israel Ltd. group of companies
(collectively, “
Panaxia”). Under the transaction terms,
the Company purchased the home-delivery
services and an online retail footprint operating under the name
“Panaxia-to-the-Home” is Israel, which includes a customer
service center, an Israeli medical cannabis distribution with IMC-GDP license, and an online related business together with associated
intellectual property (the “
Panaxia Transaction”). The consideration payable by the
Company under the Panaxia Transaction was NIS 18,700 (approximately $7,200), comprised of $2,900 in cash, payable in two installments,
and $4,300 in Common Shares, payable in five installments. To date,
the Company preformed four installments as was previously announced
on
August 9, 2021,
September 8, 2021,
October 20, 2021, and
November 18, 2021, respectively. The Panaxia Transaction included a further
option to acquire, for no additional consideration, a pharmacy, including requisite license to dispense and sell medical cannabis to patents
(“
Panaxia Pharmacy Option”).
The Company and Panaxia reached an agreement to terminate the Panaxia Pharmacy Option
on
February 13, 2023. In consideration for termination of the Panaxia Pharmacy Option,
the Company will not be required to make the fifth
installment of $2,619 worth of Common Shares owed by
the Company to Panaxia under the Panaxia Transaction and was supposed to receive
an agreed compensation amount of $9,464 from Panaxia to be paid by Panaxia in services and cannabis inflorescence in accordance with the
terms as agreed by the parties.
Acquisition of Jerusalem’s
Leading Medical Cannabis Pharmacy – Oranim Pharm Update
On
March 28, 2022, pursuant to an agreement entered into on
December 1, 2021, IMC
Holdings completed the acquisition of 51.3% of the outstanding ordinary shares of Oranim Plus, who holds 99.5% of the rights in the partnership
(the “
Oranim Pharm Partnership”), resulting in IMC Holdings owning 51% of the rights
in
“Oranim Pharm”, which is one of the largest pharmacies selling medical cannabis in Israel and the largest pharmacy selling
medical cannabis in the Jerusalem area (the “
Oranim Transaction”). The Oranim Transaction
closed upon receipt of all requisite approvals, including the approval of the IMCA. The Oranim Transaction was completed for total consideration
of NIS 11,940 (approximately $4,600), comprised of NIS 10,404 (approximately $4,000) and NIS 1,536 (approximately $600) in Common Shares
issued on closing. In satisfaction of the cash consideration component, NIS 5,202 (approximately $2,000) paid at signing of the definitive
agreement and NIS 5,363 were supposed to be paid in several installments throughout 2023 and until
February 15, 2024. Through a new amendment
signed
January 10, 2024, the sixth (6) payment as well as the reconciliation between the parties regarding all remaining unpaid installments
has been postponed to
April 15, 2024. All six installments (that remain unpaid) will incur a 15% interest charge. Failure to meet the
remaining payments will result in the transfer of IMC Holdings shares (51%) back to the seller, along with the revocation of the transaction.
Based on the Group’s working capital position as of
December 31, 2023, management
considers the risk of not being able to pay all six installments, potentially resulting in the revocation of the transaction, to be high.
In satisfaction of the share consideration component,
the Company issued 251,001 Common
Shares at a deemed issue price of US$1.90 per share (approximately $2.37), calculated based on the average closing price of the Common
Shares on the Nasdaq for the 14-trading day period immediately preceding
March 28, 2022. The Common Shares issued were subject to a staggered
three-month lockup commencing on the date of issuance.
Closure of the Focus
Facility
On
April 6, 2022,
the Company announced new strategic imperatives designed to enhance
organizational efficiency and reduce operating costs while further responding to the increased demand for premium, indoor-grown Canadian
cannabis from Israeli consumers. As part of these changes, in Q2 2022,
the Company closed its cultivation facility in Sde Avraham, Israel
(the “
Focus Facility”) to concentrate on leveraging its skilled sourcing team and strategic
alliances with Canadian suppliers. In July 2022, Focus received an IMCA license which allows it to continue to import cannabis products
and supply medical cannabis to patients through licensed pharmacies despite the closure of the Focus Facility. To supplement growing demand,
the Company plans to continue its relationships with third-party cultivation facilities in Israel for the propagation and cultivation
of
the Company’s existing proprietary genetics and for the development of new products.
Debt Settlement with
L5 Capital Inc.
On
May 8, 2023,
the Company closed a debt settlement transaction (the “
Debt
Settlement”) with L5 Capital Inc., a company controlled by Marc Lustig, executive chairman and a director of
the Company
(“
L5 Capital”). Pursuant to the Debt Settlement,
the Company settled outstanding indebtedness
of $839 (approximately US$616) through issuing 492,492 units at a price of US$1.25 per unit. Each unit consisted of one Common Share and
one Common Share purchase warrant. Each warrant entitles L5 Capital to purchase one additional Common Share at an exercise price of US$1.50
per Common Share for a period of 36 months from the date of issuance.
NASDAQ Compliance Notice
To maintain the listing of the Common Shares on the Nasdaq,
the Company must comply
with Nasdaq’s continued listing requirements which require, amongst other things, that the Common Shares maintain a minimum bid
price of at least US$1.00 per share (the “
Minimum Share Price Listing Requirement”).
On
August 1, 2023,
the Company received written notification from Nasdaq (the “
Notification
Letter”) that the closing bid price of the Common Shares had fallen below US$1.00 per share over a period of 30 consecutive
business days, with the result that
the Company was not in compliance with the Minimum Share Price Listing Requirement. The Notification
Letter provided that
the Company had until
January 29, 2024, being 180 calendar days following receipt of such notice to regain compliance
with the Minimum Share Price Listing Requirement. On
January 31, 2024,
the Company received an extension a 180-calendar day extension,
until
July 29, 2024, from Nasdaq staff to regain compliance with the Minimum Share Price Listing Requirements.
Canadian Restructuring
On
August 5, 2022,
the Company commenced a restructuring plan in Canada through which
it is taking a disciplined approach to spending and implementing cost efficiencies (the “
Canadian
Restructuring”).
The Company entered into an agreement to sell all of the issued and outstanding shares of SublimeCulture
Inc. (“
Sublime”), a wholly owned subsidiary TJAC, on an
“as is, where is”
basis to a group of purchasers that included current and former members of the Sublime management team for aggregate proceeds of approximately
$100 less working capital adjustments, for a final net purchase price of $89 (the “
Sublime Transaction”).
The Sublime Transaction included the sale of Sublime’s lease obligation of the approximately 930 square metre cultivation and storage
facility and Sublime’s related operations. The Canadian Restructuring also included halting cultivation at the facility operated
by Highland in Antigonish, Nova Scotia.
On
November 7, 2022, in connection with
the Company’s efforts to achieve operational
efficiencies,
the Company announced that it is pivoting its focus and resources on growth in its highest value markets in Israel and Germany
while also commencing its exit from the Canadian cannabis market as part of the Canadian Restructuring. With this move,
the Company aimed
for a leaner organization with a primary focus on achieving profitability in 2023.
The Canadian operations were held through Trichome and being orderly wound-down under
CCAA pursuant to an initial order of the Ontario Superior Court of Justice (Commercial
List)
(the “
Court”) issued on
November 7, 2022 (as amended and restated by an order made
by the Court on
November 17, 2022, the “
Initial Order”). The Initial Order includes
a broad stay (as extended from time to time, the
“Stay”) of all proceedings against Trichome and its assets. Pursuant to the
Initial Order, KSV Restructuring Inc. was appointed as monitor (the “
Monitor”) in the
CCAA Proceedings.
In connection with the CCAA Proceedings, TJAC, as borrower (the “
Borrower”),
the remaining members of Trichome, as guarantors and Cortland Credit Lending Corporation, as agent for and on behalf of itself and certain
lenders (the “
DIP Lender”), entered into a debtor-in-possession facility agreement
dated
November 6, 2022 (as amended, the “
DIP Agreement”). Pursuant to the DIP Agreement,
the DIP Lender has agreed to provide a super-priority interim revolving credit facility (subject to certain mandatory repayment provisions)
to the Borrower (the “
DIP Facility”). In accordance with the DIP Agreement, the DIP
Facility is to be used during the CCAA Proceedings by the Borrower to fund its working capital needs. The DIP Facility is subject to customary
covenants, conditions precedent, and representations and warranties made by Trichome to the DIP Lender. The current DIP Lender’s
charge approved by the Court is up to the maximum amount of $4,875.
On
January 9, 2023, the Court issued an order in the CCAA Proceedings in respect of
a motion brought by Trichome to approve, among other things: a sale and investment solicitation process (the
“SISP”) in respect
of the business and assets of Trichome; and a stalking horse share purchase agreement (the “
Stalking
Horse Purchase Agreement”) between Trichome and L5 Capital dated
December 12, 2022. The SISP established a process to solicit
interest for investments in, or the sale of any or all of the, Trichome’s business and assets.
On
February 22, 2023, the Monitor issued a report (the “
Monitor’s
Third Report”) in the CCAA Proceedings advising, among other things, that (i) no qualified bids were received pursuant to
the SISP, (ii) L5 Capital informed Trichome that it would not be completing the transaction contemplated by the Stalking Horse Purchase
Agreement and, as a result, Trichome terminated the Stalking Horse Purchase Agreement, and (iii) the Monitor continues to market for sale
Trichome’s business and assets, including the brands and other intellectual property owned by Trichome.
The Monitor’s Third Report also reported on the financial situation of Trichome
advising that due to Trichome’s financial performance and the termination of the Stalking Horse Purchase Agreement, the DIP Lender
informed Trichome that the DIP Lender would only fund expenses required for a wind-down of Trichome’s business and as such, Trichome
will not have the ability to pay unpaid payables that are not required to be paid in connection with the wind-down. Trichome has advised
that it will not purchase additional goods or services without the prior consent of the Monitor.
On
March 9, 2023, the Court issued an order extending the Stay until
April 21, 2023
in order to allow Trichome to complete the orderly wound-down of its operations.
Pursuant to an order of the Court made on
April 6, 2023 in the CCAA Proceedings (the
“Reverse Vesting Order”), the Court approved a share purchase agreement (the
“Share Purchase Agreement”) dated
March 28, 2023 among Trichome, 1000370759 Ontario Inc. (the “
Purchaser”), TJAC, Trichome
Retail Corp. (“
TRC”), MYM Nutraceuticals Inc. (“
MYM”),
MYM International Brands Inc. (“
MYMB”) and Highland Grow Inc. (“
Highland”,
and collectively with TJAC, TRC, MYM and MYMB, the “
Purchased Entities”). The Purchased
Entities and its business and operations were sold to a party that is not related to
the Company. Thus,
the Company has exited operations
in Canada and considers these operations discontinued. The Share Purchase Agreement is solely in respect of the Purchased Entities. As
such,
the Company’s other assets or
subsidiaries, including those in Israel and Germany, will not be affected by it.
The Share Purchase Agreement contemplated a reverse vesting transaction pursuant to
which Trichome agreed to sell to the Purchaser, and the Purchaser agreed to purchase, all of the issued and outstanding shares in the
capital of TJAC and MYM owned by Trichome for a purchase price of $3,375 along with certain deferred consideration. Pursuant to the
Share Purchase Agreement and Reverse Vesting Order, the Purchased Entities retained the Purchased Entities’ assets,
contracts and
liabilities (the “
Assumed Liabilities”) specified in the Share Purchase Agreement free
and clear of any claims other than the Assumed Liabilities, and all other assets,
contracts, and liabilities of the Purchased Assets were
transferred to, and assumed by, five newly created corporations being 1000491916 Ontario Inc. ("
TJAC Residual
Co."), 1000492008 Ontario Inc. ("
TRC Residual Co."), 1000491929 Ontario Inc. ("
MYM
Residual Co."), 1000492005 Ontario Inc. ("
MYMB Residual Co.") and 1000492023 Ontario Inc.
("
Highland Residual Co.", and collectively with TJAC Residual Co., TRC Residual Co., MYM Residual
Co. and MYMB Residual Co., the “
Residual Corporations”), the shares of which are owned
directly or indirectly by Trichome. The closing of the transactions contemplated by the Share Purchase Agreement occurred on
April 6,
2023.
On
September 14, 2023, a CCAA termination order was granted upon service on the service
list of an executed certificate and the above CCAA Proceedings under the CCAA and Stay was terminated without any further act or formality.
On
September 29, 2023, Trichome filed (or was deemed to have filed) an assignment
(or bankruptcy order was made against Trichome, and Goldhar & Associates Ltd., was appointed as trustee of the estate of the bankrupt
by the official receiver (or the Court). The first meeting of the creditors was held on
October 17, 2023.
In the context of the deconsolidation of the Canadian operations, there are no remaining
liabilities to
the Company or any of its consolidated
subsidiaries related to the Canadian entities, except tax obligations of $839 related
to a debt settlement with L5 Capital. The CCAA Proceedings were solely in respect of Trichome. As such,
the Company’s other assets
or
subsidiaries, including those in Israel and Germany, were not parties to the CCAA Proceedings. Court materials filed in connection
with Trichome’s CCAA Proceedings can be found at:
https://www.ksvadvisory.com/insolvency-cases/case/trichome.
Life Offering
In January and February of 2023,
the Company issued an aggregate of 2,828,248 units
of
the Company (each a “
Life Unit”) at a price of US$1.25 per Life Unit for aggregate
gross proceeds of US$3,535 in a series of closings pursuant to a non-brokered private placement offering to purchasers resident in Canada
(except the Province of Quebec) and/or other qualifying jurisdictions relying on the listed issuer financing exempt under Part 5A of National
Instrument 45-106 –
Prospectus Exemptions (the “
LIFE
Offering”). Each Life Unit consisted of one Common Share and one Common Share purchase warrant (each a “
Life
Warrant”), with each Life Warrant entitling the holder thereof to purchase one additional Common Share at an exercise price
of US$1.50 for a period of 36 months from the date of issue.
In addition, a non-independent director of
the Company subscribed for an aggregate
of 131,700 Life Units under the LIFE Offering at an aggregate subscription price of US$165. The director’s subscription price was
satisfied by the settlement of US$165 in debt owed by
the Company to the director certain consulting services previously rendered by the
director to
the Company.
Concurrent Offering
Concurrent with the LIFE Offering,
the Company issued an aggregate of 2,317,171 units
on a non-brokered private placement basis at a price of US$1.25 per unit for aggregate gross proceeds of US$2,897 (the “
Concurrent
Offering”). The Concurrent Offering was led by insiders of
the Company. The units offered under the Concurrent Offering were
sold under similar terms as the Life Offering and were offered for sale to purchasers in all provinces and territories of Canada and jurisdictions
outside Canada pursuant to available prospectus exemptions other than for the LIFE Offering exemption. All units issued under the Concurrent
Offering were subject to a statutory hold period of four months and one day in accordance with applicable Canadian securities laws.
Board Changes
On
March 8, 2023,
the Company announced its strategic plan to reorganize
the Company’s
management and operations to strengthen its focus on core activities (the “
Restructuring Plan”).
As part of the Restructuring Plan, the following positions in
the Company’s global leadership team transitioned to highly skilled
internal successors:
|
• |
Shai Shemesh, resigned as Chief Financial Officer of the Company and Itay Vago, was appointed as Chief Financial Officer of the Company
to fill the vacancy created by Shai Shemesh’s resignation. |
|
• |
Rinat Efrima, resigned as Chief Executive Officer of IMC Holdings and Eyal Fisher was appointed as the General Manager of IMC Holdings
to fill the vacancy created by Ms. Efrima’s resignation. Mr. Fisher previously held the position of Sales Director of IMC Holdings
prior to his appointment as General Manager. |
|
• |
Yael Harrosh resigned as Chief Legal and Operations Officer of the Company and Michal Lebovitz was appointed as General Counsel of
the Company to fill the vacancy created by Mr. Harrosh’s resignation. |
Loan from ADI
On
October 11, 2022, IMC Holdings entered into a loan agreement (the “
ADI
Agreement”) with A.D.I. Car Alarms Stereo Systems Ltd (“
ADI”), to borrow
a principal amount of NIS 10,500 (approximately $4,045) at an annual interest of 15% (the “
ADI Loan”),
which is to be repaid within 12 months of the date of the ADI Agreement. The ADI Loan is secured by a second rank land charge on the Logistic
Center of Adjupharm. In addition,
the Company’s Chief Executive Officer and director of
the Company, provided a personal guarantee
to ADI should the security not be sufficient to cover the repayment of the ADI Loan.
On
October 25, 2023, IMC Holdings and ADI signed an amendment to the ADI Agreement,
extending the loan period by an additional 3 months. During this extended period, the interest rate will be 15%, with associated fees
and commissions of 3% per annum for application fee and an origination fee of 3% per annum.
On
February 26, 2024, IMC Holdings and ADI signed an additional amendment to the ADI
Agreement, extending the loan period until
April 15, 2024, with the same terms as the first amendment, as specified above.
Launch of BLKMKT™
Brand in Israeli Medical Cannabis Market
On
October 12, 2022,
the Company and Avant Brands Inc. (“
Avant”)
announced the signing of an international trademark licensing agreement (the “
Licensing Agreement”)
granting
the Company the exclusive right to launch the BLKMKT™ brand in the Israeli medical cannabis market. Under the terms of
the Licensing Agreement, a subsidiary of Avant will license
the Company’s premium- cannabis flagship BLKMKT™ brand to an Israeli
subsidiary of
the Company for use on
the Company’s medical cannabis product packaging. All such packaging will contain cannabis
cultivated exclusively by Avant and sold to
the Company’s affiliates. The integration of unique and exclusive varieties of the high-quality
BLKMKT™ brand into
the Company’s current premium product portfolio will serve to bolster the cooperative and synergistic partnership
forged between the Avant and
the Company over the past two years. The Licensing Agreement signals
the Company’s commitment to implementing
a premium strategy and acts as another step to establish
the Company’s leadership of the ultra-premium segment in Israel.
In Q4 2023,
the Company relaunched two additional products under the BLKMKT™
brand, which included
“JEALOUSY” and
“BACIO GLTO”. For more information, please see the section entitled
“B. Business Overview”.
35 Oak Holdings Ltd –
Statement of Complaint
On
November 17, 2023,
the Company received a copy of a Statement of Claim that was
filed in the Ontario Superior Court of Justice in Canada by 35 Oak Holdings Ltd., MW Investments Ltd., 35 Oak Street Developments Ltd.,
Michael Wiener, Kevin Weiner, William Weiner, Lily Ann Goldstein-Weiner, in their capacity as trustees of the Weiner Family Foundation
(collectively the "
MYM Shareholder Plaintiffs") against
the Company and its board of directors,
Board and officers, (collectively, the "
MYM Defendants").
MYM Shareholder Plaintiffs claims that the MYM Defendants made misrepresentations
in its disclosures prior to
the Company's transaction with MYM in 2021. The MYM Shareholder Plaintiffs are claiming damages that amount
to approximately $15,000 and aggravated, exemplary and punitive damages in the amount of $1,000.
The Company has reviewed the complaint and believes that the allegations are without
merit.
The Company, together with some of the Defendants brought, on
February 22, 2024, a
preliminary motion to strike out several significant parts of the claim (the "
Motion") The Motion
has not been scheduled by the court.
At this time,
the Company's management is of the view that the Motion has merit and
is likely to succeed in at least narrowing the scope of the claim against
the Company, and that it may also result in certain of the claims
against individuals being dismissed altogether, and if not dismissed narrowed in scope and complexity.
The Company plans to vigorously defend itself against the allegations. At this stage,
the Company management cannot assess the chances of the claim advancing or the potential outcome of this these proceedings.
Annual General and Special
Meeting
On
December 6, 2023,
the Company held an annual and special meeting where shareholders
approved fixing the number of directors of
the Company at five, elected the directors for the ensuing year and re-appointment of Kost
Forer Gabbay & Kasierer, a member of Ernst & Young Global, Tel Aviv, Israel (PCAOB ID 1281) (“
Kost
Forer”) as auditor of
the Company.
Loan to Telecana
On
November 29, 2022,
the Company’s subsidiary, IMC Holdings entered into a
convertible loan agreement (the “
Telecana Loan Agreement”)
with Telecana Ltd. (“
Telecana”) and the sole shareholder of Telecana, whereby IMC Holdings
loaned NIS 1,545 (approximately $605) to Telecana according to the following advance schedule: NIS 45 on
January 15, 2023 (approximately
C$18); NIS 250 on
January 31, 2023 (approximately C$98); NIS$500 (approximately C$196) on
February 28, 2023; NIS 500 (approximately C$196)
on
April 5, 2023; and NIS 250 (approximately C$98) on
May 5, 2023. Telecana opened a pharmacy and obtained from the IMCA a license to
dispense medical cannabis products. Pursuant to the Telecana Loan Agreement, subject to IMCA approval, the loan can be converted into
51% of the share capital of Telecana, with such conversion to occur at the earlier: (i) upon receipt of a preliminary license from the
IMCA; and (ii) at any time at the sole discretion of IMC Holdings. As of the date of this Annual Report, notwithstanding that Telecana
has received such preliminary license, the parties are in the process of obtaining IMCA approval to complete the conversion.
Medical Cannabis Reform
On
December 8, 2023.
the Company announced a 3-month delay of the anticipated medical cannabis reform announced by the Israeli ministry of health on
August
7, 2023. Due to the Israel-Hamas war, the anticipated implementation of the medical cannabis regulatory reform, originally scheduled for
December 29, 2023, was postponed by three months. The new regulations were designed to alleviate many of the stringent restrictions in
the sector, thereby enhancing access to medical cannabis for patients. In addition to the regulatory reform, the Medical Cannabis Unit
of the Ministry of Health released a new report that shows, among other statistics, data on the number of patients obtaining medical cannabis
licenses. There was a notable surge in the number of new medical cannabis patients in November 2023, with 3,254 new patients receiving
licenses, the largest increase in new patients per month since 2021.
Planning and Construction
Legal Proceedings
On
December 28, 2023, a settlement was reached in the Planning and Construction Legal
Proceedings against Focus. As previously disclosed in
the Company’s annual information form dated
April 26, 2021, and the press
release dated
July 13, 2021, as well as in
the Company’s financial statements and management’s discussion and analysis for
the year ended
December 31, 2022, certain allegations were made against Focus regarding inadequate permitting for construction at its
cultivation facility. The settlement involved Focus,
Oren Shuster, Refael Gabay, Yaron Berger, the former Chief Executive Officer of Focus,
along with the three landowners on whose property Focus operated the cultivation facility. The settlement resulted in the dismissal of
all criminal charges against the individual defendants, with only Focus being charged. Focus received a monetary fine of approximately
C$129 (NIS 350), payable in 10 installments. After a long legal process since the indictment, Focus has destroyed all the buildings that
didn’t have the construction permits, closed the cultivation facility in Sdei Avraham in June 2022, ceased with its cultivation
operation and now focusing on import and sales operations. Currently,
the Company's management do not anticipate a material impact on
the licensing or normal course of operations for Focus due to the indictment and the settlement that has been achieved.
Acquisition of Jerusalem’s
Leading Medical Cannabis Pharmacy – Oranim Pharm Update
On
January 12, 2024,
the Company announced that the final sixth payment of the Oranim
Pharmacy Acquisition and the reconciliation between the parties regarding the remaining transaction payments are being rescheduled to
April 15, 2024.
Through the transaction, completed on
March 28, 2022, IMC Holdings Ltd. acquired 51%
of the rights in Oranim Pharm Partnership through the acquisition of Oranim Plus. As part of the transaction consideration, NIS 5,363K
or 1,930K CAD were supposed to be paid in six installments throughout 2023, with the final payment due
February 15, 2024.
Through a new amendment signed
January 10, 2024, the sixth (6) payment as well as
the reconciliation between the parties regarding all remaining unpaid installments has been postponed to
April 15, 2024. All six installments
(that remain unpaid) will incur a 15% interest charge. Failure to meet the remaining payments will result in the transfer of IMC Holdings
Ltd. shares (51%) back to the seller, along with the revocation of the transaction.
NASDAQ Compliance Notice
Update
On
January 31, 2024,
the Company received an extension a 180-calendar day extension,
until
July 29, 2024, from Nasdaq staff to regain compliance with the Minimum Share Price Listing Requirements (the “
Extension”).
As at the date of this Annual Report,
the Company continues to monitor the closing bid price of its Common Shares and plans to pursue
available options to regain compliance with the Minimum Share Price Listing Requirement, including potentially pursuing a reverse stock
split. If
the Company authorizes a reverse stock split, it will plan to effectuate the split no later than ten business days prior to
the end of the Extension.
Potential Reverse Merger
with Kadimastem
On
February 28, 2024,
the Company announced that it had entered into a non-binding
term sheet dated
February 13, 2024, as amended (the “
Kadimastem Term Sheet”), and the
Loan Agreement (as defined below), with IMC Holdings, with Israel-based Kadimastem Ltd., a clinical cell therapy public company traded
on the Tel Aviv stock exchange under the symbol (TASE: KDST) (“
Kadimastem”), whereby
the parties will complete a business combination that will constitute a reverse merger into
the Company by Kadimastem (the “
Proposed
Transaction”).
The Proposed Transaction is expected to be completed by way of a
plan of arrangement,
involving a newly created wholly-owned subsidiary of
the Company and Kadimastem (the “
Arrangement”).
The resulting issuer that will exist upon completion of the Proposed Transaction (the “
Resulting
Issuer”) will change its business from medical cannabis to biotechnology and, at the closing of the Proposed Transactions
(the "
Closing"), Kadimastem shareholders will hold 88% of the common shares of the Resulting
Issuer (the “
Resulting Issuer Shares”) and the shareholders of
the Company will hold
12% of the Resulting Issuer Share. The parties may agree, in the definitive agreement, on a different structure of equity in lieu of the
warrants (as described below) with a similar result. The Proposed Transaction is an arm’s length transaction.
Prior to Closing,
the Company’ss existing medical cannabis operation and other
current activities in Israel and Germany (the "
Legacy Business") will be restructured (the “
Spin-Out”)
as a contingent value right (the "
CVR"). The CVR will entitle the holders thereof to receive net
cash, equity, or other net value upon the sale of the Legacy Business following the Closing, subject to the terms of the Loan Agreement.
To facilitate the sale of the Legacy Business, a special committee of the Board was
formed, which will oversee the potential sale in collaboration with legal and financial advisors.
The Legacy Business will be made available for potential sale to a third party for
a period of up to 12 months from Closing (the "Record Date"). After the Record Date, any remaining
Legacy Business in the CVR will be offered for sale through a tender process, subject to the terms of the best offer. The proceeds from
the sale of the Legacy Business will be utilized to settle debts and distribute the remaining balance, if any, to CVR holders.
As a condition of Closing, Kadimastem will have approximately US$5,000 in gross funds,
at Closing including capital raised concurrently with the completion of the Proposed Transaction from existing shareholders and additional
investors.
In addition to the foregoing, subject to compliance with applicable law,
the Company
shall grant shareholders of
the Company as of Closing, with warrant(s) equal their pro rata portion, of 2% of the Resulting Issuer’s
issued and outstanding common share capital (the "
IMC Shares") prior to the Closing Date (in the
aggregate), with an exercise price per share equal to the 10 day volume-weighted average price of the Resulting Issuer’s shares
calculated on the Nasdaq, ending 2 trading days prior to Closing, the warrants will be for a period of 24 months following Closing.
In accordance with the terms of the Proposed Transaction, the holders of the issued
and outstanding shares in the capital of Kadimastem (the “
Kadimastem Shares”) will
be issued such number of IMC Shares in exchange for every one Kadimastem Share held immediately prior to the completion of the Proposed
Transaction that reflects the ratio outlined above (the “
Exchange Ratio”). Outstanding
convertible securities of Kadimastem (the “
Kadimastem Convertible Securities”) will
be treated through customary mechanics as shall be determined in the definitive agreement, which may include, the assumption of the Kadimastem
Convertible Securities by
the Company subject to customary adjustments to reflect the Exchange Ratio and exercise price.
Pursuant to the terms of the Kadimastem Term Sheet, a loan agreement dated
February
28, 2024 (the "
Loan Agreement") was entered between IMC Holdings and Kadimastem. Pursuant to the
Loan Agreement, Kadimastem will provide a loan of up to US$650 to the IMC Holdings, funded in two installments: US$300 upon signing the
Loan Agreement and US$350 upon the execution of the definitive agreement regarding the Proposed Transaction (the "
Kadimastem
Loan").
The Kadimastem Loan accrues interest at a rate of 9.00% per annum, compounding annually
and is secured by the following collaterals and guarantees: (a) 10% of the proceeds derived from any operation sale under the CVR (“
Charged
Rights”), limited to the outstanding Loan Amount and expenses according to the Loan Agreement, accordingly IMC Holdings may,
at its sole discretion, to record a second-ranked fixed charge over the Charged Rights or, alternatively, in case the existing pledges
over the Charged Rights at the date of signing the Loan Agreement are subsequently discharged or removed, then the Borrower shall promptly
record a first-ranking fixed charge over the Charged Assets with all applicable public records; provided that IMC Holdings shall not impose
any new lien, mortgage, charge or pledge over the Charged Rights that did not exist on the date hereof, or any other liens, subject to
customary exclusions; (b) IMC Holdings shall use its best efforts to record a first-ranking fixed charge over the assets of its subsidiary,
A.R Yarok Pharm Ltd, in due course when applicable and as deemed appropriate; and (c) a personal guarantee by Mr.
Oren Shuster,
the Company’s
Chief Executive Officer.
Prior to the completion of the Proposed Transaction,
the Company will call a meeting
of its shareholders for the purpose of approving, among other matters:
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• |
approve the Proposed Transaction; |
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• |
a change of name of the Company as directed by Kadimastem and acceptable to the applicable regulatory authorities effective upon
Closing; and |
|
• |
reconstitution of the Board. |
Upon closing of the Proposed Transaction, all of IMC’s current directors and
executive officers will resign and the board of directors of the Resulting Issuer will, subject to the approval of governing regulatory
bodies, consist of nominees of Kadimastem. All of the executive officers shall be replaced by nominees of Kadimastem, all in a manner
that complies with the requirements of governing regulatory bodies and applicable securities and corporate laws.
Details of insiders and proposed directors and officers of the Resulting Issuer will
be disclosed in a further news release.
The completion of the Proposed Transaction is subject to a number of conditions, including
but not limited to the following:
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• |
the execution of a definitive agreement; |
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• |
completion of mutually satisfactory due diligence; |
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• |
completion of the share consolidation; and |
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• |
receipt of all required regulatory, corporate and third party approvals, including approvals by governing regulatory bodies, the
shareholders of IMC and Kadimastem, applicable Israeli governmental authorities, and the fulfilment of all applicable regulatory requirements
and conditions necessary to complete the Proposed Transaction. |
The parties are committed to seeking a successful completion of the Proposed Transaction
as soon as practicable, but there can be no absolute certainty that the Proposed Transaction will take place.
ADI Loan Update
On
February 26, 2024, IMC Holdings and ADI signed an additional amendment to the ADI
Agreement, extending the loan period until
April 15, 2024, with the same terms as the first amendment, as specified above.
Option to re-acquire the sold interest in Focus
B. Business
Overview
IM Cannabis is an international cannabis company that is currently focused on providing
premium cannabis products to medical patients in Israel and Germany, two of the world’s largest federally legal cannabis markets.
Previously,
the Company was also actively servicing adult-use recreational consumers in Canada, however these operations were discontinued.
The Company leverages a transnational ecosystem powered by a unique data-driven approach and a globally sourced product supply chain.
With an unwavering commitment to responsible growth and compliance with the strictest regulatory environments,
the Company strives to
amplify its commercial and brand power to become a global high-quality cannabis player.
In Israel, we continue to expand IMC brand recognition and supply the growing Israeli
medical cannabis market with our branded products.
The Company offers medical cannabis patients a rich variety of high-end medical cannabis
products through strategic alliances with Canadian suppliers supported by a highly skilled sourcing team. In addition to the benefits
of the Group’s long-term presence in Israel, we believe that with our strong sourcing infrastructure in Israel, and advanced product
knowledge, regulatory expertise and strong commercial partnerships,
the Company is well-positioned to address the ongoing needs and preferences
of medical cannabis patients in Israel.
The Company entered additional segments of the medical cannabis value chain in Israel,
namely the distribution and retail segments.
The Company, through IMC Holdings, acquired three licensed pharmacies in 2022, the Israeli
Pharmacies, each selling medical cannabis products to patients: (i) Oranim Plus, Israel’s largest pharmacy in Jerusalem and one
of the largest in Israel, (ii) Vironna, a leading pharmacy in the Arab sector, and (iii) Pharm Yarok, the largest pharmacy in the Sharon
plain area and the biggest call center in the country.
As Part of the Panaxia Transaction,
the Company acquired home-delivery services and
an online retail footprint, operating under the name
“Panaxia-to-the-Home”, which
includes a customer service center and an Israeli medical cannabis distribution licensed center.
The entrance into the new segments in Israel position
the Company as a large distributor
of medical cannabis in Israel. We are strategically focused on establishing and reinforcing a direct connection with medical cannabis
patients, providing direct access to
the Company’s products, obtaining and leveraging market data and gaining a deeper understanding
of consumer preferences. The acquisition of the Israeli Pharmacies allowed
the Company to increase purchasing power with third-party product
suppliers, offers potential synergies with our established call center and online operations, achieves higher margins on direct sales
to patient and creates the opportunity for up-sales across a growing range of products.
In Europe,
the Company operates in Germany through Adjupharm, its German subsidiary
and EU-GMP certified medical cannabis producer and distributor. We continue to lay our foundation in Germany. Leveraging our global supply
chain,
the Company continues to focus on growing its business in Germany to be well-positioned through brand recognition in preparation
for future regulatory reforms.
Similar to Israel,
the Company’s focus in Germany is to import dried cannabis
from its supply partners, which we believe will satisfy the rapid growth in demand for high-THC cannabis across a variety of strains and
qualities. In addition, Adjupharm sells cannabis extracts to meet the existing demand in the German market.
In
the Company’s view, the strong sourcing infrastructure in Israel, powered
by advanced product knowledge and regulatory expertise, will establish a competitive advantage in Germany ahead of proposals for the legalization
of recreational cannabis. This is based on the premise that the German and Israeli markets share a number of common attributes such as
robust commercial infrastructure, highly developed digital capabilities, favorable demographics and customer preferences.
While
the Company does not currently distribute products in other European countries,
the Company intends to leverage the foundation established by Adjupharm, its state-of-the-art EU-GMP Logistics Center, its vast knowledge
in the cannabis market and costumers’ preferences and its network of distribution partners to expand into other jurisdictions across
the continent.
Adjupharm received a revised EU-GMP license in May 2022 that permits it to engage
in additional production, cannabis testing and release activities. It allows Adjupharm to repackage bulk cannabis, to perform stability
studies and offer such services to third parties.
In Canada, on
November 7, 2022,
the Company announced that it is pivoting its focus
and resources to achieve sustainable and profitable growth in its highest value markets, Israel and Germany, while also commencing its
exit from the Canadian cannabis market. The Canadian operations were wound-down under the CCAA under the supervision of the Court. The
CCAA Proceedings afford Trichome the stability and flexibility required to orderly wind-down its business and operations.
The Group does not currently have and is not in the process of developing marijuana-related
activities in the U.S., even in U.S. states where such activity has been authorized within a state regulatory framework. As such, the
Company is not and would not be considered in the future a “U.S. Marijuana Issuer” within the meaning set forth in CSA Staff
Notice 51-352.
Principal Products and
Brands
The IMC brand has established its reputation in Israel for quality and consistency
over the past 10 years and more recently with new high-end, ultra-premium strains that have made it to the top-sellers list in pharmacies
across the country. The Group maintains a portfolio of strains sold under the IMC umbrella from which popular medical cannabis dried flowers
and full-spectrum cannabis extracts are produced.
Israeli Medical Cannabis
Business
The IMC brand offers four different product lines, leading with the Craft Collection
which offers the highest quality Canadian craft cannabis flower and has established IMC as the leader of the super-premium segment in
Israel.
The Craft Collection – The IMC brand’s
super-premium product line with indoor-grown, hang-dried and hand-trimmed high-THC cannabis flowers. The Craft Collection includes exotic
and unique cannabis strains such as Cherry Crasher, Peanut Butter MAC and Watermelon Zkittlez. During the year ended
December 31, 2023,
the Company was selling products under the Craft Collection, however, in Q4 2023, the Craft Collection was temporarily unavailable for
sale by
the Company and as a result,
the Company did not generate any sales under the Craft Collection brand during that time.
The Company
has since relaunched sales under the Craft Collection.
The Top-Shelf
Collection – IMC’s premium product line, which offers indoor-grown, high-THC cannabis flowers with strains such as
Lemon Rocket, Diesel Drift, Tropicana Gold, Lucy Dreamz, Santa Cruz, Or’enoz, and Banjo. Inspired by the 1970’s cannabis culture
in America, the Top-Shelf Collection targets the growing segment of medical patients who are cannabis culture enthusiasts.
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The Signature Collection – The IMC brand’s
high-quality product line with greenhouse-grown or indoor grown, high-THC cannabis flowers. The Signature Collection currently includes
well known cannabis dried flowers such as Roma®, Chemchew, Karmalada, Rockabye, Silver haze, all an indoor-grown flowers.
The Full Spectrum Extracts – The IMC
brand’s full spectrum, strain-specific cannabis extracts, including high-THC Roma®T20 oil. As part of the recent rebranding
the Company expanded its Roma® product portfolio also oils. IMC’s Roma® strain is high-THC medical cannabis flower that
offers a therapeutic continuum and is known for its strength and longevity of effect.
The WAGNERS™ brand launched in Israel
in Q1 2022, with premium indoor-grown cannabis imported from Canada. The WAGNERS™ brand was the first international premium, indoor-grown
brand introduced to the Israel cannabis market, at a competitive price point. The WAGNERS™ brand includes Cherry Jam re-launched
in Q3 2023, Pink Bubba, Golden Ghost, Tiki Rain, Forest Crunch and Silverback #4.
BLKMKT™, the Company’s
second Canadian brand, super premium product line with indoor grown, hand-dried and hand-trimmed high-THC cannabis flowers. The BLKMKT™
includes JEALOUSY, BACIO GLTO, PNPL P, PARK FIRE OG, UPSIDE DOWN C. In Q4 2023, the Company relaunched JEALOUSY and BACIO GLTO.
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LOT420 brand launched in Israel in Q2 2023,
with super-premium indoor-grown cannabis imported from Canada with high-THC. The LOT420 includes ICY C, GLTO 33, Atomic APP and as of
Q3 2023 also Glto 33 and Xeno.
The Company ceased selling Atomic APP.
The PICO collection (minis) – Under the
BLKMT and LOT420 brands,
the Company launched in 2023 a new type of products (small flowers), a super-premium indoor-grown cannabis imported
from Canada with high-THC. In Q4 2023,
the Company re-launched PICO JEALOUSY #1 and PICO BACIO GLTO #4 T20i. In addition,
the Company
launched in Q4 2023, a new cannabis strain called Pico Upside Down #05 T20H.
German Medical Cannabis
Business
In Germany,
the company sells IMC-branded dried flower products and full spectrum
extracts. The medical cannabis products are branded generically as IMC to increase the brand awareness and build brand heritage among
the German healthcare professionals.
After launching the first high THC strain in 2020, the portfolio has been carefully
curated to include 5 high THC flowers, 1 high CBD flower and 3 full spectrum extracts with the goal of providing German physicians and
patients with a more complete portfolio.
In Q2 2022
the Company’s IMC Hindu Kush strain was the top selling T20 in the
market. Since 2023,
the Company has been number one in sales per SKU within the entire German flower market. In July 2021,
the Company was recognized by the German Brand Institute with the
“German Brand Award 2021,” recognizing its excellence in
brand strategy, creation, communication and integrated.
The Company is the sixth largest cannabis company in Germany. The Group’s
competitive advantage in Germany lies in its track record, experience and brand reputation in Israel, as well as the proprietary data
supporting the potential effectiveness of medical cannabis for the treatment of a variety of conditions.
New Product Offerings
Between our various geographies, the strategy for new products varies given that each
market is at a different stage of development with respect to regulatory regimes, patient and customer preferences and adoption rates.
Israel
Brand Updates
In Q4 2023,
the Company relaunched strains in Israel, namely the
“BLKMKT JEALOUSY”,
“BACIO GLTO BLKMKT”,
“PICO JEALOUSY #1” and
“PICO BACIO GLTO#4”. Additionally, a new cannabis strain
called “Pico Upside Down #05 was introduced.
Revenue
The following table shows the sales figures in thousands of dollars for each category
of products that accounted for 15% or more of the total consolidated revenue of
the Company for the financial years ended
December 31,
2023,
2022 and
2021, derived from (a) sales to entities in which
the Company maintains an investment accounted for by the equity method;
(b) sales to customers, other than those referred to in (a); and (c) sales or transfers to controlling shareholders.
Revenues
from Continuing operations - By Product Type |
Financial Year |
Medical Cannabis Products |
Adult-Use Recreational Cannabis Products |
Other Products |
Total |
2023 |
$44,246 |
-
|
$4,559 |
$48,804 |
2022 |
$48,384 |
-
|
$5,951 |
$54,335 |
2021 |
$26,449 |
-
|
$7,604 |
$34,053 |
Production, Distribution
and Sales in Principal Markets
Israel
In Israel, we continue to expand IMC brand recognition and supply the growing Israeli
medical cannabis market with our branded products.
The Company offers medical cannabis patients a rich variety of high-end medical cannabis
products through strategic alliances with Canadian suppliers supported by a highly skilled sourcing team. In addition to the benefits
of the Group’s long-term presence in Israel, we believe that with our strong sourcing infrastructure in Israel, and advanced product
knowledge, regulatory expertise and strong commercial partnerships,
the Company is well-positioned to address the ongoing needs and preferences
of medical cannabis patients in Israel.
The Company is also operating in the retail segment.
The Company, through IMC Holdings,
holds three licensed pharmacies, each selling medical cannabis products to patients: (i) Oranim Plus, Israel’s largest pharmacy
in Jerusalem and one of the largest in Israel, (ii) Vironna, a leading pharmacy in the Arab sector, and (iii) Pharm Yarok, the largest
pharmacy in the Sharon plain area and the biggest call center in the country.
The Company has also acquired home-delivery services and an online retail footprint,
operating under the name
“Panaxia-to-the-Home”, which includes a customer service
center and an Israeli medical cannabis distribution licensed center. On
June 30, 2023, IMC Pharma, the entity responsible for operating
the trading house that was acquired within the Panaxia Transaction, ceased its operations at the aforementioned licensed center located
in Lod, Israel. Consequently,
the Company transitioned the operation that was conducted through IMC Pharma to third-party entities and
to its own trading house currently being operated by Rosen High Way and there are no material obligations remained open following closure
of the trading house.
The operation in the retail segment in Israel positions IM Cannabis as a large distributor
of medical cannabis in Israel. We are strategically focused on establishing and reinforcing a direct connection with medical cannabis
patients, providing direct access to IM Cannabis products, obtaining and leveraging market data and gaining a deeper understanding of
consumer preferences. The operation of the Israeli Pharmacies allows
the Company to increase purchasing power with third-party product
suppliers, offers potential synergies with our established call center and online operations, achieves higher margins on direct sales
to patient and creates the opportunity for up-sales across a growing range of products.
Europe
In Europe,
the Company operates in Germany through Adjupharm, its German subsidiary
and EU-GMP certified medical cannabis producer and distributor. We continue to lay our foundation in Germany. Leveraging our global supply
chain, IM Cannabis continues to focus on growing its business in Germany to be well-positioned through brand recognition in preparation
for future regulatory reforms.
Similar to Israel,
the Company’s focus in Germany is to import premium dried
cannabis from its supply partners, which we believe will satisfy the rapid growth in demand for high-THC premium cannabis across a variety
of strains and qualities. In addition, Adjupharm sells cannabis extracts to meet the existing demand in the German market.
In
the Company’s view, the strong sourcing infrastructure in Israel, powered by advanced product
knowledge and regulatory expertise, will establish a competitive advantage in Germany ahead of proposals for the legalization of recreational
cannabis. This is based on the premise that the German and Israeli markets share a number of common attributes such as robust commercial
infrastructure, highly developed digital capabilities, favorable demographics and customer preferences.
While
the Company does not currently distribute products in other European countries,
the Company intends to leverage the foundation established by Adjupharm, its state-of-the-art EU-GMP Logistic Center, its vast knowledge
in the cannabis market and costumers’ preferences and its network of distribution partners to expand into other jurisdictions across
the continent in which medical cannabis is legal.
Adjupharm received a revised EU-GMP license in May 2022 that permits it to engage
in additional production, cannabis testing and release activities. It allows Adjupharm to repackage bulk cannabis, to perform stability
studies and offer such services to third parties.
Competitive Conditions
The medical cannabis industry in which the Group operates is, and is expected to remain,
very competitive. Cannabis companies compete primarily on a regional basis, and competition may vary significantly from region to region
at any particular time. The cannabis sector is in a high growth phase, with market participants engaged in significant expansion across
global legal jurisdictions.
The Company is working to achieve a leadership position in the cannabis industry by taking advantage of IMC
brand recognition, earning superior margins and leveraging its proprietary data and patient insights.
The Group faces competition in Israel from similar established medical cannabis brands
and manufacturers in the domestic market.
The Company expects that its experience and track record, attained via the combination of its
operations over the past decade and IMC brand recognition, will distinguish its offerings from competitors in the Israeli market. In addition,
the Company believes that with its integrated supply chain and indoor cultivation in Canada vis third parties suppliers, permitting the
export of premium and super-premium cannabis products to Israel, it is uniquely positioned to address the needs of medical cannabis patients
and customers.
The Company’s European operations will face competition from other entities
licensed to cultivate, produce and distribute medical cannabis products in each respective jurisdiction. In Germany, Adjupharm will compete
with a number of licensed manufacturers and distributors including currently established entities, expected new market entrants, and domestic
producers of cannabis. Competitors vary from well-capitalized businesses with substantial operations and revenues to smaller or newer
market entrants.
Intangible Properties
The Company relies on the licensing of its brand in Israel to widen its reach and
offer branding, marketing and other related services to participants in the Israeli medical cannabis industry. The Group also plans to
rely on the IMC brand to facilitate the distribution of cannabis products in international markets. The Group owns trademarks and trade
secrets that allow it to serve a range of cannabis industry participants.
“IMC” is a registered trade name and trademark valid in Israel through
May 2027, in Germany and in Portugal through the World Intellectual Property Organization through November 2027. In Canada,
the Company
applied for registration of the IMC name for use in connection with various food supplements, vitamins, minerals and proteins and is awaiting
a response to its submissions. As of the date of this Annual Report, the pending trademark application has been examined by Canada Patent
and Trademark Office. The opposition period ended on
March 19, 2022 and the trademark was registered on
September 26, 2022.
In February 2022,
the Company successfully completed the registration of its well-known
medical cannabis brand strain
“ROMA” as a trade name in Israel and is valid through July 2031. In addition,
the Company commenced
trademark applications for its new branding and the name
“I AM Cannabis” in Israel.
Government Regulations
To operate its business,
the Company must abide by applicable medical cannabis laws
in those countries in which it operates, namely Israel and Germany. Each jurisdiction has unique laws and regulations on the propagation,
cultivation, production, distribution, use, import and export of medical cannabis products and the current regulatory frameworks continue
to evolve.
The Company cooperates with the regulatory authorities in those jurisdictions in which it operates to ensure that it is at
all times in full compliance with applicable laws, rules and regulations.
Israel
In Israel, cannabis is currently defined as a “dangerous drug” according
to the Dangerous Drugs Ordinance (“DDO”) and the 1961 Single Convention on Narcotic
Drugs (“Narcotics Convention”), to which Israel is a signatory. However, both the DDO
and Narcotics Convention allow for the use of cannabis for medical or research purposes under a supervised and controlled regime. The
competent regulatory authority in Israel in all matters concerning the oversight, control and regulation of cannabis for medical production,
consumption, and research in Israel is the IMCA, established by Government Res. No. 3069. The production, distribution and consumption
of adult-use recreational cannabis products is currently illegal in Israel.
Patient Medical Consumption
The use of cannabis is allowed for patients and for medical purposes, in respect of
certain medical conditions, under a special approval of the MOH. Procedure 106 of the IMCA sets out a list of medical conditions that
are allowed to be treated with medical cannabis products. Such authorized medical conditions are examined and updated from time to time,
and include, among others, cancer, pain, nausea, seizures, muscle spasms, epilepsy, Tourette syndrome, multiple sclerosis, amyotrophic
lateral sclerosis, and post-traumatic stress disorder.
Licensing and Authorization
for Commercial Activities in the Medical Cannabis Field
In December 2017, the IMCA issued regulations that standardized the licensing process
for any cannabis related activity (the “Road Map”). Pursuant to the Road Map, each
operation in the medical cannabis field, including the propagation, cultivation, products manufacturing, storage and distribution to licensed
pharmacies, and distribution from licensed pharmacies to licensed patients, requires compliance with the provisions of applicable laws,
including the procurement of an appropriate license under the DDO from the IMCA and the maintenance of such license in good standing.
Cannabis licenses may not be transferred, exchanged or assigned without the prior approval of the IMCA. The licenses are valid for a period
of up to 3 years and can be renewed with the approval of the IMCA only.
The IMCA has issued a set of directives containing procedures and requirements for
applicants for cannabis related activity licenses and has authorized certain entities to issue official certificates upon compliance with
such directives. These directives include (i) Directive 150 (GSP Standard certification); (ii) Directive 151 (GAP Standard certification);
(iii) Directive 152 (GMP Standard certification); and (iv) Directive 153 (GDP Standard certification). Regular and periodic examinations
are conducted for licensed entities, in order to ensure compliance with the analytical standards and the level of quality required during
each of the phases of production and distribution of medical cannabis.
Medical Cannabis Imports
and Exports
The Narcotics Convention governs the import and export of cannabis between member
countries. Since Israel is a member country, any export and import of cannabis is subject to the Narcotic Convention.
In October 2020, the IMCA issued an updated procedure, titled
“Guidelines for Approval of Applications for Importation of Dangerous Drug of Cannabis Type for Medical Use and for Research”
(“
Procedure 109”), describing the application requirements for cannabis import licenses
for medical and research purposes. Therefore, each import of medical cannabis is to be approved by the IMCA issuing a specific import
permit for each imported shipment, rather than a general license for import. An application for import of medical cannabis can be submitted
by an entity licensed by the IMCA for the conduct of medical cannabis related activity. The Israeli government approved the export of
pharmaceutical-grade cannabis and cannabis-based products on
January 27, 2019, and in December 2020, the IMCA published guidelines for
the medical cannabis export permit application process.
Legalization of Adult-Use
Recreational Cannabis and CBD for Non-Medical Purposes in Israel
Currently, adult-use recreational cannabis use in Israel and CBD for non-medical use
is illegal. In November 2020, an Israeli government committee responsible for advancing the cannabis market reform published a report
supporting and recommending the legalization of adult-use recreational cannabis in Israel. The Israeli parliament dissolved since then
without applying the committee’s’ recommendations and all legislative initiatives were suspended. However, the new government,
formed on
June 13, 2021, declared, and settled in the coalition agreement, its commitment to legalization of adult-use recreational cannabis.
Since the formation of the new government, several legislative initiatives were filed, including for the decriminalization of the possession
of cannabis for individual recreational adult-use and the legalization of CBD for non-medical use. In February 2022, a Ministry of Health
committee contemplated the legality of CBD and published its recommendation that CBD should be excluded from the DDO. The main recommendations
of the committee were adopted by the Minister of Health, however, to date, the Minister has not enacted an order directing that CBD be
removed from the DDO. On
April 1, 2022, new regulations came into force which deemed the previously criminal offences of cannabis possession
and use for self-consumption into administrative offences, which do not impact a criminal record, and limited the penalty to a monetary
fine only.
Previous Regime and Price
Control
Until September 2019, under the previous regime, patients licensed
for consumption of medical cannabis products by the IMCA received all of their medical cannabis products authorized under their respective
licenses at a fixed monthly price of NIS 370, regardless of each patient’s authorized amount. Since September 2019, under the new
regime, licenses to patients were no longer entitling them for such fixed monthly price. However, some medical cannabis patient licenses
granted under the previous regime remain valid, entitling their holders to receive medical cannabis products pursuant to the price controls
and supplier restrictions of the former regime. All licenses under the previous regime expired in Q1 2022.
Regulatory Reform from
Licenses to Prescriptions for Medical Treatment of Cannabis
In August 2022, the MOH published a draft outline of the transition
reform from licenses to prescriptions for medical treatment of cannabis (the “
Proposed Outline”).
On
June 13, 2023, the health committee of the Knesset approved The Dangerous Drugs Regulations (Amendment), 2023 (hereinafter referred
to as the "
Regulations Amendment"), which entail a model change from issuing licenses to prescriptions
permits following the publication of the Proposed Outline. The Regulations Amendment allows accessibility and significant bureaucratic
relief for patients. The purpose of the new prescription model is to enable qualified specialist doctors (excluding general practitioner,
family physician, internal physician and pediatrician) to write prescriptions for medical cannabis for patients under the supervision
of health care providers (widely known as Kupat Holim), without requiring a usage license from the Ministry of Health.
The main changes in the Regulations Amendment are: (i) any specialized
doctor can issue permits without the need for specialized training; (ii) the permits for the use of cannabis will be in the form of prescriptions,
and not in the form of licenses from the MOH as the current framework requires; (iii) cannabis products can be sold in any pharmacy, and
not only in pharmacies that have received a special permit from the IMCA and a license from the MOH. The Regulations Amendment will come
into effect within 180 days from the date of their publication. To the best of
the Company's knowledge, the indications approved as part
of the Regulations Amendment encompass various conditions, such as oncological diseases, active inflammatory bowel disease, AIDS, Multiple
Sclerosis, Parkinson's disease, Tourette syndrome, epilepsy, autism, and dementia.
On
December 8, 2023,
the Company announced a 3-month delay of
the anticipated medical cannabis reform announced by the Israeli ministry of health on
August 7, 2023. Due to the Israel-Hamas war, the
anticipated implementation of the medical cannabis regulatory reform, originally scheduled for
December 29, 2023, has been postponed by
three months. The new regulations were designed to alleviate many of the stringent restrictions in the sector, thereby enhancing access
to medical cannabis for patients.
“Anti-Dumping”
investigation into cannabis imports from Canada
A notice on the Israeli Government’s
website dated
January 18, 2024,
was addressed to 10 different Canadian cannabis producers: Village Farms International, Organigram Holdings, Tilray Canada, Hexo Corp
(owned by Tilray), The Green Organic Dutchman, Canopy Growth Corporation, SNDL Inc., Cronos Group, Auxly Cannabis Group, Decibel Cannabis,
and all the medical cannabis manufacturers in Canada who export their goods to Israel.
The Commissioner for Trade Levies at the Ministry of Economy and Industry, announced
by virtue of his authority according to Section 24(d) of the Law on Trade Levies and Defence Measures, 5591 – 1991, of his decision
to open an investigation on his own initiative into the export import of cannabis from Canada, after he found that special circumstances
of actual damage exist or the probability of actual damage to the local manufacturing industry and a causal link between the imported
imports and said damage. The notice also included a letter sent to Michael Mancini, the Chief Commercial Counselor with the Embassy of
Canada, informing them of the investigation, dated
January 15, 2024.The Ministry of Economy and Industry issued a formal notice to the
public to respond to questionnaires regarding the
"Anti-Dumping" investigation.
Further to several requests received from the parties and in accordance with section
27(b) of the Law on Trade Levies and Defense Measures, 1991 which states that
"The Commissioner may, for special reasons that shall be
recorded, extend the period specified in subsection (a) by an additional period that shall not exceed 30 days." (the emphasis is not in
the original), the Commissioner decided that special conditions exist for extending the deadline for the submission of the required
materials as part of the investigation into the export of medical cannabis to Israel from Canada for 10 days until
March 10, 2024, Due
to constraints presented by the parties following the
"Iron Swords" war, mainly significant delays in the preparation of the materials
due to the absence of many workers as part of the extensive recruitment in Israel for the reserve service at this time and due to the
unique complexity of the Israeli cannabis market where many players are required to submit data both as producers and importer.
The Company
has submitted the relevant questionnaires regarding its
subsidiaries Focus and IMC Pharma, which are included in the investigation and
for its subsidiary Rosen High Way.
Germany
On
March 10, 2017, the German federal government enacted bill Bundestag-Drucksache 18/8965 – Law
amending narcotics and other regulations that amended existing narcotics legislation to recognize cannabis as a form of medicine and allow
for the importation and domestic cultivation of medical cannabis products. Under the updated legislation, cannabis is listed in Annex
3 to BtMG as a
“marketable narcotic suitable for prescription”. Legalization in Germany applies only to cannabis for medicinal
purposes under state control in accordance with the Narcotic Convention. Currently, the production, distribution, exportation and importation
of medical cannabis products in Germany is legal, subject to regulations and licensing requirements, while operations involving adult-use
recreational cannabis products remain illegal. Nevertheless, current German government has declared in the coalition agreement its intention
to open up the German market also in the adult-use recreational market. In October 2022, a key points paper on the controlled supply of
cannabis to adults for consumption purposes, although a restructuring of the existing regulatory framework on cannabis in general is also
discussed, published by the cabinet, which is to be submitted to the European Union Commission for a preliminary legal examination. In
this respect, the Federal Government intends to issue a declaration of interpretation with regard to existing international agreements
governing the adult-use recreational cannabis usage, and to submit a draft law to the European Union Commission within the framework of
a notification. After a long political debate, the German Bundestag approved the federal government's draft law
"on the controlled use
of cannabis" (BT Drs. 20/8704, BT Drs. 20/8763, BT-Drs. 20/10426) on Friday, 23 February 2024. The draft passed the German Bundesrat on
Friday, 22 March 2024, and will then essentially come into force on 1 April 2024 in accordance with Art. 15 of the draft. Some components
of Article 1 of the draft, which deals with so-called consumer cannabis, will not come into force until later (according to Art. 15 para.
2 of the draft, for example, not until 1 July 2024). This also has direct consequences for medicinal cannabis, which is the subject matter
of Art. 2 (Medical Cannabis Act - MedCanG) and 3 (BtMG) of the draft. With the entry into force of the draft law, cannabis is no longer
a narcotic by definition and is therefore no longer subject to the BtMG. The definition in Annex 3 of the BtMG will be replaced by that
in Section 2 MedCanG:
"Cannabis for medical purposes: plants, flowers and other parts of plants belonging
to the genus Cannabis that are grown for medical purposes under state control in accordance with Articles 23 and 28(1) of the Single Convention
on Narcotic Drugs of 1961 of 30 March 1961 (Federal Law Gazette 1973 II p. 1354), as well as delta-9-tetrahydrocannabinol including dronabinol
and preparations of all the aforementioned substances". However, the narcotics regulations will be replaced by comparable regulations
and authorisations. The Federal Institute for Drugs and Medical Devices (BfArM) will remain responsible for the latter as a higher federal
authority. From a regulatory perspective, medicinal cannabis will remain a medicinal product or an active pharmaceutical ingredient even
after the amendment of the law, meaning that the requirements under medicinal product law will remain in place. As a result, the marketing
of irradiated products will continue to require a marketing authorisation in accordance with the Ordinance on Medicinal Products Treated
with Radioactive or Ionising Radiation (AMRadV). Only the narcotics license pursuant to Section 3 BtMG will be replaced by a new licence
pursuant to the Medicinal Cannabis Act (MedCanG) (see Section 1), which, however, largely corresponds to the previous provisions of the
BTMG with regard to the application process and general regulations. However, there are the following differences that are new due to
the entry into force: Medicinal cannabis no longer has to be stored and transported like a narcotic.
Medical cannabis in Germany must comply with the corresponding monographs of the German
and European pharmacopoeia. Currently, there are only (non-harmonised) national pharmacopoeial monographs for cannabis flowers (e.g. in
the German Pharmacopoeia (Deutsches Arzneibuch (DAB)) and cannabis extracts (DAB) in the EU. The Committee on Herbal Medicinal Products
(HMPC) as the European Medicines Agency’s (EMA) committee responsible for compiling and assessing scientific data on herbal substances,
preparations and combinations, announced that in view of uniform EU quality requirements (including with respect to import and export
of cannabis), further European Pharmacopoeia (Ph. Eur.) Cannabis monographs are in preparation.
The European Pharmacopoeia (Ph. Eur.) Suppl. 11.5 is currently available and contains
the new Ph. Eur. Monograph on cannabis flowers and the new Ph. Eur. Monograph on Cannabidiol (CBD). According to the current status, the
Ph. Eur. Monograph on Cannabis Flowers will replace the currently existing national monographs (NL, DK, D and CH) from the official implementation
date (1 July 2024). However, there are various authorities that only want to refer to this monograph from the official translation into
German in Germany. The new monograph on cannabis flowers includes Starting materials for the production of extracts, medicinal products
that can be prescribed as such (= herbal medicinal products) that are taken by patients by inhalation or oral administration. There are
not entirely irrelevant changes compared to the German monograph.
All BtMG permit applications must specify the strains and estimated quantities of
medical cannabis involved and any subsequent changes must be reported to the Federal Opium Agency of Germany. The same applies with regard
to Sections 7, 8 MedCanG in relation to the future authorisation to trade in medicinal cannabis, although it is now apparent that no expected
annual quantities are to be specified. However, it can be assumed that the BfArM will nevertheless enquire about these due to the (albeit
somewhat reduced compared to the BtMG) reporting obligations in Sections 16 and 17 MedCanG and the Foreign Narcotics Trade Regulation,
which remains applicable (see Section 14 MedCanG).
Unlike cannabis, CBD is not subject to German narcotics laws, unless it is synthetic
CBD that has been included as a substance that can be prescribed and marketed in Annex 3 of the BtMG, which may or may not be subject
to German drug laws depending on its use and dosage. Annex 1 of the Ordinance on the Prescription of Medicinal Products stipulates that
CBD is in principle subject to prescription but does not specify a minimum quantity or a specific dosage form. However, a distinction
must be made between consumable products that naturally contain CBD and those that are infused with CBD extract; the European Commission
considers the latter to be a type of “food” and has recently indicated that all current novel food applications have at least
insufficient data on safety and therefore none of the applications can currently lead to approval. In light of the above, various products
containing CBD can be found in the German market. There are currently various court decisions that problematize CBD in food (specifically
food supplements) and in cosmetics (specifically, mouth oil). On the one hand, CBD is regarded as a medicinal substance and/or as a novel
food subject to authorization and therefore unsuitable for use in a foodstuff, and on the other hand as unsuitable for cosmetic use in
the mouth, as CBD would ultimately be consumed in this case.
Cultivation in Germany
and Distribution of Medical Cannabis Cultivated in Germany
The Cannabis Agency to oversee cultivation, harvesting, processing, quality control,
storage, packaging and distribution to wholesalers, pharmacists and manufacturers. The Cannabis Agency also regulates pricing of German-produced
medical cannabis products and serves as an intermediary of medical cannabis product sales between manufacturers, wholesalers and pharmacies
on a non-profit basis. In late 2018, the Cannabis Agency issued a call for tenders to award licenses for local medical cannabis cultivation
and distribution of German-cultivated medical cannabis products. The Cannabis Agency would serve as an intermediary in the supply chain
between such cultivation and distribution. In April 2019, three licenses for local cultivation were granted. In consequence three companies
in Germany cultivate on behalf of the Cannabis Agency of the BfArM. Each license permitted the holder to grow up to 200kg per year for
total production of 2,600kg per year collectively from the 13 cultivation lots and 10,400kg over the four-year license period. In July
2021, the BfArM launched the state sale of cannabis grown in Germany. Since then, pharmacies have been able to purchase medical cannabis
in pharmaceutical drug quality for the supply of patients from the BfArM via the portal
www.cannabisagentur.de. The sale from the BfArM
to pharmacies is at a price of 5.80 euros per gram.
The Cannabis Agency has no influence on the actual retail price of medical cannabis
products and is not responsible for the import of medical cannabis products and will therefore neither purchase nor distribute imported
medical cannabis products. As a wholesaler, the Cannabis Agency sells German-based medical cannabis products in its own name. The previously
time-consuming tendering and awarding of
contracts for the domestic cultivation of cannabis for medical purposes by the Cannabis Agency
and the subsequent purchase and distribution of the domestic harvest yields by the Cannabis Agency from the economic operators determined
in the course of the tendering procedure will no longer be necessary in future, due to the entry into force of the MedCanG.
Import volumes and procedures
The current regime permits the importation of cannabis plants and plant parts for
medicinal purposes under state control subject to the requirements under the Narcotic Convention, according to which, Germany must estimate
the expected demand of medical cannabis products for medical and research purposes for the following year and report such estimates to
the International Narcotics Control Board.
As a prerequisite to obtaining a German import license, the supplier must grow and
harvest in compliance with EU-GACP-Guidelines and manufacture in compliance with EU-GMP-Guidelines and certifications, or alternatively,
it is a pure EU-GACP product and the EU-GMP manufacturing steps then take place in Germany. All medical cannabis products imported to
Germany must derive from plant material cultivated in a country whose regulations comply with the Narcotic Convention and must comply
with the relevant monographs described in the German and European pharmacopeias. While these requirements also apply to the exportation
of medical cannabis products, the current German regime does not allow domestically cultivated medical cannabis products to be directly
sold to commercial entities other than the Cannabis Agency.
Dispensing Exclusively
via Pharmacies
Medical cannabis products imported pursuant to an import license under the BtMG (and future MedCanG) and
AMG/BtMG (and future MedCanG) permits are sold exclusively to wholesalers and pharmacies. Only the pharmacies are authorised for final
dispensing to patients on a prescription basis as ‘magistral preparations’, a term used in Europe to refer to medical products
prepared in a pharmacy in accordance to a medical prescription for an individual patient. Magistral preparations require certain manufacturing
steps in the pharmacy. Such manufacturing steps of the pharmacist typically include the testing and dosing of pre-packaged cannabis inflorescences
(typically referred to as “floss”), medical cannabis products for oral administration
(dronabinol), medical cannabis products for inhalation upon evaporation, and medical cannabis-infused teas. In addition to magistral preparations,
medical cannabis products are also marketable as pre-packaged, licensed drugs (e.g. Sativex®).
No U.S. Cannabis-Related Activities
The Group does not engage in any U.S. cannabis-related activities as defined in Canadian
Securities Administrators Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities.
Economic Dependence
In Israel,
the Company is substantially dependent on several categories of commercial
agreements to ensure the continuity of its operations and maintain its revenues, including:
|
• |
The intellectual property agreement dated April 2, 2019 and as amended on January 1, 2021, between IMC Holdings and Focus (the “ IP
Agreement”) and the Services Agreement dated April 2, 2019 and as amended on January 1, 2021, between IMC Holdings and Focus
(the “ Services Agreement” and together with the IP Agreement, the “ Commercial
Agreements”), whereby IMC Holdings derives economic benefit from Focus and whereby Focus (i) uses the IMC brand on an exclusive
basis for the sale of cannabis products; and (ii) engages IMC Holdings to provide certain management and consulting services. As a result
of the Company’s commercial relationship with Focus, it is dependent on Focus maintaining its licenses, as well as any ancillary
licenses required to carry on its operations in the Israeli medical cannabis industry. |
|
• |
Supply agreements with third party cannabis cultivators and suppliers to meet the Israeli market’s demand for the Company’s
products. |
|
• |
Purchase orders received from time to time for the sale of the Company’s products to pharmacies or distributors, either in
association with Focus or through the Company’s direct trading house operations. |
|
• |
Ongoing retail purchases of the Company’s products sold at the Israeli Pharmacies by Israeli medical cannabis patients.
|
For additional information on potential risks arising from
the Company’s economic
dependence on Focus, its commercial and supply agreements with third parties and its pharmacy operations, see “
Risk
Factors” above.
In Germany, Adjupharm is substantially dependent on the supply, sales and distribution
agreements with suppliers, German distributors, and pharmacies. Any failure to maintain the Adjupharm License in good standing could have
a material adverse effect on the Group. For additional information on potential risks arising from
the Company’s dependence on Adjupharm’s
operations, see “
Risk Factors” above.
C. Organizational
Structure
For more information on
the Company’s discontinued operations. Please see note
25 in the 2023 Annual Financial Statements. For more information, please see the section entitled
“Developments
During the Financial Year Ended December 31, 2023”.
D. Property,
Plants and Equipment
Total depreciated cost of property, plants and equipment as at
December 31, 2023 was
$5,058, compared to $5,221 as at
December 31, 2022, representing a decrease of $163 or 3%.
Additional information set forth under Note 10 of the 2023 Annual Financial Statements.
IMC Holdings leases a 368 square-meter facility in Kibutz Glil Yam for administrative
activities. The lease agreement will expire on
September 1, 2026 and will be renewed upon agreement between the parties.
IMC Holdings leased an 86.5 square-meter facility in Lod for storage activities. The
lease agreement was terminated on
June 30, 2023 and the lease term ended on that date.
Oranim Pharm leases a 140 square-meter facility in Jerusalem for pharmacy’s
selling activities. The lease will expire on
August 1, 2027 and will be renewed upon agreement between the parties.
Pharm Yarok leases a 178 square-meter facility in Netanya for pharmacy’s selling
activities. The lease was renewed on
February 9, 2023 and will expire on
December 31, 2024.
Adjupharm owns approximately 8,000 square feet of EU-GMP logistics center, which allows
Adjupharm to manage all aspects of its supply chain, including the production, repackaging and distribution of bulk medical cannabis.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5.
Operating and Financial Review and Prospects.
A. Operating
Results
In each of the markets in which
the Company operates,
the Company must navigate evolving
customer and patient trends in order to continue to be competitive with other suppliers of medical cannabis products.
The Company believes that there are several key factors creating tailwinds to facilitate
further industry growth. In Israel, the number of licensed medical patients continues to increase and currently stands at 137,467 as of
February 2024. This figure is expected to continue growing in the coming years and may further benefit from regulatory change liberalizing
the cannabis market in Israel. Moreover, the acquisitions of the Israeli Pharmacies positions IM Cannabis as a large distributor of medical
cannabis in Israel. As the Israeli cannabis market has become increasingly competitive, the ability to import premium cannabis from Canada
is a key determinant of
the Company’s success in Israel.
The German medical cannabis market has been slower over the past few years to develop
mainly due to the difficulty in medical patients accessing prescriptions and insurance reimbursements. Starting Year 2024 after the legalization
was officially approved by the Bundestag (Germany Parliament) on March 1
st
2024,
The Company which has already seen an increase in the number of patients paying out-of-pocket for medical cannabis products
in Germany during the past few years, is expecting a change which will lead to increase in the market.
REVENUES
The revenues of the Group from continuing operations are primarily generated from
sales of medical cannabis products to customers in Israel and Germany. The reportable geographical segments in which
the Company operates
are Israel and Germany.
For the year ended December 31:
|
|
Israel |
|
|
Germany |
|
|
Adjustments |
|
|
Total |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenues |
|
$ |
43,316 |
|
|
$ |
50,500 |
|
|
$ |
5,488 |
|
|
$ |
3,835 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
48,804 |
|
|
$ |
54,335 |
|
Segment income (loss) |
|
$ |
(6,627 |
) |
|
$ |
(23,606 |
) |
|
$ |
(1,615 |
) |
|
$ |
(3,225 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(8,242 |
) |
|
$ |
(26,831 |
) |
Unallocated corporate expenses |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(4,550 |
) |
|
$ |
(3,960 |
) |
|
$ |
(4,550 |
) |
|
$ |
(3,960 |
) |
Total operating (loss) income |
|
$ |
(6,627 |
) |
|
$ |
(23,606 |
) |
|
$ |
(1,615 |
) |
|
$ |
(3,225 |
) |
|
$ |
(4,550 |
) |
|
$ |
(3,960 |
) |
|
$ |
(12,792 |
) |
|
$ |
(30,791 |
) |
Depreciation, amortization & impairment
|
|
$ |
2,823 |
|
|
$ |
6,747 |
|
|
$ |
173 |
|
|
$ |
200 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,996 |
|
|
$ |
6,947 |
|
For the three months ended December 31:
|
|
Israel |
|
|
Germany |
|
|
Adjustments |
|
|
Total |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenues |
|
$ |
9,375 |
|
|
$ |
13,136 |
|
|
$ |
1,323 |
|
|
$ |
1,325 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
10,698 |
|
|
$ |
14,461 |
|
Segment income (loss) |
|
$ |
(3,653 |
) |
|
$ |
(10,280 |
) |
|
$ |
(580 |
) |
|
$ |
(517 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(4,233 |
) |
|
$ |
(10,797 |
) |
Unallocated corporate income (expenses)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(932 |
) |
|
$ |
90 |
|
|
$ |
(932 |
) |
|
$ |
90 |
|
Total operating (loss) income |
|
$ |
(3,653 |
) |
|
$ |
(10,280 |
) |
|
$ |
(580 |
) |
|
$ |
(517 |
) |
|
$ |
(932 |
) |
|
$ |
90 |
|
|
$ |
(5,165 |
) |
|
$ |
(10,707 |
) |
Depreciation, amortization & impairment
|
|
$ |
684 |
|
|
$ |
4,957 |
|
|
$ |
47 |
|
|
$ |
48 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
731 |
|
|
$ |
5,005 |
|
The consolidated revenues of the Group from continuing operations for the year ended
December 31, 2023, were attributed to the sale of medical cannabis products in Israel and Germany.
|
● |
Revenues from continuing operations for the year ended December 31, 2023 and 2022 were $48,804 and $54,335, respectively, representing
a decrease of $5,531 or 10%. Revenues for the three months ended December 31, 2023, and 2022 were $10,698 and $14,461, respectively,
representing a decrease of $3,763 or 26%. The decrease in revenues is primarily attributed to the effects of the Israel – Hamas
war and the different challenges it caused from a business perspective effecting the Company sells and also its operation activities such
as longer importing cycles (transportation of goods, approvals from relevant authorities etc.) |
|
● |
Revenues from the Israeli operation were attributed to the sale of medical cannabis through the Company’s agreement with Focus
Medical and the revenues from the Israeli Pharmacies the Company owns, mostly from cannabis products. |
|
● |
In Germany, Company revenues were attributed to the sale of medical cannabis through Adjupharm. |
|
● |
Total dried flower sold for the year ended December 31, 2023, was 8,609 kg at an average selling price of $5.14 per gram compared
to 6,794kg for the same period in 2022 at an average selling price of $7.12 per gram, mainly attributed to the inventory life cycle, discounts
given and increased competition in the segment. Total dried flower sold for the three months ended December 31, 2023, was 2,082kg at an
average selling price of $4.52 per gram compared to 2,334kg for the three months ended December 31, 2022, at an average selling price
of $5.19 per gram. The decreased is mainly attributed to the Israel – Hamas war effect. |
COST OF REVENUES
Cost of revenues is comprised of purchase of raw materials and finished goods, import
costs, production costs, product laboratory testing, shipping and salary expenses. Inventory is later expensed to the cost of sales when
sold. Direct production costs are expensed through the cost of sales.
The cost of revenues from continuing operations for the year ended
December 31, 2023
and
2022 were $37,974 and $43,044, respectively, representing a decrease of $5,070 or 12% which is in line with the 10% revenue decreased
during the period. The cost of revenues for the three months ended
December 31, 2023 and
2022 were $9,583 and $11,670, respectively, representing
a decrease of $2,087 or 18% which is in line with the Revenue decreased of 26% during the 3 months period.
GROSS PROFIT
Gross profit from continuing operations for the year ended
December 31, 2023, and
2022 was $9,846 and $9,162, respectively, representing an increase of $684 or 7% this is mainly contributed to the changes in the business
activities from own cannabis grow in the farm owned by
the Company in Y2022 to importing a premium high quality Cannabis from Canada.
For the three months ended
December 31, 2023, and
2022 gross profit was $841 and $2,603, respectively, representing a decrease of $1,762
or 68%.
Gross profit included losses from unrealized changes in fair value of biological assets
and realized fair value adjustments on inventory sold of $(984) and $(2,129) for the year ended
December 31, 2023, and
2022, respectively.
Losses from unrealized changes in fair value of biological assets and realized fair value adjustments on inventory sold for the three
months ended
December 31, 2023, and
2022 were $(274) and $(188), respectively.
There are a few other external circumstances that affected the profitability during year 2023 including
of fluctuation in the exchange rate of the CAD vs.NIS, as can be seen in the following graph:
YE 2023 results were affected by the CAD/ILS exchange rate (Revenue are mainly
in ILS while the COST of Revenue as well as operational expenses are mainly in CAD, therefore any increased strength of the CAD will hit
the Gross Profit while any increased strength of the ILS will have the opposite effect.
Q4 2023 gross profit is highly affected by the Israel – Hamas war. The main
effect was due to sells decrease from one side (equivalent to the effect of the war also in other Israeli markets), and slow inventory
transportation processes and regulatory approvals processes which caused delays in Inventory ready for sells during the quarter.
EXPENSES
GENERAL AND ADMINISTRATIVE
General and administrative expenses from continuing operations for the year ended
December 31, 2023, and
2022 were $11,008 and $21,460, respectively, representing a decrease of $10,452 or 49%. For the three months ended
December 31, 2023, and
2022, general and administrative expenses from continuing operations were $3,300 and $9,790, respectively, representing
a decrease of $6,490 or 66%.
The decrease in the general and administrative expense is attributable mainly to the
two restructuring plans published
April 6, 2022 (closing of Focus facility in Israel) and
March 8, 2023, which aimed for reorganization
of
the company's management and operations to strengthen its focus on core activities and drive efficiencies to realize sustainable profitability.
The Company reduced its workforce in Israel across all functions. The general and administrative expenses are comprised mainly from salaries
to employees in the amount of $2,314 on year 2023 vs $4,027 on year 2022, professional fees in the amount of $4,095 vs $4,689 for the
same years , depreciation and amortization in the amount of $669 vs. 819 and insurance costs in the amount of $1,847 and 1,566 respectively.
The decrease in the other General and administrative costs from $10,359 in Year 2022 to $2,083 on year 2023 is mainly attributed to the
fair value adjustment occur in Year 2022 of
the Company’s purchase option to acquire a pharmacy. See” Subsequent
Events – Panaxia Transaction Update” of the 2022 MD&A in a total amount of $7,336.
SELLING AND MARKETING
Selling and marketing expenses from continuing operations for the year ended
December
31, 2023, and
2022 were $10,788 and $11,473, respectively, representing a decrease of $685 or 6%. For the three months ended
December
31, 2023, selling and marketing expenses from continuing operations were $2,797, compared to $3,094 for the three months ended
December
31, 2022, representing a decrease of $297 or 10%. The decrease in the selling and marketing expenses was due mainly to decrease salaries
to employees in the amount of $5,677 on year 2023 vs $6,398 on year 2022, Selling and marketing in the amount of $1,568 and 2,075 for
the same years, increase of depreciation and amortization to $2,320 from $1,941 respectively.
RESTRUCTURING EXPENSES
On
April 6, 2022, Focus Medical announced its decision, from
March 30, 2022, to close
the Focus Facility in Israel and therefore
the Company recorded restructuring expenses related to impairment of property, plant and equipment,
biological assets and right of use asset and liabilities, in the total amount of $4,383.
On
March 8, 2023,
the Company announced its strategy plan in Israel of reorganization
of
the company's management and operations in order to strengthen its focus on core activities and drive efficiencies to realize sustainable
profitability.
The Company reduced its workforce in Israel by 36% across all functions (including executives). Therefore,
the Company
recorded restructuring expenses for the year ended
December 31, 2023 related mainly to salaries to employees in the amount of $617.
SHARE-BASD COMPENSATION
Share-based compensation expense from continuing operations for the year ended
December
31, 2023, and
2022 was $225 and $2,637, respectively, representing a decrease $2,412 or 91%. For the three months ended
December 31, 2023,
and
2022, share-based compensation expense was $(91) and $428, respectively, representing a decrease of $519 or 121%. The decrease for
the year ended
December 31, 2023, in expenses was mainly attributed to the cancellation of incentive stock options (“
Options”)
held by employees who no longer worked for
the Company.
FINANCING
Financing income (expense) net from continuing operations for the year ended
December
31, 2023, and
2022 was $3,335 and $4,731, respectively, representing a decrease of $1,396 or 30% in the financing income. For the three
months ended
December 31, 2023, and
2022, financing income (expense), net was $2,466 and $949, respectively, representing an increase
of $1,517 or 160%.
NET INCOME/LOSS
Net loss for the year ended
December 31, 2023, and
2022 was $10,228 and $191,301,
respectively, representing a net loss decrease of $181,073 or 95%. For the three months ended
December 31, 2023, and
2022, net loss was
$3,520 and $33,449, respectively, representing a net loss increase of $29,929 or 89%. The net loss decrease related to factors impacting
net income described above, and loss from discontinued operations in the amount of $166,379 recorded in the year ended
December 31, 2022
related to the discontinued operations in Canada.
NET INCOME (LOSS) PER SHARE BASIC AND DILUTED
Basic loss per share is calculated by dividing the net profit attributable to holders
of Common Shares by the weighted average number of Common Shares outstanding during the period. Diluted profit per Common Share is calculated
by adjusting the earnings and number of Common Shares for the effects of dilutive warrants and other potentially dilutive securities.
The weighted average number of Common Shares used as the denominator in calculating diluted profit per Common Share excludes unissued
Common Shares related to Options as they are antidilutive. Basic Income (Loss) per Common Share from continuing operations for the year
ended
December 31, 2023, and
2022 were $(0.74) and $(3.13) per Common Share, respectively. For the three months ended
December 31, 2023,
and
2022 were $(0.25) and $(2.94), respectively.
Diluted Income (Loss) per Common Share from continuing operations for the year ended
December 31, 2023 and
2022 were $(0.74) and $(3.81) per Common Share, respectively. Diluted Income (Loss) per Common Share for the three
months ended
December 31, 2023, and
2022 were $(0.25) and $(3.55), respectively.
TOTAL ASSETS
Total assets as of
December 31, 2023 were $48,813, compared to $60,675 as at
December
31, 2022, representing a decrease of $11,862 or 20%. This decrease was primarily due to the reduction of cash and cash equivalents in
the amount of $636 and inventory reduction of $6,609. Additional decrease is attributed to currency fluctuation effected the translation
of items denominated in NIS in
the Company’s balance sheet.
INVESTMENT IN XINTEZA
On
December 26, 2019, IMC Holdings entered into a share purchase agreement with Xinteza
API Ltd. (“
Xinteza”), a company with a unique biosynthesis technology, whereby the
Company acquired, on an as-converted and fully diluted basis, 25.37% of Xinteza’s outstanding share capital, for consideration of
US$1,700 (approximately $2,165 as of
December 31, 2021) paid in several installments (the “
Xinteza
SPA”). As of
December 31, 2022,
the Company has paid all outstanding installments pertaining to the Xinteza SPA and currently
holds 23.35% of the outstanding share capital of Xinteza on an as-converted and fully diluted basis. On
February 24, 2022, IMC Holdings
entered into a simple agreement for future equity with Xinteza, under which IMC Holdings paid US$100 (approximately $125), in exchange
for the right to certain shares of Xinteza, (see also the financial statements note 17c).
TOTAL LIABILITIES
Total liabilities as of
December 31, 2023, were $35,113, compared to $36,879 at
December 31, 2022, representing
a decrease of $1,766 or 5%. The decrease was mainly due to the reduction in trade payables in the amount of $6,089, off set by increase
in bank loans and credit facilities in the amount of $2,873, and a decrease in other payables in the amount of $629. Additional decrease
is attributed to the effect of translation of items denominated in NIS in
the Company’s balance sheet.
B.
Liquidity and Capital Resources
The Company can face liquidity fluctuations from time to time, resulting from delays
in sales and slow inventory movements.
In January 2022, Focus entered into a revolving credit facility with an Israeli bank,
Bank Mizrahi (the “Mizrahi Facility”). The Mizrahi Facility is guaranteed by Focus
assets. Advances from the Mizrahi Facility will be used for working capital needs. The Mizrahi Facility has a total commitment of up to
NIS 15 million (approximately $6,000) and has a one-year term for on-going needs and 6 months term for imports and purchases needs. The
Mizrahi Facility is renewable upon mutual agreement by the parties. The borrowing base is available for draw at any time throughout the
Mizrahi Facility and is subject to several covenants to be measured on a quarterly basis (the “Mizrahi
Facility Covenants”).
The Mizrahi Facility bears interest at the Israeli Prime interest rate plus 1.5%.
During the first quarter of 2023
the Company reduced total commitment to NIS 10,000 (approx. $3,600) and as of
September 30, 2023 Focus
has drawn down $nil in respect of the Mizrahi Facility.
On
May 17, 2023,
the Company and Bank Mizrahi entered to new credit facility with
total commitment of up to NIS 10,000 (approximately $3,600) (the “
New Mizrahi Facility”).
The New Mizrahi Facility consists of NIS 5,000 credit line and NIS 5,000 loan to be settled with 24 monthly installments from
May 17,
2023. This loan bears interest at the Israeli Prime interest rate plus 2.9%. As of
December 31, 2023 Focus has drawn down $3,227 in respect
of the new Mizrahi facility (comprised of approx. $1,827 credit line and $1,400 loan). The New Credit facility is also subject to several
covenants to be measured on a quarterly basis which are not met as of
December 31, 2023, therefore the loan is classified as short-term
loan.
The Company's CEO and director, provided to the bank a personal guarantee in the amount
of the outstanding borrowed amount, allowing the New Mizrahi Facility to remain effective.
Between
January 16, 2023 to
February 16, 2023,
the Company completed the LIFE Offering,
comprised of an aggregate of 2,828,248 Units issued and sold under the Life Offering for an aggregate gross proceeds of US$3,535, such
amount exclusive of 131,700 Units issued to a director of
the Company as part of the LIFE Offering whose subscription price was satisfied
by the settlement of US$164 in debt owed by
the Company to the director.
Concurrently,
the Company completed the Concurrent Offering, comprised of an aggregate
of 2,317,171 Units issued and sold under the Concurrent Offering for an aggregate gross proceeds of US$2,896.
As of
December 31, 2023, the Group's cash and cash equivalents totaled $1,813 and
the Group's working capital deficit from continuing operations (current assets less current liabilities) amounted to ($8,543). In the
year ended
December 31, 2023, the Group had an operating loss from continuing operation of ($12,792) and negative cash flows from continuing
operating activities of ($5,075).
The Group’s current operating budget includes various assumptions concerning
the level and timing of cash receipts from sales and cash outlays for operating expenses and capital expenditures.
The Company is managing
its cash flow daily and will look for external funding for its operations. Cost saving plans and restructuring actions taken in 2022 and
in 2023.
The Company’s board of directors approved a cost saving plan, implemented in whole or in part, to allow
the Company to
continue its operations and meet its cash obligations. The cost saving plan consists of cost reduction due to efficiencies and synergies,
which include mainly the following steps: discontinuing operation of loss-making activities, reduction in payroll and headcount, reduction
in compensation paid to key management personnel (including layoffs of key executives), operational efficiencies and reduced capital expenditures.
These conditions raise substantial doubt about
the Company’s ability to continue
as a going concern. The Annual Financial Statements do not include any adjustments relating to the recoverability and classification of
assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.
As of
December 31, 2023, the Group’s financial liabilities consisted of accounts
payable which have contractual maturity dates within one year. The Group manages its liquidity risk by reviewing its capital requirements
on an ongoing basis. Based on the Group’s working capital position on
December 31, 2023, management considers liquidity risk to
be high.
As of
December 31, 2023, the Group has identified the following liquidity risks related
to financial liabilities (undiscounted):
|
|
Less than one year |
|
|
1 to 5 years |
|
|
6 to 10 years |
|
|
> 10 years |
|
Contractual Obligations |
|
$ |
12,618 |
|
|
$ |
1,293 |
|
|
|
- |
|
|
|
- |
|
The maturity profile of
the Company’s other financial liabilities (trade payables,
other account payable and accrued expenses, and warrants) as of
December 31, 2023, are less than one year.
| |
Payments Due by Period |
|
Contractual Obligations
|
|
Total |
|
|
Less than one year |
|
|
1 to 3 years |
|
|
4 to 5 years |
|
|
After 5 years |
|
Debt |
|
$ |
12,513 |
|
|
$ |
12,119 |
|
|
$ |
394 |
|
|
$ |
- |
|
|
$ |
- |
|
Finance Lease Obligations |
|
$ |
1,398 |
|
|
$ |
499 |
|
|
$ |
814 |
|
|
$ |
85 |
|
|
$ |
- |
|
Total Contractual Obligations
|
|
$ |
13,911 |
|
|
$ |
12,618 |
|
|
$ |
1,208 |
|
|
$ |
85 |
|
|
$ |
- |
|
The Annual Financial Statements have been prepared on the basis of accounting principles
applicable to a going concern, which assumes that
the Company will continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal course of operations. The Annual Financial Statements do not include any
adjustments to the amounts and classification of assets and liabilities that would be necessary should
the Company be unable to continue
as a going concern. Such adjustments could be material.
C.
Research and Development, Patents and Licenses, etc.
For a discussion of our licenses, see “Item 4.B. Business Overview.”
Canada
The Company is concentrating on leveraging its skilled sourcing team and strategic alliances with Canadian
suppliers and imports medical cannabis from third-party licensed facilities in Canada.
The Company continues to import cannabis products
and supply medical cannabis to patients through licensed pharmacies. To supplement growing demand,
the Company continue its relationships
with third-party cultivation facilities in Israel for the propagation and cultivation of
the Company’s existing proprietary genetics
and for the development of new products.
In addition,
the Company is operating through its
subsidiaries who obtained a license
from the IMCA to, among others, import cannabis products and supply medical cannabis to patients.
Israel
Pursuant to the applicable Israeli cannabis regulations, following the import of medical
cannabis, medical cannabis products are then packaged by contracted GMP licensed producers of medical cannabis. The packaged medical cannabis
products are then sold by the Group under
the Company’s brands to local Israeli pharmacies directly or through contracted distributors.
Germany
The Company continues to expand its presence in the German market by forging partnerships
with pharmacies and distributors across the country and developing Adjupharm and its Logistics Center as
the Company’s European
hub. Adjupharm sources its supply of medical cannabis for the German market and from various EU-GMP certified European and Canadian suppliers.
The Logistics Center is EU-GMP certified, upgrading Adjupharm’s production technology and increasing its storage capacity to accommodate
its anticipated growth. Adjupharm has a certification for primary repackaging, making it one of a handful of companies in Germany fully
licenced to repack bulk.
Adjupharm currently holds wholesale, narcotics handling, manufacturing, procurement,
storage, distribution, and import/export licenses granted to it by the applicable German regulatory authorities.
D.
Trend Information
In each of the markets in which
the Company operates,
the Company must navigate evolving
customer and patient trends in order to continue to be competitive with other suppliers of medical cannabis products.
The Company believes that there are several key factors creating tailwinds to facilitate
further industry growth. In Israel, the number of licensed medical patients continues to increase and currently stands at 137,467 as of
February 2024. This figure is expected to continue growing in the coming years and may further benefit from regulatory change liberalizing
the cannabis market in Israel. Moreover, the acquisitions of the Israeli Pharmacies positions IM Cannabis as a large distributor of medical
cannabis in Israel. As the Israeli cannabis market has become increasingly competitive, the ability to import premium cannabis from Canada
is a key determinant of
the Company’s success in Israel.
The German medical cannabis market has been slower over the past few years to develop
mainly due to the difficulty in medical patients accessing prescriptions and insurance reimbursements. Starting Year 2024 after the legalization
was officially approved by the Bundestag (Germany Parliament) on March 1st 2024,
the Company which has already seen an increase
in the number of patients paying out-of-pocket for medical cannabis products in Germany during the past few years, is expecting a change
which will lead to increase in the market.
Other than as disclosed here and elsewhere in this Annual Report, we are not aware
of any trends, uncertainties, demands, commitments or events for the period from
January 1, 2023 to
December 31, 2023 that are reasonably
likely to have a material adverse effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources,
or that would cause our reported financial information not necessarily to be indicative of future operating results or financial condition.
For a discussion of trends, see
“Item 4.B.- Business Overview.”
E.
Critical Accounting Estimates
The consolidated financial statements of the Group have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The Group's
financial statements have been prepared on a cost basis, except for:
- Financial instruments
which are presented at fair value through profit or loss.
- Biological assets which
are presented at fair value less cost to sell up to the point of harvest.
In the process of applying the significant accounting policies, the Group has made
the following judgments which have the most significant effect on the amounts recognized in the financial statements:
Functional currency, presentation currency and foreign currency
The functional currency of
the Company is the Canadian dollar (
"CAD"). The Group determines
the functional currency of each Group entity.
Assets, including fair value adjustments upon acquisition, and liabilities of an investee
which is a foreign operation, and of each Group entity for which the functional currency is not the presentation currency are translated
at the closing rate at each reporting date. Profit or loss items are translated at average exchange rates for all periods presented. The
resulting translation differences are recognized in other comprehensive income (loss). Upon the full or partial disposal of a foreign
operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which had been
recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which results
in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is reattributed
to non-controlling interests.
Transactions denominated in foreign currency are recorded upon initial recognition
at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign
currency are translated at each reporting date into the functional currency at the exchange rate at that date. Exchange rate differences,
other than those capitalized to qualifying assets or accounted for as hedging transactions in equity, are recognized in profit or loss.
Non-monetary assets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into
the functional currency using the exchange rate prevailing at the date when the fair value was determined.
JUDGMENTS
Determining the fair
value of share-based payment transactions
The fair value of share-based payment transactions is determined upon initial recognition
by an acceptable option pricing model. The inputs to the model include share price, exercise price and assumptions regarding expected
volatility, expected life of share option and expected dividend yield.
Variable lease payments
that depend on an index:
On the commencement date, the Group uses the index rate prevailing on the commencement
date to calculate the future lease payments. For leases in which the Group is the lessee, the aggregate changes in future lease payments
resulting from a change in the index are discounted (without a change in the discount rate applicable to the lease liability) and recorded
as an adjustment of the lease liability and the right-of-use asset, only when there is a change in the cash flows resulting from the change
in the index (that is, when the adjustment to the lease payments takes effect).
ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements requires management to make estimates
and assumptions that influence the application of the accounting policies and on the reported amounts of assets, liabilities, revenues,
and expenses. Changes in accounting estimates are reported in the period of the change in estimate.
The key assumptions made in the financial statements concerning uncertainties at the
reporting date and the critical estimates computed by the Group that may result in a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below.
ASSESSMENT OF GOING CONCERN
The use of the going concern basis of preparation of the financial statements. At
each reporting period, management assesses the basis of preparation of the financial statements. The going concern basis of presentation
assumes that
the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities
and commitments in the normal course of business.
The Group’s current operating budget includes various assumptions concerning
the level and timing of cash receipts from sales and cash outlays for operating expenses and capital expenditures. Restructuring Plans
and actions taken in 2022 and in 2023.
The Company’s board of directors approved on year 2023 a cost saving plan, to allow
the Company
to continue its operations and meet its cash obligations. The cost saving plan consists of cost reduction due to efficiencies and synergies,
which include mainly the following steps: discontinued operations of loss-making activities, reduction in payroll and headcount, reduction
in compensation paid to key management personnel (including layoffs of key executives), operational efficiencies and reduced capital expenditures.
On year 2024,
the company will work for fund and/or debt raising and will continue with cost savings effort as well as increased efficiency.
These conditions raise substantial doubt about
the Company’s ability to continue
as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification
of assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.
BIOLOGICAL ASSETS
The Group’s biological assets consist of cannabis plants. The Group capitalizes
the direct and indirect costs incurred related to the biological transformation of the biological assets between the point of initial
recognition and the point of harvest. The direct and indirect costs of biological assets are determined using an approach similar to the
capitalization criteria outlined in IAS 2, Inventory. These costs include the direct cost of planting and growing materials as well as
other indirect costs such as utilities and supplies used in the cultivation process. Indirect labor for individuals involved in the cultivation
and quality control process is also included, as well as depreciation on growing equipment and overhead costs such as rent to the extent
it is associated with the growing space. All direct and indirect costs of biological assets are capitalized as they are incurred, and
they are all subsequently recorded within the line item cost of revenues on the Group’s statements of profit or loss and other comprehensive
income in the period that the related product is sold. The Group then measures the biological assets at fair value less cost to sell up
to the point of harvest, which becomes the basis for the cost of inventory after harvest. The fair value is determined using a model which
estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling
price per gram and also for any additional costs to be incurred (e.g., post-harvest costs). The net unrealized gains or losses arising
from changes in fair value less cost to sell during the period are included in the gross profit for the related period and are recorded
in a separate line on the face of the Group’s statements of profit or loss and other comprehensive income. Determination of the
fair values of the biological assets requires the Group to make assumptions about how market participants assign fair values to these
assets. These assumptions primarily relate to the level of effort required to bring the cannabis up to the point of harvest, costs to
convert the harvested cannabis to finished goods, sales price, risk of loss, expected future yields from the cannabis plants and estimating
values during the growth cycle. The Group accretes fair value on a straight-line basis according to stage of growth (e.g., a cannabis
plant that is 50% through its growing cycle would be ascribed approximately 50% of its harvest date expected fair value, subject to wastage
adjustments).
The fair value of biological assets is categorized within Level 3 of the fair value
hierarchy. For the inputs and assumptions used in determining the fair value of biological assets. The Group’s estimates are, by
their nature, subject to change and differences from the anticipated yield will be reflected in the gain or loss on biological assets
in future periods.
BUSINESS COMBINATIONS AND GOODWILL
Business combinations are accounted for by applying the acquisition method. The cost
of the acquisition is measured at the fair value of the consideration transferred on the acquisition date with the addition of non-controlling
interests in the acquiree. In each business combination,
the Company chooses whether to measure the non-controlling interests in the acquiree
based on their fair value on the acquisition date or at their proportionate share in the fair value of the acquiree's net identifiable
assets. Direct acquisition costs are carried to the statement of profit or loss as incurred.
In a business combination achieved in stages, equity interests in the acquiree that
had been held by the acquirer prior to obtaining control are measured at the acquisition date fair value while recognizing a gain or loss
resulting from the revaluation of the prior investment on the date of achieving control. Contingent consideration is recognized at fair
value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9. Subsequent changes in the fair
value of the contingent consideration are recognized in profit or loss. If the contingent consideration is classified as an equity instrument,
it is measured at fair value on the acquisition date without subsequent remeasurement.
Goodwill is initially measured at cost which represents the excess of the acquisition
consideration and the amount of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If the resulting
amount is negative, the acquirer recognizes the resulting gain on the acquisition date
IMPAIRMENT OF FINANCIAL ASSETS
The Group evaluates at the end of each reporting period the loss allowance for financial
debt instruments measured at amortized cost. The Group has short-term financial assets, principally trade receivables, in respect of which
the Group applies a simplified approach and measures the loss allowance in an amount equal to the lifetime expected credit losses. The
impairment loss, if any, is recognized in profit or loss with a corresponding allowance that is offset from the carrying amount of the
assets.
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Group evaluates the need to record an impairment of non-financial assets whenever
events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets
exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value
less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount
rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is
determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss. An impairment
loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable
amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower
of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for
the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit
or loss.
The following criteria are applied in assessing impairment of these specific assets:
The Group reviews goodwill for impairment once a year, on December 31, or more frequently
if events or changes in circumstances indicate that there is an impairment.
Goodwill is tested for impairment by assessing the recoverable amount of the cash-generating
unit (or group of cash-generating units) to which the goodwill has been allocated.
The Company identified the operations in Israel, Canada,
and Europe as three separate cash-generating units.
An impairment loss is recognized if the recoverable amount of the cash-generating
unit (or group of cash-generating units) to which goodwill has been allocated is less than the carrying amount of the cash-generating
unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognized for goodwill
cannot be reversed in subsequent periods.
LEGAL CLAIMS
A provision for claims is recognized when the Group has a present legal or constructive
obligation as a result of a past event, it is more likely than not that an outflow of resources embodying economic benefits will be required
by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation.
PUT OPTION GRANTED TO NON-CONTROLLING INTERESTS
When the Group grants non-controlling interests a put option, the non-controlling
interests are classified as a financial liability and are not accorded their share in the subsidiary's earnings. At each reporting date,
the financial liability is measured on the basis of the estimated present value of the consideration to be transferred upon the exercise
of the put option / based on the fair value of the consideration. Changes in the amount of the liability are recorded in profit or loss.
DEFERRED TAX
Deferred taxes are computed in respect of temporary differences between the carrying
amounts in the financial statements and the amounts attributed for tax purposes. Deferred taxes are measured at the tax rate that is expected
to apply when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted by
the reporting date.
Deferred tax assets are reviewed at each reporting date and reduced to the extent
that it is not probable that they will be utilized. Deductible carry forward losses and temporary differences for which deferred tax assets
had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their
utilization is probable.
Deferred taxes in respect of investment property that is held with the objective of
recovering substantially all of the economic benefits embedded in the investment property through sale and not through use are measured
in accordance with the expected manner of recovery of the base asset, on the basis of sale rather than use.
When
the Company owns an investment in a single property company and the manner in
which
the Company expects to dispose of the investment is by selling the shares of the property company rather than by selling the property
itself,
the Company recognizes deferred taxes for both inside temporary differences arising from the difference between the carrying amount
of the property and its tax basis, and for outside temporary differences arising from the difference between the tax basis of the investment
and
the Company's carrying amount of the net assets of the investment in the consolidated financial statements. Taxes that would apply
in the event of the disposal of investments in investees have not been considered in computing deferred taxes, if the disposal of the
investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution
of earnings by investees as dividends have not been considered in computing deferred taxes, since the distribution of dividends does not
involve an additional tax liability or since it is
the Company's policy not to initiate distribution of dividends from a subsidiary that
would trigger an additional tax liability. Taxes on income that relate to distributions of an equity instrument and to transaction costs
of an equity transaction are accounted for pursuant to IAS 12. Deferred taxes are offset if there is a legally enforceable right
to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation
authority.
SHARE-BASED PAYMENTS
The Company uses the Black-Scholes option pricing model in determining the fair value
of Options issued to employees. In estimating fair value,
the Company is required to make certain assumptions and estimates such as the
expected life of the options, volatility of
the Company’s future share price, the risk-free rate, future dividend yields and estimated
forfeiture rates at the initial grant date.
ESTIMATED USEFUL LIVES AND DEPRECIATION/AMORTIZATION OF PROPERTY AND EQUIPMENT, AS
WELL AS INTANGIBLE ASSETS
Property, plant and equipment are measured at cost, including directly attributable
costs, less accumulated depreciation, accumulated impairment losses and excluding day-to-day servicing expenses. Cost includes spare parts
and auxiliary equipment that are used in connection with plant and equipment. A part of an item of property, plant and equipment
with a cost that is significant in relation to the total cost of the item is depreciated separately using the component method.
Depreciation of property, plant and equipment is dependent upon estimates of useful
lives and residual values which are determined through the exercise of judgement and calculated on a straight-line basis over the useful
lives of the assets at annual rates.
LEASES
Judgment is used in determining the value of
the Company’s right-of-use assets
and lease liabilities. The value determined for
the Company’s right-of-use assets and lease liabilities can be materially different
based on the discount rate selected to present value the future lease payments as well as the likelihood of
the Company exercising extensions,
termination, and/or purchase options. The discount rate used to present value the future lease payments over the life of the lease is
based on
the Company’s incremental borrowing rate at inception of the lease. This rate is determined by
the Company using judgment.
In determining the value of
the Company’s right-of-use assets and lease liabilities,
the Company assesses future business plans to determine whether to include certain extension options noted in the lease agreement.
If there is no interest rate implicit in the lease agreement,
the Company uses a discount
rate that would be charged to a similar borrower, with similar risk characteristics, in a mortgage loan to purchase the leased facility.
This discount rate is used to present value the future lease payments in determining the right-of-use asset and lease liability values
at inception of the leases.
DETERMINING THE FAIR VALUE OF AN UNQUOTED FINANCIAL ASSETS AND LIABILITIES
The fair value of unquoted financial assets in Level 3 of the fair value hierarchy
is determined using valuation techniques, generally using future cash flows discounted at current rates applicable for items with similar
terms and risk characteristics. changes in estimated future cash flows and estimated discount rates, after consideration of risks such
as liquidity risk, credit risk and volatility, are liable to affect the fair value of these assets.
REVENUE RECOGNITION
Revenue from
contracts with customers is recognized when the control over the goods
or services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be received based
on the
contract terms, excluding amounts collected on behalf of third parties (such as taxes). In determining the amount of revenue from
contracts with customers, the Group evaluates whether it is a principal or an agent in the arrangement. The Group is a principal when
the Group controls the promised goods or services before transferring them to the customer. In these circumstances, the Group recognizes
revenue for the gross amount of the consideration. When the Group is an agent, it recognizes revenue for the net amount of the consideration,
after deducting the amount due to the principal.
REVENUE FROM THE SALE OF GOODS
Revenue from the sale of cannabis products is generally recognized at a point in time
when control over the goods have been transferred to the customer. Payment is typically due prior to or upon delivery and revenue is recognized
upon the satisfaction of the performance obligation. The Group satisfies its performance obligation and transfers control upon delivery
and acceptance by the customer.
Variable consideration:
The Group determines the transaction price separately for each
contract with a customer.
When exercising this judgment, the Group evaluates the effect of each variable amount in the
contract, taking into consideration discounts,
penalties, variations, claims, and non-cash consideration. In determining the effect of the variable consideration, the Group normally
uses the
"most likely amount" method described in the Standard. Pursuant to this method, the amount of the consideration is determined
as the single most likely amount in the range of possible consideration amounts in the
contract. According to the Standard, variable consideration
is included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Bill-and-hold arrangements:
Due to strict regulations of security, storage and handling large quantities of cannabis
products, the Group's customers may request the Group to retain physical possession of a sold product until it is delivered to the customer
at a future point in time. Revenue from bill-and-hold sales is recognized before the product is physically delivered to the customer when
all of the following criteria are met:
a) The reason for the bill-and-hold arrangement
is substantive (for example, the customer has requested the arrangement);
b) The product is identified separately as belonging to the customer;
c) The product currently is ready for physical delivery to the customer;
d) The Group does not have the ability to use the product by selling it or delivering
it to another customer.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
a. Amendments to IAS 21, "The Effects of Changes in Foreign Exchange Rates":
In August 2023, the IASB issued "Amendments to IAS 21: Lack of
Exchangeability (Amendments to IAS 21, "The Effects of Changes in Foreign Exchange Rates")" ("the Amendments") to clarify how an entity
should assess whether a currency is exchangeable and how it should measure and determine a spot exchange rate when exchangeability is
lacking.
The Amendments set out the requirements for determining the spot
exchange rate when a currency lacks exchangeability. The Amendments require disclosure of information that will enable users of financial
statements to understand how a currency not being exchangeable affects or is expected to affect the entity's financial performance, financial
position and cash flows.
The Amendments apply for annual reporting periods beginning on
or after
January 1, 2025. Earlier adoption is permitted, in which case, an entity is required to disclose that fact. When applying the
Amendments, an entity should not restate comparative information. Instead, if the foreign currency is not exchangeable at the beginning
of the annual reporting period in which the Amendments are first applied (the initial application date), the entity should translate affected
assets, liabilities and equity as required by the Amendments and recognize the differences as of the initial application date as an adjustment
to the opening balance of retained earnings and/or to the foreign currency translation reserve, as required by the Amendments .
The Company believes that the Amendments are not expected to have
a material impact on its consolidated financial statements.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors
and Senior Management
The following table sets forth certain information with respect to our executive officers
and directors as of
March 28, 2024:
Name |
Position(s) with the
Company |
Other Directorships
|
Date of Initial Appointment
|
|
Chief Executive Officer and Director
|
IMC Holdings; Focus; Pharm
Yarok; Rosen High Way; IMC Pharma; IMC Farms; Ewave Group Ltd (“ Ewave”)
and its subsidiaries |
|
Marc Lustig |
Executive Chairman and Director |
PharmaCielo Ltd.
Cresco Labs Inc.
Aequus Pharmaceuticals Inc.
22 Capital Corp.
BriaCell Therapeutics Corp. |
|
Moti Marcus(2)(3)(4)
|
Director |
Nil |
|
Einat Zakariya(2)(3)(4)
|
Director |
HYGEAR Inc. |
|
Brian Schinderle(2)(3)
|
Director |
Nil |
|
|
Chief Financial Officer |
Nil |
|
Eyal Fisher |
Chief Executive Officer of IMC Holdings
and each of the Israeli Subsidiaries |
Nil |
|
Michal Lebovitz Nissimov |
General Counsel |
Nil |
|
Richard Balla |
Chief Executive Officer of Adjupharm
|
Nil |
|
Notes
|
(1) |
Information furnished by the respective individual. |
|
(2) |
Member of the Audit Committee. |
|
(3) |
Member of Compensation Committee. |
|
(4) |
Member of the Governance and Nomination Committee. |
The following are brief biographies of our directors and executive officers:
Mr. Shuster has served as the Chief Executive Officer of
the Company since October
2019, founder and director of IMC Holdings since 2018, founder and director of Focus since 2010 and founder of Ewave and its
subsidiaries.
Marc Lustig
Mr. Lustig has served as Executive Chairman of
the Company since December 2020. Mr
Lustig is also a Director of Pharmacielo Ltd. since November 2020, a Director of Cresco Labs Inc. since June 2020. Mr. Lustig is the Founder,
Chairman and Chief Executive Officer of CannaRoyalty Corp. (dba Origin House) from 2016 to 2020 and a Director of Briacell Therapeutics
Corp. since September 2021.
Moti Marcus
Mr. Marcus has served as the Chief Executive Officer of Packer Quality Metals Ltd.,
one of Israel’s largest metal processing companies, since 2020. Mr. Marcus served as the Chief Financial Officer and deputy Chief
Executive Officer of S. Cohen Metal Works Ltd. and Chief Executive Officer of Aviv Shigur. Mr. Marcus is an experienced executive and
manager, having worked on outlining business strategies, executive strategies, financial management, mergers and acquisitions, and restructuring.
Mr. Marcus completed his bachelor’s degree in economics and accounting at Bar Ilan University and Tel Aviv University and his master’s
degree in business management and finance at Bar Ilan University.
Einat Zakariya
Ms. Zakariya has served as the Chief Executive Officer and Partner of Liv collection,
a subsidiary of Ewave Holdings Ltd., since 2018. Ms. Zakariya previously served as the Chief Executive Officer and Partner in The Promised
Land, a subsidiary of Ewave Nadlan International Investments Ltd., from 2014 to 2018. Ms. Zakariya is experienced in the hotel industry
and real and estate business, including negotiations with capital investors and institutional partner entities, as well as development,
marketing and sales. Ms. Zakariya also currently serves on the board of directors of HYGEAR Inc., a sport technology company.
Brian Schinderle
Mr. Schinderle is the Co-founder and Principal of SSC Advisors, a boutique Mergers
& Acquisitions and Strategic Advisory business focused primarily on the cannabis market. He is also the Founder and Managing Partner
of Solidum Capital Advisors LLC (“Solidum”). Solidum invests its own capital and works
in a merchant banking and advisory capacity with a select group of companies in the cannabis sector. In addition, from 2018 to 2020, Mr.
Schinderle served as Executive Vice President of Finance of GR Companies Inc. (dba Grassroots Cannabis) (“Grassroots”),
focusing on finance, strategy, capital markets, investor relations, mergers and acquisitions. In July 2020, Grassroots merged with Curaleaf
Holdings, Inc. (CSE: CURA) in a transaction valued at approximately US$850,000. Prior to forming Solidum in 2017, Mr. Schinderle spent
over 20 years in investment management, primarily investing in fixed income and equity assets via hedge funds, private equity and discretely
managed funds. Mr. Schinderle currently serves on the advisory boards of GLP Partners (dba Greenlight Cannabis), Altitude Investments
Inc. and AIM PLC.
Uri Birenberg joined
the Company as the CFO on
October 10, 2023. He is a senior financial executive, who
brings over two decades of experience of financial planning and analysis. Prior to joining IMC, from 2021 to 2023, Mr. Birenberg served
as CFO of Hygear Ltd., a start up in the healthcare fitness tech industry. In addition to managing the financial and legal activities
of
the company along with the strategic financial planning, he played an essential role in the fundraising in preparation for its initial
public offering. Prior to Hygear Ltd. Mr. Birenberg served as the CFO of Hinoman group, a startup in the food-tech industry, from 2020
to 2022. Prior to Hinoman group, Mr. Birenberg served as the CFO of SEEDO Corp Group, a U.S. publicly traded startup in the Cannabis industry,
from 2018 to 2020.
Michal Lebovitz Nissimov
Michal is an experienced lawyer with expertise
in corporate, commercial, business and consumer law, mergers and acquisitions advisory services and cannabis regulation and compliance.
As a member of the senior management team,
Michal oversees all corporate legal and regulatory aspects in a highly regulated sector. IMC’s reporting obligations as a publicly
traded company, annual operational planning, execution of key, strategic projects, and translating strategy into actionable goals are
all part of her remit. Prior to joining
the Company, from 2019 to 2023, Michal was a Senior Associate at Salomon, Lipschütz &
Co in the Mergers and Acquisitions, Corporate and Commercial Team.
Michal thrives in a fast-paced and high
growth environment. Her extensive knowledge and experience in legal affairs, related to medical cannabis, are key assets that inform IMC’s
growth strategy and execution. Before joining IMC, she worked in the legal services industry as a senior lawyer at several leading Israeli
law firms.
Richard Balla
Prior to leading Adjupharm, Richard acted as a founder, early-stage shareholder, advisor,
and director of multiple international companies in the pharmaceutical and medical cannabis sectors. Before his entrepreneurial career,
Mr. Balla served as Head of Market and Product Development at ACA Müller Pharma AG, one of the first and leading parallel import
companies in Germany. Mr. Balla holds a Bachelor of Business Administration degree from Gewerbe-Akademie Konstan.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Special Arrangements
Not applicable.
B. Compensation
Compensation Discussion and Analysis
Introduction
The purpose of this Compensation Discussion and Analysis is to provide information about
the Company’s
philosophy, objectives and processes regarding executive compensation. This disclosure is intended to communicate compensation provided
to: (i) the chief executive officer (“
CEO”) of
the Company; (ii) the chief financial
officer (“
CFO” of
the Company); (iii) each of the three most highly compensated executive
officers of
the Company, including any of its
subsidiaries, or the three most highly compensated individuals acting in a similar capacity,
other than the CEO and CFO of
the Company, as at the end of the most recently completed financial year whose total compensation was, individually,
more than C$150,000; and (iv) each individual who would be a Named Executive Officer (as defined herein) under paragraph (iii) but for
the fact that the individual was neither an executive officer of
the Company or its
subsidiaries, nor acting in a similar capacity, as
at
December 31, 2023, (collectively, the “
Named Executive Officers”) and (v) the directors
of
the Company. During the year ended
December 31, 2023, the Named Executive Officers of
the Company were as follows:
|
(5) |
Marc Lustig, Executive Chairman and a director of the Company; |
|
(6) |
Eyal Fisher, CEO of the IMC Holdings and each of the Israeli Subsidiaries; and |
|
(7) |
Richard Balla, CEO of Adjupharm. |
Compensation Philosophy and Objectives
The executive compensation program adopted by
the Company and
applied to its executive officers is designed to attract and retain qualified and experienced executives who will contribute to the success
of
the Company. The executive compensation program attempts to ensure that the compensation of the senior executive officers provides
a competitive base compensation package and a strong link between corporate performance and compensation. Senior executive officers are
motivated through the program to enhance long-term shareholder value and rewarded for their yearly individual contribution in the context
of overall annual corporate performance.
Elements of Compensation
The compensation paid to executive officers in any year consists
of three primary components:
The Company believes that making a significant portion of executive
officers’ compensation based on long-term incentives supports
the Company’s executive compensation philosophy, as these forms
of compensation allow those most accountable for
the Company’s long-term success to acquire and hold Common Shares.
For the year ended
December 31, 2023, all executive compensation
was determined and administered by Board based on recommendations by the compensation committee of
the Company (the “
Compensation
Committee”).
The key features of these three primary components of compensation
are discussed below:
Base salary recognizes the value of an individual to
the Company
based on his or her role, skill, performance, contributions, leadership and potential. It is critical in attracting and retaining executive
talent in the markets in which
the Company competes for talent. Base salaries for executive officers are reviewed annually. Any change
in the base salary of an executive officer is generally determined by an assessment of such executive’s performance, a consideration
of competitive compensation levels in companies similar to
the Company and a review of the performance of
the Company as a whole and the
role such executive officer played in such corporate performance.
Cash bonuses for the executive officers are determined by reference
to
the Company’s actual performance relative to objectives and individual contributions toward such performance. All awards made
to executive officers are subject to the review and approval of the Compensation Committee and Board and are examined in absolute terms
as well as in relation to peer company performance.
Long term incentives, such as stock options (“
Options”)
and restricted share units (“
RSUs”) are provided to focus management’s attention
on corporate performance over a period of time longer than one year in recognition of long-term horizons for return on investments and
strategic decisions. The number of Options and/or RSUs given to each executive officer is determined by his or her position, past contribution
and potential future contributions to
the Company and the number and terms of Options and RSU awards previously granted to the executive
officer. The securities-based awards granted under the Option plan (the “
Stock Option Plan”)
and RSU plan (the “
RSU Plan” and together with the Stock Option Plan, the “
Securities
Based Compensation Arrangements”) are reviewed by the Compensation Committee. The Compensation Committee determines a meaningful
level of awards for executive officers of
the Company. The number of Options and RSUs are also influenced by the number of officers and
key employees in the current year and the likelihood of grants in future years to officers and key employees since the aggregate number
of Common Shares available for issuance pursuant to all Securities Based Compensation Arrangements cannot exceed 10% of
the Company’s
issued Common Shares on a rolling basis.
Other than the Securities Based Compensation Arrangements, the
Company does not have any other long-term incentive plans pursuant to which securities or cash compensation is intended to serve as an
incentive for performance over a period greater than one financial year.
Stock Option Plan
The Stock Option Plan was approved by the shareholders of
the Company at the annual
general and special meeting of shareholders held on
July 28, 2021 and replaced the previous stock option plan of
the Company (the “
Predecessor
Stock Option Plan”). The Predecessor Stock Option Plan continues to exist but only for the purpose of governing the terms
of Options that were granted under the Predecessor Stock Option Plan prior to the adoption of the Stock Option Plan.
The purpose of the Stock Option Plan is to provide
the Company with the advantages
of the incentive inherent in equity ownership on the part of directors, executive officers, employees and consultants (collectively, the
“
Eligible Persons”) who are responsible for the continued success of
the Company; to
create in those Eligible Persons a proprietary interest in, and a greater concern for, the welfare and success of
the Company; to encourage
Eligible Persons to remain with
the Company and any
subsidiaries; and to attract new employees, directors, officers and consultants.
The Stock Option Plan is administered by the Compensation Committee. The Compensation
Committee has the authority to grant Options to Eligible Persons and subject to the policies of the Canadian stock exchange upon which
the Common Shares principally trade, will determine the terms and conditions applicable to the exercise of those Options including the
number of Common Shares issuable under each Option, the exercise price, the expiry date, vesting conditions, if any, the nature and duration
of the restrictions, if any, to be imposed on the sale or other disposition of Common Shares acquired on exercise of the Option, and the
events, if any, that give rise to a termination or expiry of the Option participant’s rights under the Option, and the period in
which such termination or expiry can occur. Notwithstanding the foregoing, the maximum term of any Option granted under the Stock Option
Plan is ten years. The Stock Options Plan provides for a cashless exercise procedure.
The total number of Common Shares that may be reserved for issuance to all directors
and executive officers as a group under the Stock Option Plan and any other Securities Based Compensation Arrangements, in aggregate,
cannot exceed, at any time, or within any 12-month period, 10% of the issued and outstanding Common Shares, on a non-diluted basis, as
at the date of grant of any Options under the Stock Option Plan.
The total number of Common Shares that may be reserved for issuance and granted to
any one Executive (as defined in the Stock Option Plan) under the Stock Option Plan and all other Securities Based Compensation Arrangements,
in aggregate, cannot exceed at any time, or within a 12-month period, 5% of the issued and outstanding Common Shares, on a non-diluted
basis, as at the date of grant of any Options under the Stock Option Plan.
The total number of Common Shares that may be reserved for issuance and granted to
persons engaging in investor relations activities under the Stock Option Plan and all other Securities Based Compensation Arrangements,
in aggregate, cannot exceed at any time, or within a 12-month period, 1% of the issued and outstanding Common Shares, on a non-diluted
basis, as at the date of grant of any Options under the Stock Option Plan.
The Board may terminate the Stock Option Plan at any time in its absolute discretion,
without shareholder approval. If the Stock Option Plan is terminated, no further Options will be granted, but the Options then outstanding
will continue in full force and effect in accordance with the provisions of the Stock Option Plan until the time they are exercised or
terminated or expire under the terms of the Stock Option Plan and the applicable Option agreement.
RSU Plan
The RSU Plan was approved by shareholders at a special meeting of shareholders held
on
December 16, 2020. The RSU Plan was established to provide a financial incentive for employees, consultants and directors of
the Company,
to devote their best efforts towards the long-term success of
the Company’s business, by aligning qualified participants’
financial interests with those of
the Company and its shareholders, to assist
the Company in attracting and retaining individuals with
top-level talent, passion, ability, and an overall commitment to the business of
the Company, and to ensure that the total compensation
provided to such participants is at competitive levels. Accordingly, the RSU Plan is intended to supplement
the Company’s other
Securities Based Compensation Arrangements provided that the aggregate issuances under the RSU Plan and all other the Securities Based
Compensation Arrangements do not exceed 10% of the issued and outstanding Common Shares on a non-diluted basis immediately prior to the
proposed grant of the applicable RSUs.
The RSU Plan provides that RSUs may be granted by the Compensation Committee to directors,
executive officers, employees and consultants of
the Company (each an “
RSU Participant”).
The Compensation Committee determines from time to time the RSU Participants to whom RSUs are granted and the provisions and restrictions
with respect to such grant. The Compensation Committee takes into consideration the present and potential contributions of and the services
rendered by the particular RSU Participant to the success of
the Company and any other factors which the Compensation Committee deems
appropriate and relevant.
Each RSU entitles the RSU Participant, subject to the RSU Participant’s satisfaction
of any conditions, restrictions or limitations imposed under the RSU Plan or RSU grant letter, to receive: (i) one previously unissued
Common Share for each RSU; or (ii) a cash payment equal to the number of RSUs multiplied by the fair market value of one Common Share
on the vesting date; or (iii) a combination of (i) and (ii), as determined by the Compensation Committee, on the date when the RSU is
fully vested. Concurrent with the determination to grant RSUs to a RSU Participant, the Compensation Committee also determines the vesting
schedule applicable to such RSUs, which shall extend no later than December 15th of the third calendar year following the calendar year
in which the grant occurred in respect of the RSUs.
RSU grants are subject to additional limitations under the terms of the RSU Plan.
Unless permitted by the CSE or approved by disinterested shareholders:
|
(a) |
the maximum number of RSUs available for grant to any one person under the RSU Plan and any other Securities Based Compensation Arrangements
of the Company in a 12-month period is 5% of the total number of Common Shares then outstanding on a non-diluted basis; and |
|
(b) |
the maximum number of Common Shares issuable to insiders of the Company (as a group) under the RSU Plan, together with any other
Common Shares issuable under any other Securities Based Compensation Arrangements, shall not exceed at any time or within any 12-month
period, 10% of the issued and outstanding Common Shares on a non-diluted basis at the time of grant. |
Further, the total number of Common Shares issuable to any RSU Participant performing
investor relations activities over any 12-month period, pursuant to the RSU Plan and together with any other Common Shares issuable under
any other Securities Based Compensation Arrangements, cannot exceed 1% of the issued and outstanding number of Common Shares then outstanding
on a non-diluted basis at the time of grant.
The Board or Compensation Committee, as the case may be, may terminate, discontinue
or amend the RSU Plan at any time, provided that, without the consent of an RSU Participant, such termination, discontinuance or amendment
may not in any manner adversely affect such RSU Participant’s rights under any RSU granted to such RSU Participant under the RSU
Plan.
The Board or Compensation Committee may, subject to the receipt of shareholder approval
and the receipt of any regulatory approval including any stock exchange approval (where required), make the following amendments to the
RSU Plan or RSUs under the RSU Plan:
|
(a) |
increase the number of Common Shares which may be issued pursuant to the RSU Plan, other than by virtue of a change in Common Shares,
whether by reason of a stock dividend, consolidation, subdivision or reclassification which adjustment may be made by the Board or Compensation
Committee for the number of Common Shares available under the RSU Plan and the number of Common Shares subject to RSUs; |
|
(b) |
amend the definition of “Participant” under the RSU Plan which would have the potential of narrowing, broadening or increasing
insider participation; |
|
(c) |
amendments to cancel and reissue RSUs; |
|
(d) |
amendments to the list of amendments to the RSU Plan or RSUs requiring requisite regulatory and shareholder approval and those subject
to requisite regulatory approval (where required) but not subject to shareholder approval; |
|
(e) |
amendments that extend the term of an RSU; |
|
(f) |
amendments to the participation limits including: the maximum number of shares issuable under the RSU Plan, limitations on grants
of RSUs to any one person in a 12-month period, grants within a one year period to insiders, and the number of shares issuable to a person
providing investor relations activities in any 12-month period; and |
|
(g) |
amendments to the RSU Plan that would permit RSUs, or any other right or interest of a RSU Participant under the RSU Plan, to be
assigned or transferred, other than for normal estate settlement purposes. |
The Board or Compensation Committee may, subject to receipt of requisite regulatory
approval (where required), but not subject to shareholder approval, in its sole discretion make all other amendments to the RSU Plan or
RSUs under the RSU Plan that are not of the type contemplated above, including, without limitation:
|
(a) |
amendments of a housekeeping nature; |
|
(b) |
amendments to the vesting provisions of a RSU or the RSU Plan; |
|
(c) |
amendments to the definitions, other than such definitions noted above; |
|
(d) |
amendments to reflect changes to applicable securities laws; and |
|
(e) |
amendments to ensure that the RSUs granted under the RSU Plan will comply with any provisions respecting income tax and other laws
in force in any country or jurisdiction of which a RSU Participant to whom a RSU has been granted may from time to time be a resident,
citizen or otherwise subject to tax therein. |
Except as otherwise may be expressly provided for under the RSU Plan or pursuant to
a will or by the laws of descent and distribution, no RSU and no other right or interest of a RSU Participant is assignable or transferable,
and any such assignment or transfer in violation of the RSU Plan is deemed to be null and void.
In the event there is any change in the Common Shares, whether by reason of a stock
dividend, consolidation, subdivision or reclassification, an appropriate adjustment will be made by the Board or Compensation Committee
in the number of Common Shares available under the RSU Plan and the number of Common Shares subject to any RSUs. If the foregoing adjustment
results in a fractional Common Share, the fraction shall be rounded down to the nearest whole number. All such adjustments are conclusive,
final and binding for all purposes of the RSU Plan.
Risk Analysis
The Board and Compensation Committee considered risks associated with executive compensation
and do not believe that
the Company’s executive compensation policies and practices encourage its executive officers to take inappropriate
or excessive risks. Aside from a fixed base salary, Named Executive Officers are compensated through the granting of Security Based Compensation
Arrangements, which are compensation that is both
“at risk” and associated with long-term value creation. The value of such
compensation is dependent upon shareholder return over Security Based Compensation Arrangement vesting periods which reduces the incentive
for executives to take inappropriate or excessive risks as their long-term compensation is at risk.
Under the stock trading policy adopted by
the Company on
November
26, 2020, as amended from time to time, executive officers and directors are strongly discouraged but are not prohibited from purchasing
financial instruments; however,
the Company does not have any policies which prohibit the purchase of financial instruments that are designed
to hedge or offset a decrease in market value of equity securities granted as compensation.
Performance Graph
The following graph compares the cumulative total shareholder return by comparing
a $100 investment in Common Shares on
November 5, 2019 (the date
the Company commenced trading on the CSE following the completion of
its reverse takeover transaction with IMC Holdings) to the cumulative shareholder return of the CSE Composite Index for the same period,
assuming the reinvestment of cash distributions and/or dividends:
The trend in the above performance graph does not correlate to the trend of the compensation
paid to the Named Executive Officers. As described under "Elements of Compensation", based salaries
reflect each Named Executive Officer's primary duties and responsibilities and are set at levels based on responsibility, experience and
expertise as well as subjective factors such as leadership. We believe that management must be compensated a minimum base salary for the
value of the services provided, irrespective of our Common Share price performance. Pursuant to our Security Based Compensation Arrangements,
we have granted Options and RSUs to our Named Executive Officers, each form a significant portion of compensation, and therefore the total
compensation for the Named Executive Officers is directly affected by decreases or increases in the price of our Common Shares as the
value of such Options and RSUs changes as our Common Share price changes.
Share-Based and Option-Based Awards
The Company recognizes the importance of share-based and Option-based awards for retaining
employees and keeping them motivated. New grants to employees are made based on the role and position of the employee, with consideration
given to the limits imposed by
the Company’s Securities Based Compensation Arrangements. The role of the Compensation Committee
is to review management’s recommendations and provide feedback related to security-based compensation.
Compensation Governance
The Compensation Committee
The Compensation Committee is responsible for, among other things,
developing and monitoring
the Company’s overall approach to compensation issues and implementing and administering a system of compensation
that provides for competitive Compensation.
The Compensation Committee conducts an annual review of
the Company’s
compensation issues and practices, including corporate goals and objectives relative to the compensation of the CEO and other senior officers
of
the Company, and makes a comprehensive set of recommendations to the Board during each calendar year.
The Compensation Committee is currently comprised of:
|
1. |
Brian Schinderle (Chair); |
each of whom is considered independent (as determined under Rule
5605(a)(2) of the Nasdaq Stock Market Rules and as defined in National Instrument 52-110 - Audit Committees (“NI
52-110”).
In determining the members of the Compensation Committee, the
Board looks to each directors’ past experience and strives to include a range of skills and experiences to ensure that the members
act independently and think analytically about
the Company’s compensation practices.
During meetings of the Compensation Committee, the primary goal
as they relate to compensation matters are to ensure that the compensation provided to the Named Executive Officers and other senior officers
and executives are determined with regard to
the Company’s business strategies and objectives, such that the financial interest
of the executive officers are aligned with the financial interest of shareholders, and to ensure that their compensation is fair and reasonable
and sufficient to attract and retain qualified and experienced executives.
In the past,
the Company used the benchmark method in order to
determine the compensation for its directors and executive officers. Under the benchmark method, more than ten similar companies were
reviewed in order to ensure that compensation to directors and executive officers is within the market range. In the past financial year,
the Company has not formally conducted benchmarking against a peer group.
Summary Compensation Table
The following table sets out all direct and indirect compensation
for, or in connection with, services provided to
the Company and its
subsidiaries for the three most recently completed financial years
of
the Company in respect of the Named Executive Officers of
the Company:
Name and Principal Position
|
Year |
|
Share-Based Awards
($) |
Option-Based Awards
($)(8)
|
Non-Equity Incentive
Plan Compensation
($) |
Pension Value
($) |
All Other Compensation
($) |
Total Compensation
($) |
Annual Incentive Plans
|
Long-Term Incentive
Plans |
CEO
and Director |
2023 |
476,266(2)
|
Nil |
331,802 |
Nil |
Nil |
Nil |
Nil |
818,068 |
2022 |
506,244(2)
|
Nil |
1,110,057 |
Nil |
Nil |
Nil |
Nil |
1,616,301 |
2021 |
515,731(2)
|
Nil |
1,388,455 |
121,000 |
Nil |
Nil |
Nil |
2,025,186 |
CFO
|
2023 |
73,558 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
73,558 |
2022 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
2021 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Itay Vago(4)
Former
CFO |
2023 |
180,968 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
180,968 |
2022 |
53,219 |
Nil |
508 |
Nil |
Nil |
Nil |
Nil |
53,727 |
2021 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Shai Shemesh(5)
Former
CFO |
2023 |
135,934 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
135,934 |
2022 |
321,950 |
Nil |
307,636 |
Nil |
Nil |
Nil |
Nil |
629,586 |
2021 |
300,607 |
Nil |
408,653 |
82,500 |
Nil |
Nil |
Nil |
791,760 |
Marc Lustig
Executive
Chairman and Director(6) |
2023 |
129,920 |
79,959 |
Nil |
Nil |
Nil |
Nil |
Nil |
209,879 |
2022 |
282,480 |
558,538 |
50,089 |
Nil |
Nil |
Nil |
Nil |
891,107 |
2021 |
264,000 |
1,286,498 |
329,846 |
Nil |
Nil |
Nil |
Nil |
1,880,344 |
Eyal Fisher(7)
CEO of the IMC Holdings
and each of the Israeli Subsidiaries |
2023 |
216,998 |
Nil |
1,693 |
Nil |
Nil |
Nil |
Nil |
216,998 |
2022 |
215,586 |
Nil |
4,381 |
Nil |
Nil |
Nil |
Nil |
217,279 |
2021 |
144,506 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
144,506 |
Richard Balla
CEO of Adjupharm
|
2023 |
175,385 |
Nil |
Nil |
87,692 |
Nil |
Nil |
30,895 |
293,972 |
2022 |
164,186 |
Nil |
37 |
Nil |
Nil |
Nil |
29,066 |
193,289 |
2021 |
176,674 |
Nil |
7,799 |
121,087 |
Nil |
Nil |
38,083 |
343,643 |
Notes
(1) |
Each of Messrs. Shuster, Birenberg, Vago, Shemesh and Fisher received their compensation in NIS and Mr. Balla received his compensation
in Euros. All salaries were converted to CDN pursuant to the average Bank of Canada rate for the applicable fiscal year. |
(2) |
Oren Shuster, through Ewave, entered into a consulting agreement with the Company pursuant to which he is paid NIS 108,350 plus VAT
per month (approximately $39,544 plus tax per month) in consideration of his CEO services provided to Company. Mr. Shuster did not earn
consideration for his role as a director of the Company during the fiscal years ended December 31, 2023, 2022 and 2021. |
(6) |
Mr. Lustig does not earn consideration for his role as a director of the Company; however, Mr. Lustig, through L5 Capital, entered
into a consulting agreement with the Company pursuant to which he is paid $5,250 per month in consideration of his Executive Chairman
services provided to the Company. |
(8) |
The Company used the Black-Scholes pricing model as the methodology to calculate the grant date fair value, and relied on the following
the key assumptions and estimates for each calculation under the following assumptions: (i) risk free interest rate of 0.42% to 1.97%
(ii) expected dividend yield of 0%; (iii) expected volatility of 76.28% to 82.31%; and (iv) a term of 5 to 10 years. The Black-Scholes
pricing model was used to estimate the fair value as it is the most accepted methodology. |
Outstanding Option-Based Awards and Share-Based
Awards
The following table is a summary of all outstanding Option-based
awards and share-based awards of Named Executive Officers as of
December 31, 2023:
|
Option-based
Awards |
Share-based
Awards |
Name
|
Number
of securities underlying unexercised Options
(#)(1)
|
Option
exercise price
($)
|
Option
expiration date |
Value
of unexercised in-the-money Options
($)
|
Number
of shares or units of shares that have not vested
(#)
|
Market
or payout value of share-based awards that have not vested(4)
($)
|
Market or payout value
of vested share-based awards not paid out or distributed
($) |
|
6,250
75,000
50,000 |
40.00
58.70
16.00 |
|
Nil
Nil
Nil |
Nil |
Nil |
Nil |
Marc Lustig |
67,500 |
16.00 |
|
Nil |
Nil |
Nil |
Nil |
Eyal Fisher |
1,000 |
27.30 |
|
Nil |
Nil |
Nil |
Nil |
Richard Balla |
9,000 |
16.00 |
|
Nil |
Nil |
Nil |
Nil |
Note
(1) |
Each Option entitles the holder to purchase one Common Share. |
Incentive Plan Awards – Value Vested
or Earned During the Year
The following table sets forth for each Named Executive Officer,
the value of Option-based awards and share-based awards that vested during the year ended
December 31, 2023, and the value of non-equity
incentive plan compensation earned during the year ended
December 31, 2023:
Name
|
Option-based
awards – Value vested during the year
($)
|
Share-based
awards – Value vested during the year ($) |
Non-equity
incentive plan compensation – Value earned during the year
($)
|
|
932,254 |
Nil |
Nil |
Marc Lustig |
Nil |
481,494 |
Nil |
Richard Balla |
Nil |
Nil |
87,692 |
Eyal Fisher |
2,171 |
Nil |
Nil |
PENSION PLAN BENEFITS
There are no pension plan benefits in place for the Named Executive Officers or the
directors of
the Company.
TERMINATION AND CHANGE OF CONTROL BENEFITS
Other than described below, no Named Executive Officer has entered into an arrangement
with
the Company or a subsidiary of
the Company that provide for payments to the Named Executive Officers in connection with any termination
or change of control beyond any payment that a Named Executive Officer may be entitled to pursuant to applicable employment standard law:
Effective
January 15, 2018,
the Company and Ewave entered into a management services
agreement (the “
Shuster Agreement”) pursuant to which
Oren Shuster was engaged to provide
CEO services to
the Company. Mr. Shuster is employed and compensated by Ewave. Pursuant to the terms and conditions of the Shuster Agreement,
Ewave is paid a monthly fee of NIS 108,350 plus VAT (approximately $39,544 plus tax per month). Either party may terminate the agreement
at any time for any reason upon three months’ notice with continuing payments during such notice period.
The Company, through its
subsidiary, may terminate the agreement forthwith for cause without notice.
DIRECTOR COMPENSATION
The objective of
the Company’s compensation program for directors is to attract
and retain members of the Board of a quality and nature that will enhance the sustainable profitability and growth of
the Company. Director
compensation is intended to provide an appropriate level of remuneration considering the experience, responsibilities, time requirements
and accountability of their roles.
Director Compensation Table
The following table sets out certain information respecting the
compensation paid to directors of
the Company who were not Named Executive Officers during the year ended
December 31, 2023:
Name(1)
|
Fees earned ($)(2)
|
Share-based awards
($) |
Option-based awards
($)(3) |
Non-equity incentive
plan compensation ($) |
Pension value
($) |
All other compensation
($) |
Total ($)
|
Brian Schinderle |
73,700(4) |
Nil |
61,616 |
Nil |
Nil |
Nil |
135,316 |
Moti Marcus |
76,700(45) |
Nil |
19,963 |
Nil |
Nil |
Nil |
96,663 |
Einat Zakariya |
73,200 |
Nil |
19,963 |
Nil |
Nil |
Nil |
93,163 |
Notes
(1) |
Each of Mr. Marcus and Ms. Zakariya received their compensation in NIS and Mr. Schinderle received his compensation in USD. All salaries
were converted to CDN pursuant to the average Bank of Canada rate for the applicable fiscal year. |
(2) |
Each director is entitled to a $13,750 payment per quarter for their role as a director of the Company. For each Audit Committee
meeting, the Chair receives a $1,500 payment and each other member receives a $1,000 payment and for each of the Compensation Committee
and Governance and Nomination Committee meetings, the Chair receives a $1,200 payment and each other member receives a $700 payment.
|
(3) |
The Company used the Black-Scholes pricing model as the methodology to calculate the grant date fair value, and relied on the following
the key assumptions and estimates for each calculation under the following assumptions: (i) risk free interest rate of 0.42% to 3.03%
(ii) expected dividend yield of 0%; (iii) expected volatility of 78.7% to 82.01%; and (iv) a term of 5 to 10 years. The Black-Scholes
pricing model was used to estimate the fair value as it is the most accepted methodology. |
(4) |
Mr. Schinderle receives compensation through Solidum Capital Advisors LLC. |
(5) |
Mr. Marcus receives compensation through Marcus Management Services Ltd. |
Directors’ Outstanding Option-Based
Awards and Share-Based Awards
The following table sets forth for each of
the Company’s
directors, other than directors who are also currently Named Executive Officers, all share-based awards and Option-based awards outstanding
at the end of the year ended
December 31, 2023:
|
Option-based
Awards |
Share-based
Awards |
Name
|
Number
of securities underlying unexercised Options(1)
(#)
|
Option
exercise price
($)
|
Option
expiration date |
Value
of unexercised in-the-money Options
($)
|
Number
of shares or units of shares that have not vested
(#)
|
Market
or payout value of share-based awards that have not vested
($)
|
Market or payout value
of vested share-based awards not paid out or distributed
($) |
Brian Schinderle |
9,000 |
100.00 |
|
Nil |
Nil |
Nil |
Nil |
Moti Marcus |
9,000 |
6.00 |
|
Nil |
Nil |
Nil |
Nil |
Einat Zakariya |
9,000 |
6.00 |
|
Nil |
Nil |
Nil |
Nil |
Note
|
(1) |
Each Option entitles the holder to purchase one Common Share. |
Directors’ Incentive Plan Awards –
Value Vested or Earned During the Year
The following table sets forth for each of
the Company’s
directors, other than directors who are also currently Named Executive Officers, the value of Option-based awards and share-based award
that vested during the year ended
December 31, 2023, and the value of non-equity incentive plan compensation earned during the year ended
December 31, 2023:
Name
|
Option-based
awards – Value vested during the year
($)
|
Share-based
awards – Value vested during the year ($) |
Non-equity
incentive plan compensation – Value earned during the year
($)
|
Brian Schinderle |
207,000 |
Nil |
Nil |
Moti Marcus |
14,601 |
Nil |
Nil |
Einat Zakariya |
14,601 |
Nil |
Nil |
C. Board
Practices
By ordinary resolution of the shareholders of
the Company held on
December 6, 2023,
the number of directors was set at five and the Board currently consists of five directors. Each of our directors was elected and appointed
to hold office until the next annual general meeting of our shareholders or until his or her office is earlier vacated, in accordance
with the articles of
the Company (the “
Articles”) and BCBCA. The directors may, from
time to time, appoint such officers as the directors determine and the directors may, at any time, terminate any such appointment. Please
also refer to “
Directors and Senior Management” above for further details regarding
the periods of service of each of our current directors and officers.
Other than as disclosed under “Item 6.B.
Compensation”
above,
the Company did not have any service
contracts with any of our independent directors.
The Board views effective corporate governance as an essential element for the effective
and efficient operation of
the Company.
The Company believes that effective corporate governance improves corporate performance and benefits
all of its shareholders. The following statement of corporate governance practices sets out the Board’s review of
the Company’s
governance practices relative to Form 58-101F1 under National Instrument 58-101 –
Disclosure of
Corporate Governance Practices (“
NI 58-101”) and National Policy 58-201 –
Corporate Governance Guidelines (“
NP 58-201”):
Board
The Board is responsible for supervising the management of the business and affairs
of
the Company. The independent directors, as such term is defined in NI 58-101 and NI 52-110, are Moti Marcus, Brian Schinderle and Einat
Zakariya. The non-independent directors are
Oren Shuster, and Marc Lustig by virtue of them being CEO and executive chairman of
the Company,
respectively. As a result, the majority of the Board as it is currently constituted are independent. The Board facilitates its exercise
of independent supervision through regular meetings of the Board, including meetings without the non-independent directors in attendance.
The attendance for each director for Board meetings and committee meetings, since
the beginning of the most recently completed financial year, is as follows:
Name of Director |
Board |
Audit Committee |
Compensation Committee |
Governance and Nomination Committee |
|
100% (17/17) |
- |
- |
- |
Marc Lustig |
94.12% (16/17) |
- |
- |
- |
Moti Marcus |
100% (17/17) |
100% (6/6) |
100% (1/1) |
- |
Einat Zakariya |
100% (17/17) |
83.33% (5/6) |
100% (1/1) |
- |
Brian Schinderle |
100% (17/17) |
100% (6/6) |
100% (1/1) |
- |
In addition to the meetings referenced above, there were numerous informal meetings
between management and the committees. The independent directors do not hold regularly scheduled meetings at which non-independent directors
and members of management are not present. However, the Board believes that appropriate structures and procedures are in place to ensure
that it can function independently of management and the Board periodically holds independent sessions at the end of Board meetings. Independent
directors are also in frequent informal communication with one another.
The Board believes that it functions independently of management and reviews its procedures
on an ongoing basis to ensure that it is functioning independently of management. The Board meets without management present, as circumstances
require. If conflicts arise, interested parties are precluded from voting on matters in which they may have an interest. Considering the
guidelines contained in NP 58-201, the Board convenes meetings, as deemed necessary, of the independent directors, at which non-independent
directors and members of management are not in attendance. The Board is of the opinion that no formal leadership of independent directors
is required given the size of the Board and the ability of the independent directors to convene meetings of independent directors.
The Board has plenary power to manage and supervise the management of the business
and affairs of
the Company and to act in the best interest of
the Company. The Board is responsible for the overall stewardship of the
Company and approves all significant decisions that affect
the Company before they are implemented. The Board also considers their implementation
and reviews the results. Any related party transaction as such term is defined in Multilateral Instrument 61-101 –
Protection
of Minority Shareholders in Special Transactions (“
MI 61-101”), is subject to
review by the independent directors of
the Company.
In order to exercise their duties appropriately, the Board may at any time retain
outside financial, legal or other advisors at the expense of
the Company. In addition, any director may, subject to the approval of the
Governance and Nomination Committee, retain an outside financial, legal or other advisor at the expense of
the Company.
The roles and responsibilities of the chairman of the Board is set out in the Mandate
of the Board. The Board has not developed written position descriptions for the chair of each Board committee. The persons acting as chairs
of Board committees have the experience and expertise necessary to assess the role they must play in the context of a public company.
The Company has adopted a position description for the CEO, summarized as follows.
CEO Position Description
The CEO is responsible for leading the business and affairs of
the Company through
the development and implementation of plans, policies, values, strategies, specific goals and budgets for the growth and operation of
the Company with the objective of maximizing
the Company’s long-term success and creating shareholder value. The CEO will report
directly to the Board and shall respect the Board’s independence and discuss all major corporate commitments and strategies with
the Board before they are undertaken. In fulfilling their responsibilities, the CEO shall foster a corporate culture that promotes and
encourages high ethical and moral standards, individual integrity and compliance with applicable laws and regulations and policies implemented
by
the Company that further such objectives.
Specific Responsibilities
The CEO is specifically responsible for:
|
(a) |
overseeing that the day-to-day business affairs of the Company are appropriately managed and taking steps to maintain and enhance
an effective senior management team reporting to the CEO; |
|
(b) |
recommending to the Board the Company’s financial and operating goals and objectives and, following approval by the Board thereof,
consistently striving to achieve such goals and objectives; |
|
(c) |
formulating, and presenting to the Board for approval, long-term business plans, strategies and policies having the objective of
maximizing the Company’s long-term success and the creation of shareholder value; |
|
(d) |
together with other senior management as are appropriate, developing and recommending to the Board annual business plans and budgets
that support the Company’s long term business plans and strategies; |
|
(e) |
developing and implementing, with senior management of the Company, plans, strategies, budgets and policies necessary to achieve
the goals and objectives of the Company; |
|
(f) |
supervising, maintaining and deploying the Company’s resources – human, financial or otherwise – with the purpose
and objective of achieving the Company’s operating goals and objectives; |
|
(g) |
keeping the Board informed in a timely and candid manner of the progress of the Company towards the achievement of its strategic
and operational goals and objectives and of all material deviations from the goals, objectives, plans, strategies, budgets or policies
established by the Board; |
|
(h) |
overseeing, evaluating and taking steps to enhance, where necessary, the integrity and reliability of the Company’s internal
controls, including its management information systems and financial reporting, and establishing, maintaining, designing and evaluating
disclosure controls and procedures for the Company; |
|
(i) |
identifying and managing business risks faced by the Company, including overseeing the design and implementation of appropriate systems
and procedures to effectively monitor, manage and mitigate such risks; |
|
(j) |
ensuring that the Board has regular exposure to the Company’s senior management and overseeing the development and succession
of the Company’s senior management team; |
|
(k) |
evaluating the performance of senior management of the Company and making recommendations with respect to their compensation;
|
|
(l) |
maintaining a positive and ethical work climate that is conducive to attracting, retaining and motivating a diverse group of top-quality
employees at all levels; |
|
(m) |
serving as the Company’s principal spokesperson and ensuring that information communicated to the public fairly portrays the
position of the Company and that timely and continuous disclosure obligations of the Company are met; |
|
(n) |
representing the Company in a such a way so as to enhance and maintain the Company’s reputation and to promote positive relationships
with shareholders, suppliers, contractors, clients, service providers, strategic partners, creditors, financial institutions, local communities,
all levels of government and the media; and |
|
(o) |
fulfilling all other responsibilities as assigned by the Board, in the manner expected by the Board. |
In addition, the CEO has the responsibilities specified in their employment agreement
with
the Company.
Board Diversity
The Company believes it is important that its Board is composed of individuals reflecting
the diversity represented by our employees, our customers, and our communities. Below is enhanced disclosure regarding the diversity of
the Board as required by the Nasdaq’s Board Diversity Rule:
Board Diversity Matrix
– IM Cannabis Corp. |
Country of Principal
Executive Offices |
Israel |
Foreign Private Issuer
|
Yes |
Disclosure Prohibited
under Home Country Law |
No |
|
|
|
Total Number of Directors
|
5 |
5 |
Gender Identity
|
Female |
Male |
Non-Binary |
Did Not Disclose Gender
|
Female |
Male |
Non-Binary |
Did Not Disclose Gender
|
Directors |
1 |
4 |
- |
- |
1 |
4 |
0 |
0 |
Demographic Background
|
Underrepresented Individual in Home Country
Jurisdiction |
0 |
0 |
LGBTQ+ |
0 |
0 |
Did Not Disclose Demographic Background
|
- |
0 |
Other Reporting Issuer Experience
Other than as disclosed under “Item 6.A.
Directors
and Senior Management” above, none of
the Company’s directors are currently directors of other reporting issuers (or
equivalent) in a jurisdiction of Canada or a foreign jurisdiction.
Orientation and Continuing Education of Board Members
The Company currently does not have any formal orientation or continuing education
programs in place for new directors, though it is encouraged for all members. Board meetings are sometimes held at
the Company’s
facilities and are combined with tours and presentations by management and employees to give the Board additional insight into
the Company’s
business. In addition, management makes itself available for discussion with all Board members. Management does provide regular reporting,
both on
the Company’s operations and opportunities, as well industry trends and opportunities.
Ethical Business Conduct
The Board is of the view that the fiduciary duties placed on individual directors
pursuant to corporate legislation and the common law, and the conflict-of-interest provisions under corporate legislation which restricts
an individual director’s participation in decisions of the Board in which the director has an interest, are sufficient to ensure
that the Board operates independently of management and in the best interests of
the Company. In addition, the Board adopted a Code of
Business Conduct and Code of Ethics on
November 26, 2020, which applies to all Company’s personnel, including all members of the
Board, to conduct all Company’s affairs in accordance with all applicable laws, rules and regulations of the jurisdictions in which
it does business. The Code of Business Conduct and Code of Ethics are available on SEDAR+ at
www.sedarplus.ca
and on
the Company’s
website at
https://investors.imcannabis.com/corporate-governance/governance-documents.
The Board monitors compliance with the Code of Business Conduct and Code of Ethics by requiring that all employees and executive officers
of
the Company certify that they have read, understood and agreed to be bound by the Code of Business Conduct and Code of Ethics.
Nomination of Directors
The size of the Board is reviewed annually when the Governance and Nomination Committee
considers the number of directors to recommend for election at the annual general meeting of shareholders. The Governance and Nomination
Committee takes into account the number of directors required to carry out the Board duties effectively and to maintain a diversity of
view and experience.
Compensation of Directors and Officers
For more information of
the Company’s compensation practices, please see the
section entitled
“Item 6.B. Compensation” above.
The Compensation Committee reviews and determines the compensation of directors and
officers. The Compensation Committee is comprised entirely of independent directors and meets at least annually to establish, administer
and evaluate the compensation philosophy, policies and plans for directors and officers regarding director and executive compensation.
The Compensation Committee reviews the performance and determines the compensation of the CEO based on criteria, including
the Company’s
performance and accomplishment of long-term strategic objectives. The Compensation Committee further reviews each individual officer’s
performance and determines compensation that is comparable to similarly situated officers in comparable companies. The full text of the
Compensation Committee charter is posted on
the Company’s
website at
https://investors.imcannabis.com/corporate-governance/governance-documents.
Other Board Committees
As of the date hereof,
the Company’s standing committees are the Audit Committee,
Compensation Committee and Governance and Nomination Committee.
Audit Committee
Pursuant to NI 52-110
, the Company is required
to have an audit committee comprised of not less than three directors, a majority of whom are not officers, control persons or employees
of
the Company or an affiliate of
the Company. NI 52-110 requires
the Company, to disclose annually certain information concerning the
constitution of its audit committee and its relationship with its independent auditor.
Audit Committee’s
Charter
The Board is responsible for reviewing and approving the unaudited interim financial
statements, and annual audited financial statements, together with other financial information of
the Company and for ensuring that Management
fulfills its financial reporting responsibilities. The Audit Committee assists the Board in fulfilling this responsibility. The Audit
Committee meets with management to review the financial reporting process, unaudited interim financial statements, and annual audited
financial statements, together with other financial information of
the Company. The Audit Committee reports its findings to the Board
for its consideration in approving the unaudited interim financial statements, and annual audited financial statements, together with
other financial information of
the Company for issuance to the Shareholders.
The Audit Committee meets regularly on at least a quarterly basis. The members of
the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board.
Composition of the Audit
Committee
The following are the members of the Audit Committee:
Name
|
Independence(1)
|
Financial
Literacy(2) |
Moti Marcus (Chair)
|
Independent
|
Financially literate
|
Brian Schinderle
|
Independent
|
Financially literate
|
Einat Zakariya
|
Independent
|
Financially literate
|
Notes:
|
1. |
Within the meaning of subsection 1.4 of NI 52-110 and as determined under Exchange Act Rule 10A-3 and Rule 5605(a)(2) of the Nasdaq
Stock Market Rules. |
|
2. |
Within the meaning of subsection 1.6 of NI 52-110. |
Relevant Education and
Experience
The Board has determined that Moti Marcus qualifies as a financial expert (as defined in Item 407(d)(5)(ii)
of Regulation S-K under the Exchange Act) and Rule 5605(c)(2)(A) of the Nasdaq Stock Market Rules; and (ii) is independent (as determined
under Exchange Act Rule 10A-3 and Rule 5605(a)(2) of the Nasdaq Stock Market Rules and as defined in NI 52-110).
For information on the relevant education and experience of each Audit Committee,
please see the section entitled “Item 6.A. Directors and Senior Management”.
Audit Committee Oversight
At no time since the commencement of
the Company’s most recently completed fiscal year was a recommendation
of the Audit Committee to nominate or compensate an external auditor not adopted by the Board.
Reliance on Certain Exemptions
At no time since the commencement of
the Company’s most recently completed fiscal
year has
the Company relied on an exemption from the provisions of NI 52-110.
Pre-Approval Policies
and Procedures
The Audit Committee pre-approves all audit services to be provided to the
Company by its independent auditors. Non-audit services that are prohibited to be provided to
the Company by its independent
auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee must
be satisfied that the performance of the services in question will not compromise the independence of the independent auditors.
The Audit Committee pre-approves all audit services to be provided to the
Company by its independent auditors. Non-audit services that are prohibited to be provided to
the Company by its independent
auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee must
be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. All non-audit services
performed by
the Company’s auditor for the fiscal year ended
December 31, 2023 were pre-approved by the Audit Committee.
No non-audit services were approved pursuant to the de minimis exemption to the pre-approval requirement set forth
in Rule 2-01(c)(7)(i)(C) of Regulation S-X.
External Auditor Service
Fees
|
2023 |
2022(5)
|
Audit Fees |
$297 |
$427 |
Audit-related Fees(1)
|
$28 |
$61 |
Tax Fees(2)(3)
|
$68 |
$81 |
All Other Fees(4)
|
$13 |
- |
Total |
$406 |
$569 |
Notes:
|
1. |
Consist of fees for professional services and expenses relating to the audit of the annual financial statements and review of our
quarterly financial information. Fees charged for assurance and related services reasonably related to the performance of an audit, and
not included under “Audit Fees”. |
|
2. |
Consist of fees for professional services and expenses reasonably relating to the audit of the annual financial statements or review
of our quarterly financial information and are not reported as “Audit Fees”. Fees charged for tax compliance, tax advice and
tax planning services. |
|
3. |
Consist of fees for tax-related services related primarily to tax consulting and tax planning. |
|
4. |
Fees for services other than disclosed in any other row, including fees related to the review of management’s discussion and
analysis and Sarbanes-Oxley Act procedures. |
|
5. |
Amounts stated do not include 2022 audit fees of $331 related to deconsolidated Trichome. |
Compensation Committee
For information of
the Company’s compensation practices, please see the sections
entitled “Compensation
of Directors and Officers” and “
Item
6.B. Compensation”.
Governance and Nomination Committee
The purpose of the Governance and Nomination Committee is to develop and monitor the
Company’s approach to:
|
(i) |
matters of governance; and |
|
(ii) |
the nomination of directors to the Board. |
The current members of the Governance and Nomination Committee are:
|
1. |
Einat Zakariya (Chair); |
The Governance and Nomination Committee is not comprised of entirely independent directors as determined
under Rule 5605(a)(2) of the Nasdaq Stock Market Rules and as defined in NI 52-110; however, the Governance and Nomination Committee monitors
best practices for governance and annually reviews
the Company’s governance practices and disclosures to ensure that it continues
to exemplify high standards of corporate governance. The Governance and Nomination Committee reviews the mandate of the Board, the charters
of each of the committees, and the methods and processes by which the directors fulfill their respective duties and responsibilities to
ensure that they meet all applicable regulatory requirements and best practices. The full text of the Governance and Nomination Committee
charter is posted on
the Company’s
website at
https://investors.imcannabis.com/corporate-governance/governance-documents.
Assessment of Directors, the Board and Board Committees
The Board acts in accordance with
the Company’s Mandate of the Board, Audit
Committee charter, Compensation Committee charter and Governance and Nomination Committee charter, as applicable, to monitor the adequacy
of information given to directors, the communications between the Board and management, and the strategic direction and processes of the
Board and its committees to satisfy themselves that the Board, its committees, and its individual directors are performing effectively.
A copy of the Mandate of the Board is posted on
the Company’s
website at
https://investors.imcannabis.com/corporate-governance/governance-documents.
D. Employees
The following table sets forth the number of employees we had at the end of each fiscal
period:
|
|
|
|
|
|
|
Fiscal 2021 |
|
283 |
|
- |
|
363 |
Fiscal 2022 |
|
153 |
|
- |
|
153 |
Fiscal 2023 |
|
95 |
|
- |
|
95 |
None of our employees are members in a labor union.
The following table sets forth the number of employees we had at the end of each fiscal
period per geographic location:
|
|
|
|
|
|
|
|
|
Fiscal 2021 |
|
112 |
|
15 |
|
236 |
|
363 |
Fiscal 2022 |
|
126 |
|
27 |
|
- |
|
153 |
Fiscal 2023 |
|
77 |
|
18 |
|
- |
|
95 |
E. Share
Ownership
As of
March 28, 2024, our directors and executive officers, as a group, beneficially
owned a total of 2,869,955 Common Shares, on an undiluted basis and 4,653,269 Common Shares on a partially diluted basis, representing
beneficial ownership of 21.43% and 30.66% of the Common Shares, respectively.
For information regarding the share ownership of our directors and executive officers,
see “Item 6.B. – Compensation” and “Item
7.A. – Major Shareholders.”
Refer to
“Item 6.B. - Compensation,”
for the details of the options held by our directors and executive officers as at
December 31, 2023.
We do not have any other equity arrangements for involving employees in our capital,
except for the grant of Options and RSUs pursuant to our Securities Based Compensation Arrangements at the discretion of the Board.
F. Disclosure
of a registrant’s action to recover erroneously awarded compensation
Not applicable.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major
Shareholders
The following table provides information with respect to the beneficial
ownership of our Common Shares as of
March 28, 2024:
|
• |
each person, or group of affiliated persons, known by us to beneficially own five percent (5%) or more of any class of our shares;
|
|
• |
each of our Named Executive Officers; |
|
• |
each of our directors; and |
|
• |
all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the Securities
Exchange Commission. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power
or investment power with respect to those securities and include shares that can be acquired within 60 days of
March 28, 2024. The percentage
ownership information shown in the table is based upon 13,394,136 Common Shares outstanding as of
March 28, 2024. Each Common Shares
has one vote per share. For further information regarding the voting rights of Common Shares, see Exhibit 2, “
Description
of Securities”.
Except as otherwise indicated, all persons listed below have sole voting and investment
power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily
indicative of beneficial ownership for any other purpose.
In computing the number of shares beneficially owned by a person and the percentage
ownership of that person, we deemed outstanding shares subject to Options and Warrants held by that person that are immediately exercisable
or exercisable within 60 days of
March 28, 2024. We did not deem these shares outstanding, however, for the purpose of computing the percentage
ownership of any other person. The information in the table below is based on information known to us or ascertained by us from public
filings made by the shareholders. Except as otherwise indicated, addresses of the directors, executive officers and named beneficial owners
are in the care of
the Company at 3606 – 833 Seymour Street, Vancouver, British Columbia V6B 0G4.
For additional information regarding the options reported in the following table, see “Item
6.B. Compensation-Executive Compensation-Outstanding Equity Awards at Fiscal Year End
Name of Beneficial Holder
|
Number of Common Shares
Beneficially Held |
Number of Common Shares
Underlying Options |
Option Exercise Price
($) |
Option Expiration Date
|
Restricted Share Units
|
Warrants |
Total Convertible Securities
|
Percentage of Common
Shares Beneficially Held Undiluted |
Percentage of Common
Shares Beneficially Held Partially Diluted |
|
1,872,870 |
6,250
75,000
50,000 |
40.00
58.70
16.00 |
|
Nil |
856,704 |
987,954 |
13.98% |
19.89% |
Marc Lustig(2)
|
930,635 |
67,500 |
16.00 |
|
55,000 |
633,860 |
756,360 |
6.95% |
11.92% |
Moti Marcus |
Nil |
9,000 |
6.00 |
|
Nil |
Nil |
9,000 |
N/A |
0.07% |
Einat Zakariya |
61,200 |
9,000 |
6.00 |
|
Nil |
Nil |
9,000 |
0.46% |
0.52% |
Brian Schinderle |
Nil |
9,000 |
N/A |
N/A |
Nil |
Nil |
9,000 |
N/A |
0.07% |
|
Nil |
Nil |
N/A |
N/A |
Nil |
Nil |
N/A |
N/A |
N/A |
Michal Lebovitz Nissimov |
Nil |
3,000 |
1.10 |
|
Nil |
Nil |
3,000 |
N/A |
0.02% |
Richard Balla |
5,250 |
9,000 |
16.00 |
|
Nil |
Nil |
9,000 |
0.04% |
0.11% |
Rafael Gabay(3) |
1,173,716 |
Nil |
N/A |
N/A |
Nil |
303,295 |
303,295 |
8.76% |
10.78% |
Luminera Derm Ltd.(4) |
757,172 |
Nil |
Nil |
Nil |
Nil |
Nil |
757,172 |
5.65% |
10.70% |
Notes:
|
(5) |
1,872,564 Common Shares and 856,704 Warrants are held by Oren Shuster directly and 153 Common Shares are held indirectly through
Ewave, a privately-held entity of which Mr. Shuster owns and controls 50% of the outstanding voting. |
|
(6) |
300,393 Common Shares and 138,118 Warrants are held by Marc Lustig directly and 630,242 Common Shares and 495,742 Warrants are held
indirectly through L5 Capital, a privately held entity of which Mr. Lustig owns and controls 100% of the outstanding voting. |
|
(7) |
1,173,563 Common Shares and 303,295 Warrants are held by Rafael Gabay directly and 153 Common Shares are held indirectly by Ewave,
a privately-held entity of which Mr. Gabay owns and controls 50% of the outstanding voting shares. |
|
(8) |
Luminera Derm Ltd., has beneficially own 5% of the outstanding voting rights attached to the outstanding Common Shares of the Company starting
from January 20, 2023. |
The major changes in the last three years in the percentage ownership of persons who
beneficially own 5% of the outstanding voting rights attached to our Common Shares were:
In the last three years both
Oren Shuster and Rafael Gabay exercised control or direction over 5% or more
of the voting rights attached to the outstanding Common Shares of
the Company, but they did so in greater percentage.
The Company’s securityholders who beneficially own five percent (5%) or more of any class of our
shares do not have different voting rights.
As of
March 28, 2024, our directors and executive officers, as a group, beneficially owned a total of 2,869,955
Common Shares on an undiluted basis and 4,653,269 Common Shares on a partially diluted basis, representing beneficial ownership of 21.43%
and 30.66% of the Common Shares, respectively.
As of
March 28, 2024, we estimate that approximately 7.99% of our outstanding Common Shares, which equates
to 2,395,824 Common Shares, were held in the United States by 23 holders of record. The number of holders of record does not include beneficial
owners whose Common Shares are held in street name by brokers and other nominees. The number of holders of record also does not include
holders whose shares may be held in trust by other entities.
We do not have any other equity arrangements for involving employees in our capital,
except for the grant of Options and RSUs pursuant to our Securities Based Compensation Arrangements at the discretion of the Board.
We are a publicly owned company, and our Common Shares are owned by Canadian residents,
United States residents, and residents of other countries. To our knowledge, we are not directly owned or controlled by another corporation,
any foreign government or any other natural or legal person(s), whether severally or jointly. We are not aware of any arrangement, the
operation of which may result in a change of control of us.
B. Related
Party Transactions
Since
January 1, 2023, we have engaged in the following transactions with our related
parties. For this purpose, our related parties include (a) enterprises that directly or indirectly control or are controlled by, or are
under common control with, us; (b) our associates; (c) shareholders beneficially owning 10% or more of our voting power and other individuals
with significant influence over us, and close members of any such individual’s family; (d) our directors and executive officers,
and close members of their families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly,
by any person described in (c) or (d) or over which such a person is able to exercise significant influence. Our related parties include
enterprises owned by directors or major shareholders and enterprises that have a member of key management in common with us. All of the
transactions have been reviewed and approved by the Board or another independent committee of the board.
|
• |
On April 2, 2019, IMC Holdings and Focus entered into an option agreement (the “Focus Agreement”) pursuant to which IMC
Holdings acquired an option to purchase, at its sole discretion and in compliance with Israeli cannabis regulation, all of the ordinary
shares held by Messrs. Shuster and Gabay held in Focus at a price equal to NIS 765.67 per ordinary share until April 2029. On November
30, 2023, IMC Holdings sent a request letter to IMCA to approve IMC Holding’s exercise of the option and on February 25, 2024, IMCA's
approval was obtained. Effective February 27, 2024, IMC Holdings acquired 74% of the ordinary shares of Focus. |
|
• |
The Company is a party to indemnification agreements with certain directors and officers of the Company and Trichome to cover certain
tax liabilities, interest and penalties arising from the Company’s acquisition of all of issued and outstanding securities of Trichome
and certain of its subsidiaries. |
|
• |
The Stalking Horse Purchase Agreement constituted a related party transaction as L5 Capital is an entity controlled by Marc Lustig,
who was a director of Trichome and the Executive Chairman of the Board. On March 8, 2023, the Company announced that the SISP approved
by the Court did not result in any bids for the going-concern business of Trichome; however, L5 Capital advised that it would not complete
the proposed transaction contemplated by the Stalking Horse Share Purchase Agreement. |
|
• |
On January 16, 2023, the Company closed of the first tranche of the Concurrent Offering comprised of an aggregate of 1,159,999 Units
for aggregate gross proceeds of US$1,500. The Concurrent Offering was led by insiders of the Company. The units offered under the Concurrent
Offering were sold under similar terms as the Life Offering. |
|
• |
On January 20, 2023, the Company closed the second tranche of the LIFE Offering comprised of 102,152 Life Units for an aggregate
subscription price of approximately US$128. The second tranche of the LIFE Offering was comprised of a single subscription by the Executive
Chairman of the Company whose subscription price was satisfied by the settlement of approximately US$128 in debt owed by the Company to
him for certain consulting services previously rendered to the Company. |
|
• |
On February 16, 2023, the Company closed the fifth and final tranche of the LIFE Offering. Marc Lustig, the Executive Chairman of
the Company subscribed for 29,548 Life Units in the fifth tranche at an aggregate subscription price of US$37. Marc Lustig’s subscription
price was satisfied by the settlement of US$37 in debt owed by the Company to the director for certain consulting services previously
rendered by the director to the Company. |
The participation by Company’s insiders in each of the Concurrent
Offering and LIFE Offering constituted
“related party transactions” pursuant to MI 61-101.
The Company relied on Sections
5.5(a) and 5.7(1)(a) of MI 61-101 for exemptions from the requirements to obtain a formal valuation and minority shareholder approval,
respectively, because the fair market value of the insiders’ participation in the Concurrent Offering and LIFE Offering, as applicable,
was below 25% of
the Company’s market capitalization for the purposes of MI 61-101.
|
• |
Pursuant to the consulting agreement between the Company and L5 Capital, the Company issued 50,414 Common Shares as a result of the
vested RSUs according to the agreed vesting schedule. The Common Shares were issued on May 5, 2023. In July 24, 2023, an additional 4,585
Common Shares were issued as a result of the vested RSUs according to the agreed vesting schedule. |
|
• |
On October 12, 2023, Oren Shuster, the CEO loaned an amount of NIS 500 (approximately $170) to IMC Holdings. The participation of
the CEO constituted a “related party transaction”, as such term is defined in MI 61-101 and would require the Company to receive
minority shareholder approval for and obtain a formal valuation for the subject matter of, the transaction in accordance with MI 61-101,
prior to the completion of such transaction. However, in completing the loan, the Company has relied on exemptions from the formal valuation
and minority shareholder approval requirements of MI 61-101, in each case on the basis that the fair market value of the CEO’s loan
did not exceed 25% of the market capitalization of the Company, as determined in accordance with MI 61-101. |
Other than the aforesaid transactions noted above,
the Company had no other transactions
with related parties outside of the Group except those pertaining to transactions with key management personnel and shareholders in the
ordinary course of their employment or directorship.
C. Interests
of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL
INFORMATION
A. Consolidated
Statements and Other Financial Information
Financial Statements
This Annual Report contains the 2023 Annual Financial Statements. The audit reports of Kost Forer, the
Company’s auditor, are included therein.
Dividend Distribution
Policy
We have not paid any dividends on our outstanding Common Shares, and we have no current
intention to declare dividends on our Common Shares in the foreseeable future. Any decision to pay dividends on our Common Shares in the
future will be at the discretion of the Board and will depend on, among other things, our results of operations, current and anticipated
cash requirements and surplus, financial condition, any future contractual restrictions and financing agreement covenants, solvency tests
imposed by corporate law and other factors that the Board may deem relevant.
Legal Proceedings
The Company is engaged in certain legal proceedings, as further described below. Litigation
has been, and is expected to be, costly and time-consuming and could divert the attention of management and key personnel from our business
operations. Although we intend to vigorously defend ourselves against any pending claims, and future claims that may occur, we cannot
assure that we will succeed in defending any of these claims and that the judgments will not be upheld against us. If we are unsuccessful
in our defense of these claims or unable to settle the claims in a manner satisfactory to us, we may be faced with outcomes that could
have a material adverse effect on
the Company and its financial condition. Except for as otherwise disclosed below, there are no material
outstanding legal proceedings or regulatory actions to which
the Company is party, nor, to Company’s knowledge, are there any such
proceedings or actions contemplated.
Class Action T.Z. 35676-08-19
Tel Aviv - Jaffa District Court
On
August 19, 2019, a cannabis consumer (the “
Class
Action Applicant”) filed a motion for approval of a class action to Tel Aviv - Jaffa District Court (the “
Class
Action Motion”) against 17 companies (the “
Class
Action Parties”) operating in the field of medical cannabis in Israel, including Focus. The Class Action Applicant’s
argument is that the Class Action Parties did not accurately mark the concentration of active ingredients in their products. The personal
suit sum for each class member stands at NIS 16 and the total amount of the class action suit is estimated at NIS 686,740. On
June 2,
2020, the Class Action Parties submitted their response to the Class Action Motion. The Class Action Parties argue in their response that
the threshold conditions for approval of a class action were not met, since there is no reasonable possibility that the causes of action
in the Class Action Motion will be decided in favor of the class group. On
July 3, 2020, the Class Action Applicant submitted his response
to the Class Action Parties’ response. On
July 5, 2020, the Class Action Applicant was absent from the hearing. As a result, on
July 23, 2020, the Class Action Parties filed an application for a ruling of expenses which received a response from the Class Action
Applicant on
August 12, 2020, asking to decline this request. On
September 29, 2020, the court ruled that the Class Action Applicant would
pay the Class Action Parties’ expenses amount of NIS 750. On
July 14, 2021, a prehearing was held. The court recommended the parties
negotiate independently to avoid litigation, and if negotiations fail, then to begin mediation proceedings. The Class Action Parties agreed
to follow the court’s recommendations. On
November 3, 2021, the court ruled the Class Action Parties will file an update regarding
the mediation procedure in 30 days. The Class Action Parties conducted unsuccessful negotiations. On
March 14, 2022, the Class Action
Applicant filed a request to amend the Class Action Motion (the “
Class Action Applicant’s
Request for Amendment”) and the judge disqualified herself from hearing the case. As a result, the case was redirected. On
June 21, 2022, the Class Action Parties filed a response to the Class Action Applicant’s Request for Amendment. On
September 12,
2022, the court ruled on the Class Action Applicant’s Request for Amendment and accepted the Class Action Applicant’s request
to clarify its claims regarding product labeling, while rejecting the Class Action Applicant’s other requests. On
November
27, 2023, the Class Action Applicant submitted an amended application for approval of the motion (the “
Class
Action Amended Motion"), and the Class Action Parties’ response was submitted on
February 8, 2023. The date of the preliminary
hearing was set for
April 27, 2023. On
July 4, 2023, the Class Action Parties submitted an agreed request to release from the class action
and validity of a judgment. The request was conditioned upon and subject to approval of the court. According to the release request, the
Class Action Parties will pay the Applicant a total amount of NIS 70 plus VAT and a total amount of NIS 40 NIS plus VAT to the Class Action
Applicant's counsel. On
July 24, 2023, the Class Action Amended Motion was approved by the court and the Class Action has been closed.
Planning and construction
66813-06-21 beer Sheva magistrate court
On
July 11, 2021,
the Company was informed that on
June 30, 2021, a claim was filed
to Beer Sheva Magistrate Court, by the municipal committee presiding over planning and construction in southern Israel against Focus,
Focus’ directors and officers, including
Oren Shuster and Rafael Gabay, and certain landowners, claiming for inadequate permitting
for construction relating to the Focus Facility (the “
Construction Proceedings”).
On
December 6, 2021, the defendants filed a motion request for dismissal the indictment
on the ground of defense of justice. The municipal committee filed its response and after that the defendants filed a response to the
municipal committee’s response.
A hearing was initially set to
December 1, 2021, but postponed several times to allow
the parties to negotiate towards a resolution. The hearing was set for
June 22, 2023. A draft agreement between the parties sent by the
defendant to the municipal committee for it to be sent to the state attorney’s office for their comments, which once obtained, will
be filed with the Court for its approval. The Court is not obligated to approve the agreement between the parties, if obtained.
On
June 22, 2023, a hearing took place before the esteemed Honorable Judge Orit Kertz.
During the hearing it was decided that the defendants and the municipal committee's attorney would engage in negotiations and make diligent
efforts to reach a settlement before
August 15, 2023. The responsibility of informing the court about any progress concerning a potential
settlement was assigned to the attorney representing the municipal committee. On
September 9, 2023, the municipal committee's attorney
was summoned to appear at a hearing before the Honorable Judge Orit Kertz. The hearing was postponed to
December 28, 2023, due to the
2023 Israel–Hamas war as will be further specified under
“Risk Factors" section of this Annual Report.
On
January 2, 2024,
the Company announced that the construction proceedings against
Focus, were concluded on
December 28, 2023.
The company maintains
"de facto" control of Focus. Focus was indicted and a fine of $129 has
been imposed. The cultivation facility, which was the focus of the proceedings, was closed in June 2022 in alignment with
the Company's
strategic shift towards import and sales.
COVID-19 Test Kits Claim,
District Court of Stuttgart
On
November 19, 2021, Adjupharm filed a statement of claim (the “
Claim”)
to the District Court of Stuttgart (the “
Stuttgart Court”)
against Stroakmont & Atton Trading GmbH (“
Stroakmont”), its shareholders and managing
directors regarding a debt owed by Stroakmont to Adjupharm in an amount of approximately EUR 948 for COVID-19 test kits purchased by Stroakmont
from Adjupharm at the end of March 2021. In January 2022, Stroakmont filed its statement of defence to the Stuttgart Court in which they
mainly stated two arguments for their defense:
|
1. |
The contractual party of the company was not Stroakmont. The contract with Stroakmont was only concluded as a sham transaction to
cover up a contract with a company named Uniclaro GmbH (“ Uniclaro”). Therefore, Stroakmont
is not the real purchaser rather than Uniclaro. |
|
2. |
The company allegedly placed an order with Uniclaro for a total of 4.3 million Clongene COVID-19 tests, of which Uniclaro claims
to have a payment claim against the company for a partial delivery of 380,400 Clongene COVID-19 tests in the total amount of EUR 942.
Uniclaro has assigned this alleged claim against the company to Stroakmont Trading GmbH, and Stroakmont Trading GmbH has precautionary
declared a set-off against the company’s claim. |
On
March 22, 2022, Adjupharm filed a response to Stroakmont’s statement of defence
and rejected both allegations with a variety of legal arguments and facts and also offered evidence to the contrary in the form of testimony
from the witnesses in question.
The burden of proof for the allegation that the
contract with Stroakmont was only
concluded as a sham transaction lies with the opponents, and they offered evidences to the court in the form of testimony from certain
witnesses.
A court hearing with witnesses was held on
January 11, 2023 and on
February 22, 2023,
where witnesses testified. According to the court the witnesses were not able to provide required evidence for the allegation regarding
the sham transaction with Stroakmont. On
April 5, 2023, Stuttgart Court announced its decision (the "
Test
Kits Judgment") and sentenced Stroakmont to pay to Adjupharm EUR 948 plus interest in the amount of 5 percentage points above the
German basis rate since
May 8, 2021. In addition, Stroakmont was sentences to pay Adjupharm EUR 7 plus interest at 5 percentage points
above the German basis rate since
December 14, 2021.
The directors of Stroakmont, Mr. Simic and Mr. Lapeschi, were not sentenced and in
this respect, the claim was dismissed against them with regard to their personal liability. Adjupharm shall pay 2/3 of the Stuttgart
Court expenses and the out-of-court expenses of Mr. Simic and Mr. Lapeschi. Stroakmont shall bear 1/3 of the Stuttgart Court expenses
and 1/3 of the out-of-court expenses of Adjupharm. The remaining out-of-court expenses shall be borne by each party.
Furthermore, the court did not decide on the counterclaims from an alleged order by
Adjupharm for 4.3 million Clongene tests due to a set-off prohibition. This set-off prohibition follows from a jurisdiction agreement
concluded between Adjupharm and Uniclaro, which determined the courts in Hamburg to be the competent court to decide about such allegations.
The Judgment is not yet final and, therefore, cannot be enforced. On
May 5, 2023,
Adjupharm and Stroakmont, each submitted an appeal with the Stuttgart Court against the Test Kits Judgment (the "
Test
Kits Appeal").
On
June 23, 2023, Adjupharm filed its statement of grounds for appeal with the Higher
Regional Court of Stuttgart. Adjupharm appeals against the fact that the directors of Stroakmont were not sentenced to pay jointly and
severally together with Stroakmont as a result of fraud. Since they concluded the purchase agreement with Adjupharm in the name of Stroakmont
and there is indication that they did not intend to pay the purchase price from the very beginning, this could be considered to be fraudulent
inducement, for which they would be personally liable.
Stroakmont appeals against the judgement and request to reject the payment claim.
Furthermore, they appeal against the prohibition of the set-off. They are of the opinion that there is no such prohibition, and they want
to include their alleged counterclaims in the proceedings and to receive a decision for their counterclaim by the court in Stuttgart.
So far, there have not been any instructions from the Court of Appeal and no oral
hearing was held yet. It is not yet possible to estimate the outcome of the appeal proceedings at this early stage in the process.
At this stage,
the Company management cannot assess its ability to collect the payment
awarded in the Test Kits Judgment and the chances of the claim advancing or the potential outcome of the Test Kits Appeal.
Uniclaro vs. adjupharm
On
December 22, 2022, Uniclaro filed a statement of claim against Adjupharm with the
district court in Hamburg. According to the statement of claim, Uniclaro claimed the payment of the amount of EUR 1,047 (including VAT)
in exchange for 300,000 Covid-19 rapid.
Uniclaro alleges in this lawsuit that Adjupharm purchased 4.3 million Covid-19 rapid
tests of the brand
"Clongene" from Uniclaro. Furthermore, Uniclaro claims that the order was placed verbally on
March 23, 2021 and that
Adjupharm has already paid for a portion of these tests and received them, but not yet the entire 4.3 million tests. They reserve the
right to extend the lawsuit for a further amount (which they did not specify).
According to Uniclaro's statement of claim the lawsuit does not concern the same purchase
price and the same Covid-19 rapid tests as in the Stroakmont Claim mentioned above. On
February 23, 2023,
the Company provided its statement
of defense to the court. The statement of defense contains similar arguments to reject the allegations in this respect as in the court
proceedings in Stuttgart about the counterclaims. Adjupharm rejected the claim stating that it did not purchase such an amount if
Covid-19 rapid tests, but only small portions on a case-by-case-basis and according to the available cash flow.
On
February 14, 2024, a court hearing took place before the district court of Hamburg,
at which the court also took evidence. The court first heard the managing directors of Uniclaro and Adjupharm. They commented on the events
of
March 23, 2021 and the alleged purchase. The statements of all managing directors differed from each other. Afterwards, the witness
Francesco Bisceglia, who holds the position of Sales Director at Adjupharm, was also heard. His statement also partially deviated from
the statements of all managing directors, but overall, the witness basically testified that
the company did not purchase 4.3 million Clungene
Tests in the meeting of
March 23, 2021. The transcript of the hearing is still pending.
The court provided the parties a deadline until
March 27, 2024, to evaluate the statements
of the managing directors and the testimony of the witness and to deliver to the court a summary of the factual and legal situation after
the court hearing. The court will announce its decision for further proceedings or its judgment on
April 24, 2024.
The burden of proof for the question whether or not
the Company has purchased 4.3
million Clungene Tests is borne by Uniclaro. After reviewing the written statements of the parties, the court will evaluate the testimony
and all the statements of the managing directors. The court will then decide about the further proceedings. If, due to the fact that the
statements of the managing directors and the witness are controversial, the court will not be able to determine whether a purchase agreement
was concluded or not, it is more likely than not that the claim will be dismissed. However, it cannot be excluded that the court will
conduct further investigations of further witnesses.
At this stage,
the Company management cannot assess the chances of the claim advancing
or the potential outcome of this these proceedings.
CCAA Proceedings
For more information of
the Company’s CCAA proceedings, please see the section
entitled
“Canadian Restructuring”.
The Regional Labor Court
- Tel Aviv (Bat Yam) 17419-04-23
On
May 10, 2023, IMC Holdings received a notice that a former employee has recently
filed a claim with The Regional Labor Court - Tel Aviv against 3 companies, including IMC Holdings. The nature and details of the claim
are still in the preliminary stages, and IMC Holdings is actively working to comprehend the full scope of the allegations.
A preliminary hearing is set for
May 6, 2024, before the esteemed Honorable Judge
Karin Liber-Levin at the Regional Labor Court - Tel Aviv (Bat Yam).
At this stage,
the Company management cannot accurately assess the potential outcome
of the claims or the likelihood of the claims progressing further.
Biome Grow Inc. Default
On
April 4, 2022,
the Company issued a Notice of Event of Default and Acceleration
(the “
Notice of Default”) to Biome Grow Inc. (the “
Guarantor”)
and its subsidiary, Cultivator Catalyst Corp. (together with the Guarantor, the “
Obligors”),
for a total outstanding principal plus accrued and unpaid interest of approximately $2,680 (the “
Biome Loan”).
The Company issued the Notice of Default after several failed attempts to engage the Obligors regarding an extension and repayment of
the Biome Loan.
On
April 20, 2022,
the Company issued a demand letter to the Obligors seeking immediate
payment, along with a Notice to Enforce Security pursuant to section 244 of the
Bankruptcy and Insolvency
Act (Canada). On
May 3, 2022, MYM filed an application with the Superior Court of Justice in Ontario (the “
Superior
Court”) to appoint a receiver to take control of the Obligors’ assets, including the security, to effect repayment
of the Biome Loan.
The Biome Loan and related security agreements were entered into in July 2020, approximately
one year prior to
the Company’s acquisition of MYM. As part of the Biome Loan, the Obligors agreed to repay all outstanding principal
and accrued and unpaid interest no later than
January 31, 2022. The amount of the Biome Loan and interest payable is secured by assets
held in escrow by the Obligors pursuant to a general security agreement (the “
Collateral”).
On
May 12, 2022,
the Company applied to and received from the Superior Court an interim
order to, among other things, freeze the assets of the Obligors
including the assets, which
comprise MYM’s Collateral for the Biome Loan. MYM has applied to the Superior Court, which granted MYM’s request for the receivership
of the assets of the Obligors
and has scheduled an in-person hearing for the receivership
application on
September 12, 2022.
In September 2022, MYM and the Obligors reached an agreement and signed a term sheet
for the settlement of the receivership application and amendment to the Biome Loan (the “
Biome Term
Sheet”). The Biome Term Sheet was signed on
September 9, 2022, prior to the
September 12, 2022 in-person receivership application
hearing with the Superior Court. The Superior Court approved the adjournment of the receivership application, pending the implementation
of the settlement outlined in the Biome Term Sheet, pursuant to which, the Biome Loan will continue to bear interest at a rate of 8% per
annum on the principal balance of the Biome Loan, compounding every four months on the aggregate balance of the outstanding principal
balance plus all accrued and unpaid interest (the “
Indebtedness”). The Biome Loan was
supposed to mature on
December 9, 2023.
Based on the Biome Term Sheet, the Obligors were required to make a payment to MYM
on
December 31, 2022. The value of the payment on
December 31, 2022 was dependent on the volume weighted average price (the “
VWAP”)
of the Common Shares during the final ten trading days of November 2022. The repayment was to be 5% or 10% of the total Indebtedness,
depending on the VWAP over that period of time.
On
October 4, 2022, a loan amendment agreement (“
Settlement
Agreement”) was executed in line with the terms noted in the Biome Term Sheet.
The Obligors did not make payment to MYM on
December 31, 2022,
as required under the Settlement Agreement and the parties are discussing modifications to the Settlement Agreement. As a result of the
Settlement Agreement, the Biome Loan was considered extinguished under IFRS 9
Financial Instruments and
a gain of $239 was recognized during 2022. As of
November 7, 2022 the Biome Loan is deconsolidated as part of the deconsolidation of Trichome.
Ontario Superior Court
of Justice in Canada – Statement of claim
On
November 17, 2023,
the Company received a copy of a Statement of Claim that was
filed in the Ontario Superior Court of Justice in Canada by 35 Oak Holdings Ltd., MW Investments Ltd., 35 Oak Street Developments Ltd.,
Michael Wiener, Kevin Weiner, William Weiner, Lily Ann Goldstein-Weiner, in their capacity as trustees of the Weiner Family Foundation
(collectively the "
MYM Shareholder Plaintiffs") against
the Company, Board and officers, (collectively,
the "
MYM Defendants").
MYM Shareholder Plaintiffs claims that the MYM Defendants made misrepresentations
in its disclosures prior to
the Company's transaction with MYM in 2021. The MYM Shareholder Plaintiffs are claiming damages that amount
to approximately $15,000 and aggravated, exemplary and punitive damages in the amount of $1,000.
The Company has reviewed the complaint and believes that the allegations are without
merit.
The Company, together with some of the Defendants brought, on
February 22, 2024, a
preliminary motion to strike out several significant parts of the claim (the
"Motion") The Motion has not been scheduled by the court.
At this time,
the Company's management is of the view that the Motion has merit and
is likely to succeed in at least narrowing the scope of the claim against
the Company, and that it may also result in certain of the claims
against individuals being dismissed altogether, and if not dismissed narrowed in scope and complexity.
The Company plans to vigorously defend itself against the allegations. At this stage,
the Company management cannot assess the chances of the claim advancing or the potential outcome of this these proceedings.
B. Significant
Changes
Except as otherwise disclosed in this Annual Report, there have been no significant
changes in our financial condition since the most recent audited consolidated financial statements for the year ended
December 31, 2023.
ITEM 9.
THE OFFER AND LISTING
A. Offer
and Listing Details
Our Common Shares are listed and posted for trading on Nasdaq under the symbol “IMCC”
and CSE under the trading stock symbol “IMCC”.
Our Warrants are listed and posted for trading on the CSE under the symbol “IMCC.WT”.
B. Plan
of Distribution
Not applicable.
C. Markets
See Item 9.A. - Offer
and Listing Details.
D. Selling
Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses
of the Issue
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A. Share
Capital
Not applicable.
Incorporation
See Item 4.A. – Name, Address and Incorporation.
Objects and Purposes
Neither the Notice of Articles nor the Articles of
the Company contain a limitation
on objects and purposes.
Directors
Article 16 of the Articles deals with a directors’ disclosable interest (as
defined in the BCBCA) in
contracts or transactions into which
the Company has entered or proposes to enter. Article 16.2 provides that
a director who holds such a disclosable interest is not entitled to vote on any directors’ resolution to approve such
contract or
transaction, unless all the directors have a disclosable interest in that
contract or transaction, in which case any or all of those directors
may vote on such resolution.
Pursuant to the BCBCA, a director holds a disclosable interest in a
contract or transaction
if (a) the
contract or transaction is material to
the Company, (b)
the Company has entered, or proposes to enter, into the
contract or
transaction, (c) either the director has a material interest in the
contract or transaction or the director is a director or senior
officer of, or has a material interest in, a person who has a material interest in the
contract or transaction and (d) the interest is
known by the director or reasonably ought to have been known. Pursuant to the BCBCA, a director does not have a disclosable interest in
a number of prescribed situations, including without limitation in respect of a
contract or transaction merely because the
contract or
transaction relates to the remuneration of the director in that person’s capacity as a director of
the Company.
The directors may act notwithstanding any vacancy in the Board, but if
the Company
has fewer directors in office than the number set pursuant to the Articles as the quorum of directors, the directors may only act for
the purpose of appointing directors up to that number or of summoning a meeting of shareholders for the purpose of filling any vacancies
on the Board or, subject to the BCBCA, for any other purpose. The quorum necessary for the transaction of the business of the directors
is deemed to be set at a majority of the directors or, if the number of directors is set at one, is deemed to be set at one director,
and that director may constitute a meeting.
Article 8 of the Articles deals with borrowing powers.
The Company, if authorized
by the directors, may: (1) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that
they consider appropriate; (2) issue bonds, debentures and other debt obligations either outright or as security for any liability or
obligation of
the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate;
(3) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and (4) mortgage, charge,
whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present
and future assets and undertaking of
the Company.
Qualifications of Directors
The Articles do not specify a retirement age for directors.
Directors are not required to own any Common Shares of
the Company.
Section 124 of the BCBCA provides that an individual is not qualified to become or
act as a director of a company if that individual is:
|
1. |
under the age of 18 years; |
|
2. |
found by a court, in Canada or elsewhere, to be incapable of managing the individual’s own affairs, unless a court, in Canada
or elsewhere, subsequently finds otherwise; |
|
3. |
an undischarged bankrupt; or |
|
4. |
convicted in or out of the Province of British Columbia of an offence in connection with the promotion, formation or management of
a corporation or unincorporated business, or of an offence involving fraud, unless: |
|
a. |
the court orders otherwise; |
|
b. |
5 years have elapsed since the last to occur of: |
|
i. |
the expiration of the period set for suspension of the passing of sentence without a sentence having been passed; |
|
ii. |
the imposition of a fine; |
|
iii. |
the conclusion of the term of any imprisonment; and |
|
iv. |
the conclusion of the term of any probation imposed; or |
|
c. |
a pardon was granted or issued, or a record suspension ordered, under the Criminal Records Act (Canada) and the pardon or record
suspension, as the case may be, has not been revoked or ceased to have effect. |
A director who ceases to be qualified to act as a director of
the Company must promptly
resign.
Section 120 of the BCBCA provides that every company must have at least one director,
and a public company must have at least three directors.
Rights, Preference and
Restrictions attaching to the Common Shares
Authorized Share Structure
The Corporation is authorized to issue an unlimited number of Common Shares.
Dividend Rights
Subject to the BCBCA, the directors may from time to time declare and authorize payment
of such dividends as they may deem advisable. No notice is required for the payment of dividends, the directors may set a date as
the record date for the purpose of determining shareholders entitled to receive payment of a dividend. The record date must not precede
the date on which the dividend is to be paid by more than two months. If no record date is set, the record date is 5:00 p.m. (Vancouver
time) on the date on which the directors pass the resolution declaring the dividend. Dividends are to be paid on a pro rata basis, paid
according to the number of Common Shares held.
Voting Rights
Holders of Common Shares are entitled to receive notice of any meeting of shareholders
of
the Company, to attend such meeting and on a vote by show of hands, are entitled to one vote on a matter at such meeting and, on a
poll, are entitled to one vote in respect of each Common Share held by that shareholder, and may exercise that vote either in person or
by proxy.
Rights to Share in the
Company’s Profits
The directors may from time to time capitalize any retained earnings or surplus of
the Company and may from time-to-time issue, as fully paid, shares or any bonds, debentures or other securities of
the Company as a dividend
representing the retained earnings or surplus or any part of the retained earnings or surplus so capitalized or any part thereof.
Rights to Share in any
Surplus in the Event of Liquidation
The Common Shares do not carry any right to share in a surplus in the event of liquidation.
Redemption Provisions
There are no rights of redemptions in the articles. Although, if
the Company retains
a share redeemed, purchased or otherwise acquired by it,
the Company may sell, gift or otherwise dispose of the share, but, while such
share is held by
the Company, it:
(1) is not entitled to vote the share at a meeting of its shareholders;
(2) must not pay a dividend in respect of the share; and
(3) must not make any other distribution in respect of the share.
Sinking Fund Provisions
There are no sinking fund provisions attaching to Common Shares.
Liability to Further
Capital Calls
The Common Shares do not carry any liability to further capital calls by
the Company.
Discriminatory Provisions
The Common Shares do not carry any provisions discriminating against any existing
or prospective holder of Common Shares as a result of such shareholder owning a substantial number of Common Shares.
The rights of shareholders of
the Company may be altered only with the approval of
the holders of a majority of the Common Shares voted at a meeting of
the Company’s shareholders called and held in accordance with
the Articles and applicable law.
Shareholder Meetings
The BCBCA provides that: (i) a general meeting of shareholders must, unless the meeting
is fully electronic, be held in the Province of British Columbia, unless otherwise provided in the Articles (Article 10.4 of the
Articles provides that a meeting of shareholders may be held in or outside of British Columbia as determined by a resolution of
the directors); (ii)
the Company must hold an annual general meeting of shareholders not later than 15 months after the last preceding
annual general meeting and once in every calendar year; (iii) for the purpose of determining shareholders entitled to receive notice of
or vote at a meeting of shareholders, the directors may set a date as the record date for that determination, provided that such date
shall not precede by more than 2 months (or, in the case of a general meeting requisitioned by shareholders under the BCBCA, by more than
4 months) (or, pursuant to Article 10.5 and 10.6 of the Articles, be less than 21 days before the date on which the meeting is to be held
for so long as
the Company is a public company); (iv) a quorum for the transaction of business at a meeting of shareholders of
the Company
is the quorum established by the Articles (Article 11.3 of the Articles provide that the quorum for the transaction of business at a meeting
of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of Common Shares
entitled to vote at the meeting,); (v) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition
the directors to call a meeting of shareholders for the purpose of transacting any business that may be transacted at a general meeting;
and (vi) the court may, on its own motion or on the application of
the Company, upon the application of a director or the application
of a shareholder entitled to vote at the meeting: (a) order that a meeting of shareholders be called, held and conducted in a manner that
the court considers appropriate; and (b) give directions it considers necessary as to the call, holding and conduct of the meeting.
Limitations on Ownership
of Securities
Except as provided in the Investment Canada Act, there are no limitations specific
to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or the Province of British Columbia or in the
Company’s constating documents.
Change in Control
There are no provisions in
the Company’s constating documents or under applicable
corporate law that would have the effect of delaying, deferring or preventing a change in the control of
the Company, or that would operate
with respect to any proposed merger, acquisition or corporate restructuring involving
the Company or any of its
subsidiaries.
Ownership Threshold
For as long as
the Company remains a reporting issuer (as defined under the Securities
Act (British Columbia)), there are no provisions in
the Company’s constating documents or under applicable corporate law requiring
share ownership to be disclosed. Securities legislation in Canada requires that shareholder ownership (as well as ownership of an interest
in, or right or obligation associated with, a related financial instrument of a security of
the Company) must be disclosed once a person
becomes a reporting insider as such term is defined in National Instrument 55-104 – Insider Reporting Requirements and Exemptions,
which includes any person who beneficially owns or has control or direction over, directly or indirectly, securities of a reporting issuer
carrying more than 10% of the voting rights attached to all the reporting issuer’s outstanding voting securities on a partially
diluted basis. This threshold is higher than the 5% threshold under U.S. securities legislation at which stockholders must report their
share ownership.
Changes to Capital
There are no conditions imposed by the Articles governing changes in the capital where
such conditions are more significant than is required by the corporate laws of the Province of British Columbia for as long as
the Company
is a public company. Otherwise, Section 25.3 of the Articles provides that if
the Company ceases to be a public company and statutory
reporting company provisions do not apply, no share or designated security may be sold, transferred or otherwise disposed of without the
consent of the directors and the directors are not required to give any reason for refusing to consent to any such sale, transfer or other
disposition.
Description of Capital
Structure
Our authorized share structure consists of an unlimited number of Common Shares without
par value, of which 13,394,136 Common Shares were issued and outstanding as of
March 28, 2024. All of the issued Common Shares are fully
paid and non-assessable common shares in the authorized share structure of
the Company.
The Company does not own any of its Common Shares.
Except as set forth below, the material terms of our
material contracts are described
elsewhere in this Annual Report. Below is a list of our
material contracts, together with references to the relevant sections of this
Annual Report where the material terms of such
contracts are described.
The summaries provided below and elsewhere in this Annual Report are not meant to
be exhaustive and are qualified in their entirety by the full text of the relevant agreements, copies of which are filed as exhibits to
this Annual Report.
|
a. |
Focus Agreement. For more information, please see the section entitled “B. Related Party Transactions”. |
|
b. |
Services Agreement. For more information, please see the section entitled “Economic Dependence”. |
|
c. |
IP Agreement. For more information, please see the section entitled “Economic Dependence”. |
|
d. |
First LIFE Warrant Indenture; For more information, please see the section entitled “Life Offering”. |
|
e. |
Second LIFE Warrant Indenture; For more information, please see the section entitled “Life Offering”. |
|
f. |
Third LIFE Warrant Indenture; For more information, please see the section entitled “Life Offering”. |
|
g. |
The Loan Agreement. For more information, please see the section entitled “Potential Reverse Merger with Kadimastem”.
|
D. Exchange
Controls
Canada has no system of exchange controls. There are no Canadian governmental laws,
decrees, or regulations relating to restrictions on the repatriation of capital or earnings of
the Company to non-resident investors.
There are no laws in Canada or exchange control restrictions affecting the remittance of dividends or other payments made by
the Company
in the ordinary course to non-resident holders of the Common Shares by virtue of their ownership of such Common Shares, except as discussed
below in under “
Item 10.E. - Taxation”.
There are no limitations under the laws of Canada or in the organizing documents of
the Company on the right of foreigners to hold or vote securities of
the Company, except that the
Investment
Canada Act may require that a
"non-Canadian" not acquire
"control" of
the Company without prior review and approval by the
Minister of Innovation, Science and Economic Development, where applicable thresholds are exceeded. The acquisition of one-third or more
of the voting shares of
the Company would give rise a rebuttable presumption of an acquisition of control, and the acquisition of more
than fifty percent of the voting shares of
the Company would be deemed to be an acquisition of control. In addition, the
Investment
Canada Act provides the Canadian government with broad discretionary powers in relation to national security to review and
potentially prohibit, condition or require the divestiture of, any investment in
the Company by a non-Canadian, including non-control
level investments.
"Non-Canadian" generally means an individual who is neither a Canadian citizen nor a permanent resident of Canada within
the meaning of the
Immigration and Refugee Protection Act (Canada)
who has been ordinarily resident in Canada for not more than one year after the time at which he or she first became eligible to apply
for Canadian citizenship, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
Certain United States
Federal Income Tax Considerations
The following is a general summary of certain material U.S. federal income tax considerations
applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of Common Shares.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S.
federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition
of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder
that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to
a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as,
legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal net investment
income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders
of the acquisition, ownership, and disposition of Common Shares. In addition, except as specifically set forth below, this summary does
not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S.
federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and
non-U.S. tax consequences relating to the acquisition, ownership, and disposition of Common Shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service
(the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded
from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities
on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of
the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the United States Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations (whether final, temporary, or proposed), published rulings of
the IRS, published administrative positions of the IRS, the Convention between the United States and Canada with respect to taxes on income
and on capital of 1980, as amended (the "Canada-U.S. Tax Convention"), and U.S. court decisions
that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this
summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive
or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss
the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive,
current or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder"
means a beneficial owner of Common Shares that is for U.S. federal income tax purposes:
|
• |
an individual who is a citizen or resident of the U.S.; |
|
• |
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S.,
any state thereof or the District of Columbia; |
|
• |
an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
|
• |
a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for
all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
|
For purposes of this summary, a "non-U.S. Holder"
is a beneficial owner of Common Shares that is not a U.S. Holder or is a partnership. This summary does not address the U.S. federal income
tax considerations to non-U.S. Holders arising from and relating to the acquisition, ownership and disposition of Common Shares. Accordingly,
a non-U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate
and gift, U.S. state and local and non-U.S. tax consequences (including the potential application of, and operation of, any income tax
treaties) relating to the acquisition, ownership and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal
Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable
to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt
organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers,
or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a
"functional currency" other
than the U.S. dollar; (e) own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or
other integrated transaction; (f) acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation
for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property
held for investment purposes); (h) are partnerships and other pass-through entities (and investors in such partnerships and entities);
(i) are S corporations (and shareholders or investors in such S corporations); (j) own, have owned or will own (directly, indirectly,
or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of
the Company; (k) U.S. expatriates
or former long-term residents of the U.S., (l) hold Common Shares in connection with a trade or business, permanent establishment, or
fixed base outside the United States, (m) are subject to special tax accounting rules with respect to Common Shares, or (n) are subject
to the alternative minimum tax. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S.
Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal net investment income,
U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition,
ownership and disposition of Common Shares.
If an entity or arrangement that is classified as a partnership (or other "pass-through"
entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such entity and the partners
(or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This
summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified
as partnerships or as "pass-through" entities for U.S. federal income tax purposes should consult their own tax advisors regarding the
U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local,
and non-U.S. tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Shares.
Ownership and Disposition of Common Shares
The following discussion is subject to the rules described below under the heading
"Passive Foreign Investment Company Rules".
Taxation of Distributions
A U.S. Holder that receives a distribution, including a constructive distribution,
with respect to a Common Share will be required to include the amount of such distribution in gross income as a dividend (without reduction
for any foreign income tax withheld from such distribution) to the extent of the current or accumulated
"earnings and profits" of the
Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax
rates if
the Company is a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds
the current and accumulated
"earnings and profits" of
the Company, such distribution will be treated first as a tax-free return of capital
to the extent of a U.S. Holder's tax basis in the Common Shares and thereafter as gain from the sale or exchange of such Common Shares
(see
"Sale or Other Taxable Disposition of Common Shares" below). However,
the Company may not maintain the calculations of its earnings
and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution
by
the Company with respect to the Common Shares will constitute ordinary dividend income. Dividends received on Common Shares by corporate
U.S. Holders generally will not be eligible for the
"dividends received deduction". Subject to applicable limitations and provided the
Company is eligible for the benefits of the Canada-U.S. Tax Convention or the Common Shares are readily tradable on a United States securities
market, dividends paid by
the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential
tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including
that
the Company not be classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year. The dividend
rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common
Shares
A U.S. Holder will generally recognize gain or loss on the sale or other taxable disposition
of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property
received and (b) such U.S. Holder's tax basis in such Common Shares sold or otherwise disposed of. Any such gain or loss recognized on
such sale or other disposition generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of
the sale or other disposition, such Common Shares are held for more than one year.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an
individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation.
Deductions for capital losses are subject to significant limitations under the Code.
Passive Foreign Investment Company (“PFIC”) Rules
If
the Company were to constitute a PFIC for any year during a U.S. Holder's holding
period for its Common Shares, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder
resulting from the acquisition, ownership and disposition of Common Shares.
The Company believes that it was not a PFIC for its most recently
completed tax year and based on current business plans and financial expectations,
the Company does not anticipate that it will be a PFIC
for its current tax year. No opinion of legal counsel or ruling from the IRS concerning the status of
the Company as a PFIC has been obtained
or is currently planned to be requested. However, PFIC classification is fundamentally factual in nature, generally cannot be determined
until the close of the tax year in question and is determined annually. Additionally, the analysis depends, in part, on the application
of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that
the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold Common Shares.
In addition, in any year in which
the Company is classified as a PFIC, a U.S. Holder
will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may
require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess
a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules,
including the requirement to file an IRS Form 8621 annually.
The Company generally will be a PFIC under Section 1297 of the Code if, after the
application of certain
"look-through" rules with respect to
subsidiaries in which
the Company holds at least 25% of the value of such
subsidiary, for a tax year, (a) 75% or more of the gross income of
the Company for such tax year is passive income (the "
income
test") or (b) 50% or more of the value of
the Company's assets either produce passive income or are held for the production of
passive income (the "
asset test"), based on the quarterly average of the fair market value of such
assets.
"Gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and incidental
or outside operations or sources, and
"passive income" generally includes, for example, dividends, interest, certain rents and royalties,
certain gains from the sale of stock and securities, and certain gains from commodities transactions.
If
the Company were a PFIC in any tax year during which a U.S. Holder held Common
Shares, such holder generally would be subject to special rules with respect to
"excess distributions" made by
the Company on the Common
Shares and with respect to gain from the disposition of Common Shares. An
"excess distribution" generally is defined as the excess of
distributions with respect to the Common Shares received by a U.S Holder in any tax year over 125% of the average annual distributions
such U.S. Holder has received from
the Company during the shorter of the three preceding tax years, or such U.S. Holder's holding period
for the Common Shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of
the Common Shares ratably over its holding period for the Common Shares. Such amounts allocated to the year of the disposition or excess
distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest
tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.
While there are U.S. federal income tax elections that sometimes can be made to mitigate
these adverse tax consequences (including the "QEF Election" under Section 1295 of the Code and
the "Mark-to-Market Election" under Section 1296 of the Code), such elections are available in
limited circumstances and must be made in a timely manner.
U.S. Holders should be aware that, for each tax year, if any, that
the Company is
a PFIC,
the Company can provide no assurances that it will satisfy the record-keeping requirements of a PFIC, or that it will make available
to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to
the Company or any subsidiary that also
is classified as a PFIC.
Certain additional adverse rules may apply with respect to a U.S. Holder if
the Company
is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign
tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect
to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult their
own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of Common Shares, and the availability
of certain U.S. tax elections under the PFIC rules.
Additional Tax Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or payment
received on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to the USD value of such foreign
currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into USD
at that time). A U.S. Holder will have a basis in the foreign currency equal to its USD value on the date of receipt. Any U.S. Holder
who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss
that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different
rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable
disposition of the Common Shares. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences
of receiving, owning, and disposing of foreign currency.
Dividends paid on the Common Shares will be treated as foreign-source income, and
generally will be treated as
"passive category income" or
"general category income" for U.S. foreign tax credit purposes. Any gain or
loss recognized on a sale or other disposition of Common Shares generally will be United States source gain or loss. Certain U.S. Holders
that are eligible for the benefits of Canada-U.S. Tax Convention may elect to treat such gain or loss as Canadian source gain or loss
for U.S. foreign tax credit purposes. The Code applies various complex limitations on the amount of foreign taxes that may be claimed
as a credit by U.S. taxpayers. In addition, Treasury Regulations that apply to taxes paid or accrued in taxable years beginning on or
after
December 28, 2021 (the "
Foreign Tax Credit Regulations") impose additional requirements for
Canadian withholding taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied.
The Treasury Department has recently released guidance temporarily pausing the application of certain of the Foreign Tax Credit Regulations.
Subject to the PFIC rules and the Foreign Tax Credit Regulations, each as discussed
above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common
Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income
tax. Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction
will reduce a U.S. Holder's income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies
to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex
and involve the application of rules that depend on a U.S. Holder's particular circumstances. Accordingly, each U.S. Holder should consult
its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of
U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example,
U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified
foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only
financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution,
any stock or security issued by a non-U.S. person, any financial instrument or
contract held for investment that has an issuer or counterparty
other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their
Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns
are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including
the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on,
and proceeds arising from the sale or other taxable disposition of, Common Shares will generally be subject to information reporting and
backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder's correct U.S. taxpayer identification
number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such
U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of
perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S.
Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting
and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax
rules will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if such U.S.
Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute
a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements
may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension
may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor
regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS
OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
Certain Canadian Federal
Income Tax Consequences
The following summarizes certain Canadian federal income tax consequences generally
applicable under the ITA and the Canada-U.S. Tax Convention to the holding and disposition of Common Shares.
This summary is restricted to holders of Common Shares each of whom, at all material
times for the purposes of the ITA and the Canada-U.S. Tax Convention:
(i) are resident solely in the United
States for the purposes of the Canada-U.S. Tax Convention;
(ii) are entitled to the benefits of the
Canada-U.S. Tax Convention and is a "qualifying person" within the meaning of the Canada-U.S. Tax Convention;
(iii) hold all Common Shares as capital
property and as beneficial owner;
(iv) hold no Common Shares that are "taxable
Canadian property" (as defined in the ITA) of the holder;
(v) deal at arm's length with and are
not affiliated with
the Company;
(vi) do not use or hold and are not deemed
to use or hold any Common Shares in the course of a business or part of a business carried on in Canada;
(vii) did not, do not and will not have
a permanent establishment in Canada within the meaning of the Canada-U.S. Tax Convention;
(viii) did not acquire Common Shares by
virtue of employment;
(ix) are not financial institutions, authorized
foreign banks, partnerships or trusts for the purposes of the ITA; and
(x) are not insurers that carry on business
in Canada and elsewhere;
(each such holder, a "U.S. Resident Holder").
Certain U.S.-resident entities that are fiscally transparent for United States federal
income tax purposes (including limited liability companies) may not in all circumstances be entitled to the benefits of the Canada-U.S.
Tax Convention. However, members of or holders of an interest in such entities that hold Common Shares may be entitled to the benefits
of the Canada-U.S. Tax Convention for income derived through such entities. Such members or holders should consult their own tax advisors
in this regard.
Generally, a holder's Common Shares will be considered to be capital property of the
holder provided that the holder is not a trader or dealer in securities, did not acquire, hold or dispose of the Common Shares in one
or more transactions considered to be an adventure or concern in the nature of trade and does not hold the Common Shares as inventory
in the course of carrying on a business.
Generally, a holder's Common Shares will not be "taxable Canadian property" of the
holder at a particular time at which the Common Shares are listed on a "designated stock exchange" (which does includes the CSE) unless
both of the following conditions are met at any time during the 60-month period ending at the particular time:
(i) the holder, persons with whom
the holder does not deal at arm's length, or any partnership in which the holder or persons with whom the holder did not deal at arm's
length holds a membership interest directly or indirectly through one or more partnerships, alone or in any combination, owned 25% or
more of the issued shares of any class of the capital stock of
the Company; and
(ii) more than 50% of the fair market
value of the Common Shares was derived directly or indirectly from, or from any combination of, real or immovable property situated in
Canada, "Canadian resource properties" (as defined in the ITA), "timber resource properties" (as defined in the ITA), or options in respect
of or interests in, or for civil law a right, in such properties.
In certain other circumstances, a Common Share may be deemed to be "taxable Canadian
property" for purposes of the ITA.
This summary is based on the current provisions of the ITA and the Canada-U.S. Tax
Convention in effect on the date hereof, all specific proposals to amend the ITA and Canada-U.S. Tax Convention publicly announced by
or on behalf of the Minister of Finance (Canada) on or before the date hereof, and the current published administrative and assessing
policies of the CRA. It is assumed that all such amendments will be enacted as currently proposed, and that there will be no other material
change to any applicable law or administrative or assessing practice, although no assurance can be given in these respects. Except as
otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign tax considerations, which
may differ materially from those set out herein.
This summary is of a general nature only, is
not exhaustive of all possible Canadian federal income tax considerations, and is not intended to be and should not be construed as legal
or tax advice to any particular U.S. Resident Holder. U.S. Resident Holders are urged to consult their own tax advisers for advice with
respect to their particular circumstances. The discussion below is qualified accordingly.
A U.S. Resident Holder who disposes or is deemed
to dispose of one or more Common Shares generally should not thereby incur any liability for Canadian federal income tax in respect of
any capital gain arising as a consequence of the disposition.
A U.S. Resident Holder to whom
the Company
pays or is deemed to pay a dividend on the holder's Common Shares will be subject to Canadian withholding tax, and
the Company will be
required to withhold the tax from the dividend and remit it to the CRA for the holder's account. The rate of withholding tax under the
ITA is 25% of the gross amount of the dividend (subject to reduction under the provisions of an applicable tax treaty). Under the Canada-U.S.
Tax Convention, a U.S. Resident Holder who beneficially owns the dividend will generally be subject to Canadian withholding tax at the
rate of 15% (or 5%, if the U.S. Resident Holder who beneficially owns the dividend is a company that is not fiscally transparent and which
owns at least 10% of the voting stock of
the Company) of the gross amount of the dividend.
F. Dividends
and Paying Agents
Not applicable.
G. Statement
by Experts
Not applicable.
H. Documents
on Display
Any statement in this Annual Report about any of our
contracts or other documents
is not necessarily complete. If the
contract or document is filed as an exhibit to this Annual Report, the
contract or document is deemed
to modify the description contained in this Annual Report. Readers must review the exhibits themselves for a complete description of the
contract or document.
We are subject to the informational requirements of the Exchange Act and file reports
and other information with the SEC. The SEC maintains a
website that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at http://www.sec.gov.edgar.
We are required to file reports and other information with the securities commissions
in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file
with the provincial securities commissions. These filings are also electronically available from SEDAR+, the Canadian equivalent of EDGAR.
I. Subsidiary
Information
Not applicable.
J. Annual
Report to Security Holders
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a number of financial risks arising through the normal course of
business, including interest rate risk, foreign currency risk, credit risk, and liquidity risk. Refer to Note 15 of the 2023 Annual Financial
Statements.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. to D.
None.
E. Use
of Proceeds
Not applicable.
ITEM 15. CONTROLS
AND PROCEDURES
A. Disclosure
Controls and Procedures
As of the end of the period covered by this Annual Report,
the Company carried out
an evaluation, under the supervision of
the Company’s CEO and CFO, of the effectiveness of
the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation,
the Company’s CEO
and CFO have concluded that, as of the end of the period covered by this Annual Report,
the Company’s disclosure controls and procedures
are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange
Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated
and communicated to
the Company’s management, including its principal executive officer and principal financial officer, to allow
timely decisions regarding required disclosure.
While
the Company’s principal executive officer and principal financial
officer believe that
the Company’s disclosure controls and procedures provide a reasonable level of assurance that they are effective,
they do not expect that
the Company’s disclosure controls and procedures or internal control over financial reporting will prevent
all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.
B. Management’s
Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
The Company's management has employed a framework consistent
with Exchange Act Rule 13a-15(c), to evaluate
the Company's internal control over financial reporting described below. A company's internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company's internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company's assets that could
have a material effect on the financial statements. It should be noted that a control system, no matter how well conceived or operated,
can only provide reasonable assurance, not absolute assurance, that the objectives of the control system are met. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with policies and procedures may deteriorate.
Management, including the CEO and CFO, is responsible for establishing and maintaining
adequate internal control over financial reporting, and has used the 2013 framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the "
2013 COSO Framework") to evaluate the effectiveness of
the Company's
controls. Based on this evaluation, management concluded that
the Company's internal control over financial reporting was effective
as at
December 31, 2023, and provided a reasonable assurance of the reliability of
the Company's financial reporting and preparation of
financial statements.
C. Attestation
Report of Registered Public Accounting Firm
This Annual Report does not include an attestation report of
the Company's registered
public accounting firm because emerging growth companies are exempt from this requirement for so long as they remain emerging growth
companies.
D. Changes
in Internal Controls Over Financial Reporting
There were no changes in
the Company’s internal controls over financial reporting
identified in connection with the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15 that occurred during the period
covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal
control over financial reporting.
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that Moti Marcus qualifies as the Audit Committee’s
financial expert (as defined in Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act) and as a financially sophisticated audit
committee member under Rule 5605(c)(2)(A) of the Nasdaq Stock Market Rules; and (ii) is independent (as determined under Exchange Act
Rule 10A-3 and Rule 5605(a)(2) of the Nasdaq Stock Market Rules).
The SEC has indicated that the designation or identification of a person as an audit
committee financial expert does not make such person an “expert” for any purpose, impose any duties, obligations or liability
on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this
designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.
The Company has adopted a Code of Business Conduct and Ethics that applies to directors,
officers and employees of, and consultants to,
the Company (the “
Code”). The Code is
posted on
the Company’s
website at
www.imcannabis.com. The Code meets the requirements for a
“code of ethics” within
the meaning of that term in General Instruction 16B(b) of Form 20-F.
All waivers of the Code with respect to any of the employees, officers or directors
covered by it will be promptly disclosed as required by applicable securities rules and regulations. During the fiscal year ended
December
31, 2023,
the Company did not waive or implicitly waive any provision of the Code with respect to any of
the Company's principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
ITEM 16C. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
For more information of the principal accountant fees and services, please see the
sections entitled “External Auditor Service Fees” and “Pre-Approval Policies and Procedures”.
ITEM 16D. EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE
IN COMPANY’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE
GOVERNANCE
The Company is a
“foreign private issuer” as defined in Rule 3b-4 under
Exchange Act and its Common Shares are listed on the Nasdaq and CSE. Rule 5615(a)(3) of Nasdaq Stock Market Rules permits foreign private
issuers to follow home country practices in lieu of certain provisions of Nasdaq Stock Market Rules. A foreign private issuer that follows
home country practices in lieu of certain provisions of Nasdaq Stock Market Rules must disclose ways in which its corporate governance
practices differ from those followed by domestic companies either on its
website or in the annual report that it distributes to shareholders
in the United States. A description of the ways in which
the Company’s governance practices differ from those followed by domestic
companies pursuant to Nasdaq standards are as follows:
Independent Nominating Committee: Nasdaq Stock
Market Rule 5605(e)(1) (“
Rule 5605(e)(1)”) requires having a Nominations Committee
comprised solely of independent directors. In lieu of following Rule 5605(e)(1),
the Company has elected to follow Canadian practices
consistent with the requirements of the CSE.
Shareholder Meeting Quorum Requirement: Nasdaq
Stock Market Rule 5620(c) (“
Rule 5620(c)”) requires that the minimum quorum requirement
for a meeting of shareholders be 33 1/3 % of the outstanding common shares. In addition, Rule 5620(c) requires that an
issuer listed on Nasdaq state its quorum requirement in its
by-laws. In lieu of following Rule 5620(c),
the Company has elected to follow
Canadian practices consistent with the requirements of the CSE.
Shareholder Approval Requirements: Nasdaq
Stock Market Rule 5635(d) (“
Rule 5635(d)”) requires shareholder approval prior to a
transaction involving the sale or issuance of a company’s common stock (or securities convertible into or exercisable for its common
stock): (i) at a price below the greater of book value or market value; and (ii) which together with sales by officers, directors, or
substantial stockholders, is equal to 20% or more of
the company’s outstanding shares of common stock or 20% or more of the voting
power prior to issuance. In lieu of following Rule 5635(d),
the Company has elected to follow Canadian practices consistent with
the requirements of the CSE.
For more information, please see the section entitled “C.
Board Practices”.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE
REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER
TRADING POLICIES
The Company has adopted a written insider trading policy, IM Cannabis Corp. Stock
Trading Policy (“
Insider Trading Policy”), that is reasonably designed to promote compliance
with applicable insider trading laws, rules, and regulations, and any listing standards applicable to
the registrant. The Insider Trading
Policy provides guidance to the directors, officers, and employees of
the Company and its
subsidiaries with respect to stock trading and
assists the directors, officers, and employees of
the Company and its
subsidiaries in understanding their obligations and responsibilities
under Canadian securities laws and the rules of the CSE.
A copy of the Insider Trading Policy, as currently in effect, is filed as an exhibit
to this Annual Report.
ITEM 16K. CYBERSECURITY
Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program designed
to protect the confidentiality, integrity, and availability of our critical systems and information. To protect our systems and information
from cybersecurity threats, we use a variety of security tools and techniques, in order to prevent, detect, investigate, contain, escalate,
and recover from identified vulnerabilities and security incidents.
Our cybersecurity risk management program is integrated into our overall Company's
risk management program, and shares common methodologies and reporting channels that apply across
the Company's risk management program
to other risk areas. Our management team is principally responsible for facilitating
our Company's risk management program, in consultation
with multiple functions and reporting to the Board.
Our cybersecurity risk management program includes:
•an Information Security Policy that articulates our information security practices
and procedures to maintain confidence in our business and to protect the confidentiality, integrity, and availability of the information
we handle;
•a dedicated Cyber Security company responsible for executing on relevant internal
and external requirements and identifying appropriate technical and organizational measures to deliver information security in compliance
with those requirements;
•a Cyber Security company, principally responsible for driving our cybersecurity
risk assessment processes, including a formal information security risk assessment on an at least annual basis; our security controls
framework and risk remediation and prioritizations; and risk awareness or education programs for employees relating to cybersecurity;
•the use of external resources, such as assessors, consultants, and auditors,
where appropriate, to assess, test, or otherwise assist with aspects of our security controls;
•an external audit of our systems and environments, including an external penetration
test, on an annual basis;
•cybersecurity training of our incident response personnel and senior management;
•a cybersecurity incident response plan that includes procedures for assessing,
responding to, remediating, resolving, and conducting post-analysis of cybersecurity incidents;
•a vendor assessment program designed to identify and mitigate cybersecurity
risks associated with our use of third-party service providers; and
•contractual obligations on third-party vendors to report security incidents,
risk identification, or other security-related issues promptly to designated contact personnel at Spotify.
We have not identified risks from known cybersecurity threats, including as a result
of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations,
business strategy, results of operations, or financial condition.
Governance
Our Board considers cybersecurity risk as part of its risk oversight function and
has delegated to the management oversight of our cybersecurity and data protection program.
The Board receives annual updates from management on our cybersecurity and data protection
programs, including related trends or metrics.
In addition to any reports from the management to the Board regarding cybersecurity,
management informs and updates the Board about any significant cybersecurity incidents.
Our management team, together with an external company which provides professional
Cyber Security Services to
the Company, is responsible for assessing and managing material risks from cybersecurity threats. The team
has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel
and our retained external cybersecurity consultants.
Our management team supervises efforts to prevent, detect, mitigate, and remediate
cybersecurity risks and incidents through various means, which may include briefings from internal security personnel, threat intelligence
and other information obtained from governmental, public, or private sources, including external consultants engaged by us.
PART III
ITEM 17.
FINANCIAL STATEMENTS
See Item 18 –
Financial Statements.
ITEM 18.
FINANCIAL STATEMENTS
The Consolidated Financial Statements and schedules appear on pages F-1 through F-77
of this Annual Report and are
incorporated herein by reference. Our audited financial statements as prepared by our management and approved
by the Board include:
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Independent Auditors’ Reports |
Consolidated Statements of Financial Position |
Consolidated Statements of Net Loss and Comprehensive Loss
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Consolidated Statements of Changes in Shareholders’ Equity
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Consolidated Statements of Cash Flows |
Notes to the Consolidated Financial Statements |
Financial Statements
Description |
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Consolidated Financial Statements and Notes |
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F-1 - F-77 |
No. Item |
Description of Exhibit
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15.2* |
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101.INS* |
XBRL Instant Document |
101.SCH* |
XBRL Taxonomy Extension Schema Document
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101.CAL* |
XBLR Taxonomy Extension Calculation Linkbase
Document |
101.DEF* |
XBRL Taxonomy Extension Definition Linkbase
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101.LAB* |
XBRL Taxonomy Extension Label Linkbase
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101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase
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104* |
Cover Page Interactive Data File –
(formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
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IM Cannabis Corp.
Title: Chief Financial Officer
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