Flora Growth Corp.

Flora Growth Corp.

Notes to the unaudited condensed interim consolidated financial statements

For the three and six months ended June 30, 2025 and 2024

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

1. NATURE OF OPERATIONS

Flora Growth Corp. (the "Company" or "Flora") was incorporated under the laws of the Province of Ontario, Canada on March 13, 2019. The Company is a manufacturer and distributor of global cannabis and pharmaceutical products and brands, building a connected, design-led collective of plant-based wellness and lifestyle brands. The Company's registered office is located at 40 King Street, W Suite 2400, Toronto, Ontario, M5H 3S1, Canada and our principal place of business in the United States is located at 3230 W. Commercial Boulevard, Suite 180, Fort Lauderdale, Florida 33309.

**2. **BASIS OF PRESENTATION

These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2024. These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

These unaudited condensed interim consolidated financial statements apply the same accounting policies as those used in the financial statements included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2024, except as noted below.

Adoption of accounting standards and amendments

In December 2023, the FASB issued ASU 2023-08, Crypto Assets (Subtopic 350-60), which addresses the accounting and disclosure requirements for certain crypto assets. The guidance required entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. For all entities, the ASU's amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company has adopted ASU 2023-08 effective as of January 1, 2025 and the disclosures around the Company's digital assets are reflective of that adoption.

Going concern

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

The Company had cash of $1.5 million at June 30, 2025, a net loss of $3.2 million for the six months ended June 30, 2025, and an accumulated deficit of $161.3 million at June 30, 2025. Current economic and market conditions have put pressure on the Company's growth plans. The Company's ability to continue as a going concern is dependent on its ability to obtain additional capital. The Company believes that its current level of cash is not sufficient to continue investing in growth, while at the same time meeting its obligations as they become due. These conditions raise substantial doubt regarding the Company's ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed interim consolidated financial statements. To alleviate these conditions, management is currently evaluating various cost reductions and other alternatives and may seek to raise additional funds through the issuance of equity, debt securities, through arrangements with strategic partners, through obtaining credit from financial institutions or otherwise. The actual amount that the Company may be able to raise under these alternatives will depend on market conditions and other factors. As it seeks additional sources of financing, there can be no assurance that such financing would be available to the Company on favorable terms or at all. The Company's ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including but not limited to market and economic conditions, the Company's performance and investor sentiment with respect to it and its industry. The unaudited condensed interim consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of consolidation

These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. At June 30, 2025, the Company's subsidiaries and respective ownership percentages have not changed from the year ended December 31, 2024, except as noted below.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

On February 4, 2025, the Company completed the closing of the acquisition of 100% of the issued and outstanding shares of United Beverage Distribution Inc., a United States corporation with a functional currency of the United States dollar. See discussion of the acquisition in Note 8.

During the six months ended June 30, 2025, each of Franchise Global Health Inc. ("FGH"), Franchise Cannabis Corp., CBDMed Therapeutics Inc., Harmony Health One Inc., 1200325 B.C. Ltd., Fayber Technologies Inc., ACA Mueller ADAG Pharma Vertriebs GmbH, Sativa Verwaltungs GmbH, and Sativa Verwaltungs GmbH and Co. KG (together, the "Insolvent Subsidiaries") made insolvency filings in the appropriate jurisdictions. Each of the Insolvent Subsidiaries was a direct or indirect subsidiary of the Company and was part of the Company's acquisition of FGH in December 2022. See discussion in Note 3.

Minimum bid price requirement

On February 25, 2025, the Company was notified by the Nasdaq Stock Market, LLC ("Nasdaq") that it was not in compliance with the minimum bid price requirement of $1.00 per share for 30 consecutive business days as set forth in Rule 5550(a)(2) of the Nasdaq Listing Rules (the "Minimum Bid Price Requirement"). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until August 25, 2025, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the Company will need to maintain a minimum closing bid price of $1.00 or more for at least 10 consecutive trading days before August 25, 2025, unless Nasdaq Listing Qualifications Department exercises its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H). If the common shares do not achieve compliance by August 25, 2025, the Company may be eligible for an additional 180-day period to regain compliance, provided that it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards of the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provides written notice to Nasdaq of its intention to cure the deficiency during the second compliance period, for example, by effecting a reverse stock split, if necessary.

On July 31, 2025, the Company announced that it will effect a 1-for-39 share consolidation of the Company’s issued and outstanding common shares, which is expected to be effective at the open of trading on August 4, 2025. See Note 20 for subsequent reverse stock split.

3. INSOLVENCY AND DECONSOLIDATION OF CERTAIN SUBSIDIARIES

On March 14, 2025, each of Franchise Global Health Inc., Franchise Cannabis Corp., CBDMed Therapeutics Inc., Harmony Health One Inc., 1200325 B.C. Ltd., and Fayber Technologies Inc. (collectively, the "Canadian insolvent entities") made a voluntary assignment in bankruptcy pursuant to section 49 Bankruptcy and Insolvency Act (Canada) in the Ontario Superior Court of Justice (the "Ontario Court"). On March 14, 2025, the Ontario Court appointed a trustee of the estate of each of the Canadian insolvent entities.

On March 18, 2025, ACA Mueller ADAG Pharma Vertriebs GmbH, Sativa Verwaltungs GmbH, and Sativa Verwaltungs GmbH and Co. KG (together "the German insolvent entities") each made filings for insolvency proceedings under German insolvency laws in the Constance Regional Court (the "German Court"). On March 18, 2025, the German Court appointed a trustee of the estate of each of the German insolvent entities.

The trustees have been appointed by the respective courts and the trustees have assumed and will continue to exercise control over all assets and liabilities of the Insolvent Subsidiaries. The assets of the Insolvent Subsidiaries will be liquidated for distribution in accordance with the priorities established by the courts. The Company expects that no distributions will be available in the Insolvent Subsidiaries' liquidation.

Each of the Canadian insolvent entities and the German insolvent entities was a direct or indirect subsidiary of the Company and was part of the Company's acquisition of FGH in December 2022. As a result of the insolvencies, the Company concluded that it no longer controls the Insolvent Subsidiaries for accounting purposes as of March 14, 2025, in accordance with ASC Topic 810, and, therefore, deconsolidated all assets and liabilities of the Insolvent Subsidiaries during the three months ended March 31, 2025 from the Company's financial statements. Subsequent to the deconsolidation, the Company accounted for its investment in the Insolvent Subsidiaries using the cost method of accounting, which was recorded at $nil in the Company's condensed interim consolidated statements of financial position as of June 30, 2025. The Insolvent Subsidiaries results of operations were removed from the Company's condensed interim consolidated statements of loss and comprehensive loss beginning March 14, 2025. The historical financial results for the Insolvent Subsidiaries have not been classified as a discontinued operation because it does not represent a strategic shift with a major effect on the Company's operations and financial results.

The following table provides the combined carrying value of assets and liabilities of Insolvent Subsidiaries that have been deconsolidated during the six months ended June 30, 2025:

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

The gain on deconsolidation of Insolvent Subsidiaries is recorded in gain on disposal of insolvent subsidiaries in the unaudited condensed interim consolidated statements of loss and comprehensive loss. The Insolvent Subsidiaries reported a combined net loss and comprehensive loss of $nil and less than $0.1 million in the three and six months ended June 30, 2025, respectively (2024 - net loss and comprehensive loss of $0.1 million and 0.4 million, respectively).

As part of the deconsolidation of the Insolvent Subsidiaries, the Company reported a gain of $0.6 million related to currency translation adjustments, recorded in comprehensive loss in the six months ended June 30, 2025.

The contingencies and indemnification receivables relate to a legal claim filed against FGH, which was covered under an indemnification agreement between the Company and the former Chief Executive Officer and shareholder of FGH. The voluntary assignment in bankruptcy of FGH triggered an automatic stay on the related legal proceedings.

4. TRADE AND AMOUNTS RECEIVABLE

The Company's trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at June 30, 2025 and December 31, 2024 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes ("HST"), as well as Value Added Tax ("VAT") from various jurisdictions, and other receivables.

Changes in the trade accounts receivable allowance in the three and six months ended June 30, 2025 relate to establishing an allowance for expected credit losses. There were $0.2 million and $0.3 million in write-offs of trade receivables during the three and six months ended June 30, 2025, respectively (2024 - $0.1 million and $0.1 million, respectively). The Company has no amounts written-off that are still subject to collection enforcement activity as at June 30, 2025. The Company's aging of trade accounts receivable is as follows:

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

**5. **INVENTORY

Inventory is comprised of the following:

During the three and six months ended June 30, 2025, the Company recorded inventory impairment as a write-down to cost of sales in the amount of $0.1 million and $0.3 million, respectively (2024 - $0.8 million and $1.0 million, respectively).

**6. **DIGITAL ASSETS

The Company's digital assets consist of the following as of June 30, 2025:

In accordance with ASC Topic 820, Fair Value Measurement, the Company measures the fair value of its digital assets based on the quoted end-of-day price on the measurement date for a single digital asset on an active trading platform, Binance.com. Management has determined that Binance.com, an active exchange market, represents a principal market for the digital assets it holds and the end-of-day quoted price is both readily available and representative of fair value (Level 1 inputs). The Company recorded a gain of $0.1 million in the value of its digital assets for the three and six months ended June 30, 2025, which was reported in the unrealized gain from changes in fair value in the unaudited condensed interim consolidated statements of loss and comprehensive loss.

**7. **PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

Depreciation expense was less than $0.1 million for both the three and six months ended June 30, 2025, (2024 - less than $0.1 million and $0.1 million respectively) and was recorded in depreciation and amortization in the unaudited condensed interim consolidated statements of loss and comprehensive loss.

**8. **BUSINESS COMBINATIONS

United Beverage Distribution Inc. business combination

On January 30, 2025, the Company and United Beverage Distribution Inc. ("United"), a South Dakota corporation, entered into a Share Purchase Agreement (the "Purchase Agreement") pursuant to which the Company purchased 100% of the issued and outstanding common shares of United (the "United Common Shares"). Under the terms of the Purchase Agreement, Flora agreed to purchase the United Common Shares from the group of sellers listed in the Purchase Agreement (the "Sellers"), which included Clifford Starke and Sammy Dorf, each of whom are directors of Flora (the "Flora Directors"), and Flora's chief financial officer, Dany Vaiman (together with the Flora Directors, the "Related Parties") for (i)923,744 shares of the Company, valued at $0.8 million utilizing the $0.88 share price on February 4, 2025, and representing 4.99% of the outstanding common shares of Flora as of January 30, 2025, issued to the Sellers who are not Related Parties and (ii) promissory notes with five year maturities that accrue interest at a rate of 6% per annum in an aggregate principal amount of $2.1 million issued to the Sellers. Total consideration for the United acquisition was $2.9 million.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

United was founded in 2024 and is a distributor of cannabis-infused drinks. The acquisition will allow the Company to drive synergies with its existing portfolio of brands.

The purchase is accounted for as a business combination with amounts recognized as at the February 4, 2025 acquisition date for each major class of assets acquired and liabilities assumed are as follows:

Since the acquisition date through June 30, 2025, United reported revenue of $0.4 million and net loss and comprehensive loss of $0.4 million.

The goodwill is attributable to the significant synergies expected to arise after its acquisition. The Company does not expect the goodwill to be deductible for United States income tax purposes. The goodwill is assigned to the house of brands segment.

If United was acquired at January 1, 2024, the combined revenue of United and the Company would have increased approximately $0.1 million and $nil for the six months ended June 30, 2025 and 2024, respectively (unaudited). The combined net loss of United and the Company would have decreased by approximately $0.1 million and $nil for the six months ended June 30, 2025, and 2024, respectively (unaudited).

The Company incurred acquisition related costs of less than $0.1 million which were expensed as incurred in professional fees on the unaudited condensed interim consolidated statements of loss and comprehensive loss.

**9. **INTANGIBLE ASSETS AND GOODWILL

A continuity of intangible assets for the six months ended June 30, 2025 is as follows:

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

Amortization expense for the three and six months ended June 30, 2025 was $0.1 million and $0.3 million, respectively (2024 -$0.2 million and $0.2 million, respectively) and was recorded in depreciation and amortization in the unaudited condensed interim consolidated statements of loss and comprehensive loss.

At June 30, 2025, the weighted average amortization period remaining for intangible assets was 3.8 years.

At June 30, 2025, the estimated future amortization expense related to intangible assets is as follows:

10. ASSET IMPAIRMENT

Goodwill

The Company tests its goodwill for impairment as part of its annual fourth quarter impairment test, and at interim periods when impairment indicators exist. The Company's goodwill is assigned to the reporting units associated with the original acquisition of those operations. At June 30, 2025, the Company determined that there were no indicators present for its TruHC and United reporting units.

Long-lived assets

As discussed in Note 12, the Company had been subleasing retail space in Miami, Florida to a third party since the third quarter of 2023. The Company is leasing this retail space pursuant to a lease agreement that expires in November 2026, which is the same term as the sublease agreement. In March 2025, the sublessor informed the Company that it planned to terminate the sublease agreement, effective in May 2025. The Company considers this to be an indicator of impairment, and, thus, performed a quantitative analysis as of March 31, 2025 to determine if impairment existed by comparing the carrying amount of the operating lease right of use asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. This analysis indicated the asset values may not be recoverable. The Company then calculated the fair value of this asset using an income approach. As a result, the Company recorded an impairment of operating lease right of use assets within its corporate asset group and segment totaling less than $0.1 million. These charges were recorded in the asset impairment caption on the unaudited condensed interim consolidated statements of loss and comprehensive loss. The Company has found a new sublessor for this space under an agreement with similar payment terms as the original sublease. Therefore, there were no further indicators of impairment as of June 30, 2025.

The Company determined that the reduced cash balances of JustCBD, as well as the declining share prices of comparable companies, were indicators of impairment as at June 30, 2025. The Company performed a quantitative analysis to determine if impairment existed by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over their remaining lives. This analysis indicated that the carrying amount of certain asset values may not be recoverable. The Company then calculated the fair value of these assets using an income approach, updating certain key variables, including estimated 2025 and 2026 sales, royalty savings rates and discount rates. The resulting calculation concluded that the carrying amount of the JustCBD assets were recoverable, and, thus, no impairment was recorded for the period ending June 30, 2025.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

11. DEBT

Euro credit facility

The Company, through Phatebo, has credit facilities totaling 2.4 million Euro ($2.8 million USD), at three different banks in Germany. These arrangements are open ended without predetermined maturity dates. Principal and interest payments are due at the end of each term. Interest rates can change with each new amount drawn. As of June 30, 2025, the total outstanding amount on these credit facilities was 2.3 million Euro ($2.7 million USD) with interest rates ranging from 4.76% to 5.19% and due within the next twelve months. These credit facilities were secured by various guarantees, including payment guarantees upon default.

United promissory notes (Related Parties)

As discussed in Note 8, the Company issued promissory notes with five-year maturities that accrue interest at a rate of 6% per annum in an aggregate principal amount of $2.1 million to the Sellers of United on January 30, 2025. The promissory notes require the first payments of principal and interest to be made in February 2026. At June 30, 2025, the total outstanding amount of these promissory notes was $2.2 million, $0.3 million of which was due within the next 12 months. Of the total amount outstanding at June 30, 2025, $1.9 million was owed to the Related Parties. These promissory notes were secured by payments guarantees and a default interest rate of 11% upon default.

12. LEASES

The Company's leases primarily consist of administrative real estate leases in Germany and the United States. Management has determined all the Company's leases are operating leases through June 30, 2025. Information regarding the Company's leases is as follows:

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

Maturities of operating lease liabilities as of June 30, 2025 are as follows:

Some of the Company's leases contain renewal options to continue the leases for another term equivalent to the original term, which are generally up to five years. The lease liabilities above include renewal terms that management has executed or is reasonably certain of renewing, which only included leases that would have expired in 2025.

In March 2025, the Company began leasing 10,400 sq. ft. of warehouse and office space in Hilzingen, Germany, for $1,000 a month, pursuant to a lease agreement that expires in February 2030.

The Company began subleasing warehousing and office space in Carlsbad, CA to a third party during the fourth quarter of 2023. The sublease is effective through August 31, 2027 and does not contain renewal options.

The Company began subleasing retail space in Miami, Florida to a third party during the third quarter of 2023. The sublease agreement was effective through November 30, 2026 and contains one option to renew for five more years. As discussed in Note 10, the Company received notification from the sublessor in March 2025 of its intention to exit the sublease. In July 2025, the Company began subleasing the retail space to a new third party with the new sublease agreement effective through November 30, 2026 and contains one option to renew for five more years.

**13. **SHARE CAPITAL

The Company had the following significant common share transactions:

Six months ended June 30, 2025

MAY PRIVATE PLACEMENT

On May 2, 2025, the Company entered into a securities purchase agreement with certain investors (the "Investors") in connection with the issuance and sale by the Company to the Investors via a private placement (the "Private Placement") of an aggregate of 3,133,011 common shares of the Company, no par value per share at a purchase price of $0.30 per share (the "May Common Shares") and 726,992 pre-funded warrants of the Company at a purchase price of $0.2999 per warrant (the "Pre-funded Warrants") each to purchase one May Common Share which shall be immediately exercisable and expire when exercised in full, at an exercise price of $0.0001 per share. See Note 15. The Company filed a registration statement on Form S-3 on May 14, 2025.

FEBRUARY PAYMENT TO UNITED OWNERS

As discussed in Note 8, the Company issued 923,744 of its common shares valued at $0.8 million to certain prior owners of United, who were also Related Parties, as part of the Company's acquisition of 100% of the issued and outstanding common shares of United on February 4, 2025.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

See Note 20 for subsequent reverse stock split.

Six months ended June 30, 2024

JUNE 2024 PAYMENT TO Australian Vaporizers ("AV") OWNERS

The Company issued 550,000 of its common shares valued at $0.6 million to the prior owners of AV as part of the Company's acquisition of 100% of the issued and outstanding common shares of AV on June 4, 2024.

APRIL 2024 PAYMENT TO TRUHC OWNERS

The Company issued 2,135,199 of its common shares valued at $3.3 million to the prior owners of TruHC Pharma GmbH ("TruHC") as part of the first closing of the Company's acquisition of TruHC on April 22, 2024. The first closing made up 77% of the total agreed upon share price of 2,770,562 common shares of the Company. The remaining 635,363 common shares of the Company were issued to the prior owners of TruHC as part of the second closing on November 27, 2024, after receiving shareholder approval for such issuance in accordance with the rules of the Nasdaq Stock Capital Market at its annual general meeting of shareholders, held August 14, 2024.

APRIL 2024 EQUITY OFFERING

On April 8, 2024, the Company closed an offering of 1,700,000 of the Company's common shares at a public offering price of $1.90 per common share for gross proceeds of $3.2 million. The Company paid $0.4 million in issuance costs relating to the April 2024 equity offering.

The offering of the securities described above was made pursuant to the Company's effective shelf registration statement on Form S-3 (Registration No. 333-274204) (the "Registration Statement"), filed with the SEC on August 25, 2023 and amended on August 30, 2023, which was declared effective, on September 6, 2023, and the base prospectus included therein, as supplemented by the preliminary prospectus supplement filed with the SEC on April 4, 2024 and the final prospectus supplement filed with the SEC on April 5, 2024.

AT THE MARKET ("ATM") OFFERING

On April 26, 2024, the Company entered into an ATM Issuances Sales Agreement (the "Sales Agreement") with Aegis Capital Corp. (the "Agent") pursuant to which the Company may sell from time to time, at its option, common shares through the Agent in its capacity as sales agent. The sale of common shares, if any, will be made under the Company's Registration Statement, by any method that is deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act.

Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of the Nasdaq Capital Market to sell on the Company's behalf all of the common shares requested to be sold by the Company. The Agent will offer the common shares, subject to the terms and conditions of the Sales Agreement, on a daily basis or as otherwise agreed upon by the Company and the Agent. The Company will designate the maximum amount of common shares to be sold through the Agent on a daily basis or otherwise determine such maximum amount, together with the Agent. The Company may instruct the Agent not to sell common shares if the sales cannot be effected at or above the price designated by the Company in any such instruction. The Company or the Agent may suspend the offering of common shares being made through the Agent under the Sales Agreement upon proper notice to the other parties.

The aggregate compensation payable to the Agent is 3.0% of the aggregate gross proceeds from each sale of the common shares sold through the Agent pursuant to the Sales Agreement. In addition, the Company has agreed in the Sales Agreement to provide indemnification and contribution to the Agent against certain liabilities, including liabilities under the Securities Act.

The Company is not obligated to make any sales of common shares under the Sales Agreement. The offering of common shares pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement by the Company or by the Agent, only with respect to itself, under the circumstances specified in the Sales Agreement. The Company has yet to sell any of its common shares under the Sales Agreement.

OTHER ISSUANCES

On March 8, 2024, the Company entered into a settlement agreement with a third party pursuant to which the Company issued 50,000 common shares of the Company, valued at $0.1 million, to a third party to settle outstanding amounts owed.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

**14. **SHARE BASED COMPENSATION

The Company's 2022 Incentive Compensation Plan (the "2022 Plan") and its previous "'rolling" stock option plan (the "Prior Plan") are described in the Company's 2024 Form 10-K. The 2022 Plan was amended to increase the number of shares issuable thereunder from 2,500,000 to 4,500,000 shares at the Company's annual and special shareholder meeting on June 30, 2025.

OPTIONS

Stock options granted under the Prior Plan are non-transferable and non-assignable and may be granted for a term not exceeding five years. Under the 2022 Plan, stock options may be granted with a term of up to ten years and in the case of all stock options, the exercise price may not be less than 100% of the fair market value of a common share on the date the award is granted. Stock option vesting terms are subject to the discretion of the Compensation Committee of the Company's Board of Directors (the "Committee"). Common shares are newly issued from available authorized shares upon exercise of awards. The Company no longer makes new grants of stock options under the Prior Plan.

Information relating to share options outstanding and exercisable as at June 30, 2025 and December 31, 2024 is as follows:

The total expense related to the options granted in the three and six months ended June 30, 2025 was $nil (2024 - $nil and less than $0.1 million, respectively). This expense is included in the share-based compensation line on the unaudited condensed interim consolidated statements of loss and comprehensive loss. Generally, the options granted in 2023 vest one to two years following the date of grant provided that the recipient is still employed or engaged by the Company.

At June 30, 2025 the total remaining stock option cost for nonvested awards is $nil.

See Note 20 for subsequent forfeiture of options.

RESTRICTED STOCK AWARDS

Restricted stock is a grant of common shares which may not be sold or disposed of, and which is subject to such risks of forfeiture and other restrictions as the Committee, in its discretion, may impose. A participant granted restricted stock generally has all of the rights of a shareholder of the Company, unless otherwise determined by the Committee. Subject to certain exceptions, the vesting of restricted stock awards is subject to the holder's continued employment or engagement through the applicable vesting date. Unvested restricted stock awards will be forfeited if the holder's employment or engagement ceases during the vesting period and may, in certain circumstances, be accelerated. The Company values restricted stock awards based on the closing share price of the Company's common shares as of the date of grant. The fair value of the restricted stock award is recorded as expense over the vesting period.

Information relating to restricted stock awards outstanding as at June 30, 2025 and December 31, 2024:

The total expense related to the restricted stock awards in the three and six months ended June 30, 2025 was less than $0.1 million (2024 - less than $0.1 million). This expense is included in the share based compensation line on the unaudited condensed interim consolidated statements of loss and comprehensive loss.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

The outstanding restricted stock awards vest over the next year provided the award holder is still employed or engaged by the Company. As of June 30, 2025, the Company had less than $0.1 million of unrecognized compensation expense related to restricted stock awards which will be recognized over the next year.

STOCK APPRECIATION RIGHTS ("SARs")

SARs grant a right to receive, upon exercise thereof, the excess of the fair market value of one common share on the date of exercise over the grant price of the SAR. The grant price of a SAR shall not be less than 100% of the fair market value of a common share on the date of the grant. SARs generally vest over a period of zero to three years and have a term of ten or eleven years. The SARS granted by the Company to date are only payable in the Company's common shares and have no cash payments options.

On August 14, 2024, the Company granted 1,603,984 and 534,661 SARs to its Chief Executive Officer and Chief Financial Officer, respectively, which was approved by a majority of the Company's shareholders at the Company's annual meeting held on August 14, 2024. The fair value of the SARs at August 14, 2024 was determined using a Monte Carlo simulation incorporating Brownian motion with 100,000 trials through a binomial model. The significant inputs to the valuation include an 11-year term to maturity, the Company's closing share price at August 14, 2024 ($0.91), estimated volatility (110%) based on the Company's common share and comparable companies' historical volatilities, and risk-free rate of 3.8% to discount the ending result to present value. The valuation also includes a derived service period, which is the median time to vest, as calculated by the model. This derived service period inherently contains some degree of estimation uncertainty.

On December 15, 2024, the Company granted 440,000 SARS to officers, directors, employees and consultants of the Company pursuant to the 2022 Plan. The fair value of the SARS at December 15, 2024 was determined using a Black Scholes pricing model with the following assumptions: the $1.30 price of the Company's common shares; expected dividend yield of 0%; expected volatility of 110% based on the Company's common share and comparable companies' historical volatilities; risk-free interest rate of 4.35% and an expected life of 10.0 years.

On June 30, 2025, Flora's shareholders approved the repricing and amendment of vesting terms of certain outstanding SARS granted to certain employees and executive officers of the Company, including the SARs granted on August 14, 2024 and on December 15, 2024. The new base price of these SARs will be $0.58, the closing share price of the Company's stock as of June 30, 2025.

The vesting terms of the SARs granted on August 14, 2024 to the Company's Chief Executive Officer were amended such that the first of nine tranches will vest upon the Company's share price increasing by 25% from $0.58, with each tranche thereafter requiring an additional 25% increase in share price. The vesting terms of the SARs granted on August 14, 2024 to the Company's Chief Financial Officer were amended such that the first of eight tranches will vest upon the Company's share price increasing by 25% from $0.58, with each tranche thereafter requiring an additional 25% increase in share price. In accordance with ASC 718, the Company treated this modification of terms as an exchange of the original award for a new award. The fair value of the new SARs award was determined using a Monte Carlo simulation incorporating Brownian motion with 100,000 trials through a binomial model. The significant inputs to the valuation include an 10.1-year term to maturity, the Company's closing share price at June 30, 2025 ($0.58), estimated volatility (110%) based on the Company's common share and comparable companies' historical volatilities, and risk-free rate of 4.2% to discount the ending result to present value. The valuation also includes a new derived service period, which is the median time to vest, as calculated by the model. The new valuation resulted in an incremental value of less than $0.1 million, which, along with the unrecognized compensation cost, will be recognized as compensation cost over the new requisite service period. In the event of a reverse stock split, the Company may adjust proportionately the common shares subject to an award as well as any applicable exercise price and any other aspect of any award that the Company determines to be appropriate in order to prevent the reduction or enlargement of benefits under any award.

The SARS granted on December 15, 2024 were vested at the grant date and the expense was accelerated at that time. There is no incremental fair value for these awards.

Information relating to SARs outstanding at June 30, 2025 and December 31, 2024 is as follows:

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

The total expense related to SARs granted in the three and six months ended June 30, 2025 was $0.2 million and $0.3 million, respectively (2024 - $nil). This expense is included in the share based compensation line on the unaudited condensed interim consolidated statements of loss and comprehensive loss. The share based compensation expense of the SARs granted in 2024 will be recognized in tranches over the derived service period, ranging from zero to two years, provided that the recipient is still employed or engaged by the Company.

**15. **WARRANTS

As discussed in Note 13, the May 2, 2025 Private Placement included 726,992 Pre-funded Warrants at a purchase price of $0.2999 per warrant each to purchase one common share which shall be immediately exercisable and expire when exercised in full, at an exercise price of $0.0001 per share. The Pre-Funded Warrants are classified as equity because they are freestanding financial instruments, are immediately exercisable, permit the holder to receive a fixed number of the Company's common shares and do not provide any guarantee of value or return. Due to the nominal exercise price and no expiration date, the Pre-funded Warrants were allocated a value of $0.2 million at issuance based on the number issued multiplied by $0.2999 per unit cash immediately received. There were no Pre-funded Warrants exercised during the three and six months ending June 30, 2025, and the total number of Pre-funded Warrants outstanding was 726,992 as of June 30, 2025.

The following summarizes the number of warrants outstanding as of June 30, 2025, not including the Pre-funded Warrants:

16. COMMITMENTS AND CONTINGENCIES

Provisions

The Company's current known provisions and contingent liabilities consist of the following as of June 30, 2025:

The legal disputes balance as of June 30, 2025 involves a legal proceeding that was brought against Vessel Brand Inc., a wholly owned subsidiary of the Company, by the lessor of the warehousing and office space in Carlsbad, CA on June 2, 2025, in the Superior Court of California, County of San Diego. The lessor is claiming breach of lease and written guaranty agreements by the Company and is seeking damages for $0.4 million in unpaid rent,10% interest on its damages, and reasonable attorneys' fees of the lessor. The Company has assessed the claims and concluded that it is probable that a liability has been incurred and the Company is able to reasonably estimate the loss of $0.5 million. As a result, without acknowledgement (explicitly or implicitly) of any amount of liability arising from this claim, the Company recognized a provision of $0.5 million to reflect the value of the claim. At June 30, 2025, this balance was reclassified from trade payables to contingencies on the unaudited condensed interim consolidated statement of financial position.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

The Sales tax relates to estimated amounts owed to certain jurisdictions in the Unites States for sales from the Company's JustCBD operations. The ending balance is recorded within contingencies on the unaudited condensed interim consolidated statement of financial position, and additions to the provision as a reduction of revenue on the unaudited condensed interim consolidated statements of loss and comprehensive loss.

On April 30, 2024, a group representing the sellers of Just Brands LLC to Flora in February 2022 (the "Plaintiffs") brought an action against the Company in the United States District Court for the Southern District of New York (the "Court") claiming that the Company failed to promptly issue additional shares in accordance with a specific formula set forth in the securities purchase agreement after the two-year anniversary of the closing, which occurred on February 24, 2024. The plaintiffs claim that they are entitled to 182,889 common shares and $38.0 million to complete the acquisition of Just Brands LLC. On March 27, 2025, the Court dismissed both the claims brought under the securities laws without prejudice and the state law claims for lack of subject matter jurisdiction because the parties did not have diversity of citizenship in order to maintain those claims in the Court. The Plaintiffs did not amend their complaint against the Company within the thirty-day period allotted by the Court, and, thus, as of April 28, 2025, this litigation is no longer active. On May 9, 2025, the Plaintiffs filed a new action in New York State Supreme Court claiming that the Company failed to issue additional shares in accordance with a specific formula set forth in the securities purchase agreement after the two-year anniversary of the closing, which occurred on February 24, 2024. The Plaintiffs seek specific performance of the issuance of shares as well as monetary damages. The Company has assessed the claims and concluded that it is probable that a liability has been incurred and that the Company is able to reasonably estimate the loss based on the fair value of 632,484 common shares of the Company. As at June 30, 2025, this value is $0.4 million and has been recorded in the contingencies line on the unaudited condensed interim consolidated statement of financial position.

Legal proceedings

The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and where liability is probable. The Company is engaged from time to time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole as at June 30, 2025.

On May 31, 2023, Maria Beatriz Fernandez Otero and Sara Cristina Jacome De Torres brought an action against the Company in the Ontario Superior Court of Justice claiming that the Company is obligated to issue 500,000 common shares (pre-splits) each for a purchase price of $0.05 per share. The plaintiffs claim that they are entitled to such shares as compensation for alleged consulting services performed. The Company disputes their claim and intends to vigorously defend against this action. The Company believes that an unfavorable settlement in this matter is remote, and, as such, has not accrued a liability as of June 30, 2025.

On May 31, 2023, Ramon Ricardo Castellanos Saenz and Miriam Ortiz brought an action against the Company in the Ontario Superior Court of Justice claiming that the Company is obligated to issue 1,500,000 common shares (pre-splits) each for a purchase price of $0.05 per share. The plaintiffs claim that they are entitled to such shares as compensation for alleged consulting services performed. The Company disputes their claim and intends to vigorously defend against this action. The Company believes that an unfavorable settlement in this matter is remote, and, as such, has not accrued a liability as of June 30, 2025.

**17. **LOSS PER SHARE

The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period. The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect. Restricted stock award recipients under the 2022 Plan have a non-forfeitable right to receive dividends declared by the Company and are therefore included in computing earnings per share. Pre-funded Warrants are included in the computing earnings per share because the exercise price of the Pre-funded Warrants is nominal and there are no conditions that must be satisfied prior to their exercise.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

**18. **FINANCIAL INSTRUMENTS

Fair value

The Company's financial instruments measured at amortized cost as at June 30, 2025 and December 31, 2024 consist of cash, trade and amounts receivable, trade payables, contingencies, accrued liabilities, lease liabilities, and debt and loans payable. The amounts reflected in the unaudited condensed interim consolidated statements of financial position approximate fair value due to the short-term maturity of these instruments.

Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorized based on inputs used to derive fair value based on:

Level 1 - quoted prices that are unadjusted in active markets for identical assets or liabilities

Level 2 - inputs other than quoted prices included in level 1 that are observable for the asset/liability either directly or indirectly; and

Level 3 - inputs for the instruments are not based on any observable market data.

The Company's contingent purchase considerations consist of the estimated fair value of contingent purchase consideration from the acquisitions of JustCBD in February 2022 and Original Hemp in March 2023. The amount for JustCBD is measured at FVPL as a Level 2 fair value financial instrument within the fair value hierarchy as at June 30, 2025. The fair value was determined using a simplified calculation which took the expected shares to be issued (632,484) multiplied by the Company's closing share price at June 30, 2025 ($0.58). The amount for Original Hemp is measured at FVPL as a Level 3 fair value financial instrument within the fair value hierarchy as at June 30, 2025. The fair value was determined using discounted cash flow models utilizing two different rates, high (26.0%) and low (18.5%), to estimate the present value of the future cash outflows. As valuations of investments for which market quotations are not readily available are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from the values that would have resulted if a ready market existed for the investments. Such changes may have a significant impact on the Company's financial condition or operating results.

The following tables present information about the Company's financial instruments and their classifications as at June 30, 2025 and December 31, 2024 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value.

The less than $0.1 million change in the Level 3 contingent purchase consideration from the Original Hemp acquisition was recorded as a gain in the unrealized gain from changes in fair value on the unaudited condensed interim consolidated statements of loss and comprehensive loss.

**19. **SEGMENTED INFORMATION

The Company reports its financial results for the followingtwo operating segments, which are also its reportable segments: commercial and wholesale (primarily the Phatebo and TruHC subsidiaries), which sell pharmaceutical products, and house of brands (primarily JustCBD and Vessel subsidiaries), which sells a mix of products across multiple categories including food and beverage, cannabis accessories and technology, personal care and wellness. TruHC, acquired in April 2024, is included in commercial and wholesale, while, AV, acquired in June 2024, and United, acquired in February 2025, are included in house of brands. These segments reflect how the Company's operations are managed, how the Company Chief Executive Officer, who is the chief operating decision maker, allocates resources and evaluates performance, and how the Company's internal management financial reporting is structured. The chief operating decision maker uses net income to evaluate income generated from segment assets in deciding whether to reinvest profits into the segment or into other parts of the Company, such as for acquisitions. Net income is used to monitor actual results versus budget and prior year, which is used to assess the performance of the segment.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

The Company's operates its manufacturing and distribution business within its United States, Germany and Australia subsidiaries. Management has defined the reportable segments of the Company based on this internal business unit reporting, which is by major product line, and aggregates similar businesses into the house of brands segment below. The Corporate segment reflects balances and expenses that do not directly influence business unit operations and includes the Company's long-term investments. The eliminations represent sales within the house of brands segment.

The following table shows information regarding the Company's segments for the six months ended June 30, 2025.

The following table shows information regarding the Company's segments for the three months ended June 30, 2025.

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

The following table shows information regarding the Company's segments for the six months ended June 30, 2024.

The following table shows information regarding the Company's segments for the three months ended June 30, 2024.

(1) Other segment items include professional fees, general and administrative, travel expenses, research and development, operating lease expense, bad debt expense, other expenses (net), and foreign exchange loss (income).

Other significant items and disaggregation by geographic area:

Flora Growth Corp.Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2025 and 2024 (In thousands of United States dollars, except shares and per share amounts)

**20. **SUBSEQUENT EVENTS

REVERSE STOCK SPLIT

On July 31, 2025, the Company announced that it will effect a 1-for-39 share consolidation of the Company’s issued and outstanding common shares (the “Reverse Stock Split”). The Reverse Stock Split will be effective at 5:00 p.m. Eastern Time on August 3, 2025. The Company’s common shares are expected to begin trading on The Nasdaq Capital Market on a post-Reverse Stock Split basis at the open of trading on August 4, 2025.

The Company’s shareholders previously approved the Reverse Stock Split at the annual and special meeting of shareholders held on June 30, 2025 at a ratio ranging from 1-for-10 up to a ratio of 1-for-100, such ratio and the implementation and timing of such Reverse Stock Split to be determined by the Company’s board of directors at its sole discretion, if at all, within one year of the date the proposal is approved by shareholders.

Upon the effectiveness of the Reverse Stock Split, every thirty-nine shares of the issued and outstanding common shares will be automatically combined and reclassified into one issued and outstanding common share. The Reverse Stock Split will not affect any shareholder's ownership percentage of the common shares, alter the par value of the common shares or modify any voting rights or other terms of the common shares. The number of authorized shares of common shares under the Company's Articles will remain unchanged. No fractional shares will be issued in connection with the Reverse Stock Split. Any fractional interest as a result of the Reverse Stock Split will be rounded up to the nearest whole common share.

OTHER

Subsequent to June 30, 2025, a total of 4,166 options were forfeited.