This Annual Report may contain (or incorporate by reference) “future-oriented financial information” (“FOFI”) and/or “financial outlook” within the meaning of applicable Canadian securities laws. FOFI and financial outlook are each a form of forward-looking information (“FLI”) that relates to prospective financial performance, financial position or cash flows based on assumptions about future economic conditions and courses of action. FOFI is presented in the format of historical financial statements, whereas a financial outlook is not presented in the format of historical financial statements.
Any FOFI and/or financial outlook contained in this Annual Report is provided to assist readers in understanding management’s current expectations and plans relating to our future operations, prospects and financial performance (including, where applicable, expectations regarding revenues, margins, profitability, liquidity, capital resources, operating costs, capital expenditures and other financial measures). Such information is provided for the purpose described in the disclosure in which it appears and may not be appropriate for any other purpose.
FOFI and financial outlook are based on estimates and assumptions that management believes are reasonable as of the date(s) on which such information is prepared (or, if no such date is specified, as of the date of this Annual Report). Such assumptions may include without limitation (and as applicable to the particular FOFI/financial outlook): those discussed under “Cautionary Note Regarding Forward-Looking Statements” above; assumptions regarding product pricing and product mix; patient demand and market growth trends in Israel, Germany and other relevant jurisdictions; timing and scope of regulatory developments and compliance requirements; ability to obtain, maintain and renew required licenses, certifications and approvals; availability, cost and reliability of supply, manufacturing, storage, logistics and distribution arrangements (including third-party relationships); foreign exchange rates; inflation and interest rates; taxation rates; general and administrative expenses; operating cost estimates (including labor, utilities and energy); capital expenditure requirements; and the absence of material adverse changes in economic, political, geopolitical and security conditions in the markets in which we operate.
FOFI and financial outlook are inherently more uncertain than historical information because they are based on management’s best judgment and assumptions about future events and circumstances and are subject to significant business, economic, competitive, regulatory and other risks and uncertainties. Actual results are likely to vary from any FOFI or financial outlook, and such variation may be material. Accordingly, readers are cautioned not to place undue reliance on any FOFI or financial outlook contained in (or incorporated by reference into) this Annual Report.
The material risk factors that could cause actual results to differ materially from any FOFI or financial outlook, and the material factors and assumptions used to develop such FOFI or financial outlook, include those described under “Item 3.D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects,” and elsewhere in this Annual Report (and in the documents incorporated by reference, if applicable). Such risk factors include, without limitation, risks relating to regulatory and licensing compliance in Israel and Germany; changes in cannabis laws and related enforcement priorities; the execution, timing and completion of strategic transactions, including potential divestitures and entry into new lines of business, as well as the integration and performance of any such new operations; import/export restrictions and product quality requirements; pricing pressure and competitive dynamics; reliance on supply, manufacturing and distribution arrangements (including third parties); liquidity, financing and capital markets risks; macroeconomic and geopolitical developments; and operational, IT, cybersecurity and privacy risks.
To the extent required by applicable law, including applicable Canadian securities laws, we will update or revise previously disclosed material FLI (including any material FOFI and/or financial outlook) in the circumstances and in the manner required by such laws. Except as required by applicable law, we undertake no obligation to publicly update or revise any FOFI or financial outlook, whether as a result of new information, future events or otherwise.
Summary Risk Factors
Our business is subject to numerous risks, as more fully described in “Item 3.D. Risk Factors” immediately following this summary. You should read these risks in full before you invest in our securities. The following is a summary of such risks.
Risks Related to Our Financial Condition and Capital Requirements
| • | We have incurred significant losses since our inception and anticipate that we will incur continued losses; |
| • | We have generated insufficient revenues from product sales and may never be profitable; |
| • | If our operational cash flows continue to be negative, we may be required to fund future operations with alternative financing options such as offerings of shares; |
| • | We may not be able to secure the funds necessary to implement our strategies; |
| • | In pursuit of new opportunities in the cannabis industry, we may fail to select appropriate investment candidates and negotiate acceptable arrangements; |
| • | Unfavorable divestments could have a material adverse effect on us; and |
| • | We are subject to the inherent liquidity risk that we will not be able to pay our financial obligations as they become due; |
Risks Related to Our Product Development and Regulations
| • | Regulatory authorities in Israel may determine that we are in contravention of Israeli cannabis regulations; |
| • | Our operations are subject to various laws, regulations and guidelines, and any potential noncompliance could cause our business, financial condition and results of operations to be adversely affected; |
| • | Our operations are subject to a variety of laws, regulations, and guidelines, to which any changes could have a material adverse effect on our business, results of operations, financial condition and prospects; |
| • | Failure to meet target production capacity may result in a material adverse effect on our business, financial condition; and |
| • | Our operations are subject to environmental and occupational safety laws and regulations, any failure to comply with such laws and regulations could have a material adverse effect on us; and |
Risks Related to Our Business and Industry
| • | Our ability to produce, store, import, distribute and sell cannabis and derivative products is dependent on licensing and any failure to maintain such licenses would have a material adverse impact; |
| • | Increased competition could materially and adversely affect our business, financial condition and results of operations; |
| • | We are vulnerable due to the results of the “Anti-Dumping” investigation into cannabis imports from Canada that could have a material adverse effect on our business; |
| • | We rely on business licenses, permits and approvals and the failure to maintain those could have a material adverse effect on our business, financial condition and results of the operations; |
| • | We rely 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 our business, financial condition, and operating results; |
| • | We rely 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 our business, financial condition and results of operations; |
| • | Future acquisitions or dispositions could result in the failure to realize anticipated benefits of such transactions; |
| • | The failure to design, develop or maintain effective internal controls may affect our ability to prevent fraud, detect material misstatements, and fulfill reporting obligations. |
| • | The insurance purchased by the us cannot cover all risks that we are exposed to, and any uninsured amounts of liabilities incurred by our member(s) may be paid directly by such members; and |
| • | Our 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; |
Risks Related to Ownership of Our Securities
| • | Our principal shareholders, officers and directors beneficially own approximately 23.4% of our Common Shares, and therefore be able to exert significant control over matters submitted to shareholders’ approval; We may issue additional securities in the future, which may dilute our shareholder’s holdings. |
| • | The possible lack of liquidity of securities may cause difficulty for security holders to re-sell securities at desired prices; |
| • | Loss of foreign private issuer status under United States securities laws could increase our regulatory and compliance costs; and |
| • | We may be a “passive foreign investment company” (“PFIC”), for U.S. federal income tax purposes in the current taxable year or become a PFIC in the future. There generally would be negative tax consequences for U.S. taxpayers that are holders of the Common Shares if we are a PFIC. |
Risks Related to Intellectual Property
| • | We use intellectual property protections to protect our products, brands and technologies. Maintaining such protections and paying any costs attributed to the enforcement of such protections does not completely eliminate the risk of litigation, which may result in a material adverse effect on our business, financial condition, results of operations and prospects. |
Risks Related to Israeli Law and Our Operations in Israel
| • | We are 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 our business, results of operations, financial condition and our prospects. |
Risks Related to Enforceability of Civil Liabilities
| • | It may be difficult to enforce a U.S. judgment against us, our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors; and |
| • | Since we are incorporated in British Columbia and substantially all of our directors and officers reside outside the United Stated, and some outside Canada, it may be difficult in the United States to enforce civil liabilities against us based solely upon the federal securities laws of the United States. Similarly, it may be difficult to enforce civil liabilities against our directors and officers residing outside of Canada. |
PART I
ITEM 1.
