20-F: Akanda Corp. Reports Financial Results for Fiscal Year 2023, Cites Ongoing Concerns

Akanda Corp.'s 20-F filing reveals a net loss of $32.28 million for fiscal year 2023 and raises substantial doubt about the company's ability to continue as a going concern.

Summary

• Akanda Corp.'s 20-F filing covers the fiscal year ended December 31, 2023.
• The company reported a net loss of $32.28 million, significantly higher than the $11.66 million loss in 2022.
• Revenue decreased to $2.16 million in 2023 from $2.62 million in 2022.
• The company cites substantial doubt about its ability to continue as a going concern due to operating losses.
• Akanda sold its RPK Biopharma Unipessoal, LDA to Somai Pharmaceuticals Ltd for $2 million on April 1, 2024.
• The company completed several registered direct offerings and an underwritten public offering in early 2024, raising approximately $6 million.
• The company received an extension from Nasdaq to regain compliance with the minimum $1.00 bid price requirement.
• The company is involved in ongoing litigation with former officers and directors.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to significant losses, going concern uncertainty, and ongoing litigation, despite recent capital raising efforts and the sale of RPK.

Positives

• The company completed the sale of RPK Biopharma Unipessoal, LDA for $2 million, which will reduce liabilities.
• The company raised approximately $6 million through registered direct offerings and an underwritten public offering in early 2024.
• The company received an extension from Nasdaq to regain compliance with the minimum $1.00 bid price requirement, providing more time to improve its stock price.

Negatives

• The company reported a significant net loss of $32.28 million for fiscal year 2023.
• Revenue decreased from $2.62 million in 2022 to $2.16 million in 2023.
• The company's auditor expresses substantial doubt about its ability to continue as a going concern.
• The company is involved in ongoing litigation with former officers and directors, which could result in significant costs.

Risks

• The company's limited operating history and minimal revenue create uncertainty about its future profitability.
• The company's financial situation raises substantial doubt about its ability to continue as a going concern.
• The company may become involved in litigation matters that are expensive and time-consuming.
• Demand for cannabis and its derivative products could be adversely affected by scientific research, regulatory proceedings, litigation, or media attention.
• The company is subject to the risks inherent in an agricultural business, such as adverse weather conditions and plant diseases.
• The company is subject to significant competition by new and existing competitors in the cannabis industry.
• The company is dependent upon its management and key employees, and the loss of any member of its management team or any key employee could have a material adverse effect on its operations.
• The Coronavirus (COVID-19) outbreak and similar disease outbreaks or public health emergencies could adversely affect the company's future operations.
• The company could be subject to a security breach that could result in significant damage or theft of products and equipment.
• The company may incur significant costs to defend its intellectual property and other proprietary rights.
• As a company based outside of the United States, the company is subject to economic, political, regulatory and other risks associated with international operations.
• The company's business could suffer as a result of the United Kingdom's withdrawal from the European Union.
• Tax regulations and challenges by tax authorities could have a material adverse effect on the company's business.
• The medicinal cannabis regulatory regime is restrictive and new in the United Kingdom and Europe, and laws and enforcement could rapidly change again.
• Marijuana remains illegal under U.S. federal law, and the enforcement of U.S. cannabis laws could change.
• There are tax risks the company may be subject to in carrying out its business in multiple jurisdictions.
• There is a risk that the company will be a passive foreign investment company (PFIC) for U.S. federal income tax purposes for the current or any future taxable year, which could result in material adverse U.S. federal income tax consequences if you are a U.S. Holder.
• Failure to develop the company's internal controls over financial reporting as it grows could have an adverse effect on its operations.
• The company will need to raise additional funding, which may not be available on acceptable terms, or at all.
• Future sales and issuances of the company's capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of its shareholders and could cause the price of its Common Shares to decline.
• The company incurs increased costs as a result of operating as a public company and its management is required to devote substantial time to new compliance initiatives.
• The company may not be able to maintain a listing of its Common Shares on Nasdaq.
• Receiving financial benefit directly or indirectly as a result of ownership of Common Shares may be subject to anti-money laundering laws in the United Kingdom.
• The company is a foreign private issuer and take advantage of the less frequent and detailed reporting obligations applicable to foreign private issuers.
• The company may lose its status as a foreign private issuer in the United States, which would result in increased costs related to regulatory compliance under United States securities laws.
• If the company's share price fluctuates, you could lose a significant part of your investment.
• Investors may be unable to enforce judgments against the company's directors and officers because its directors and officers reside outside of the United States.
• As a result of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the company's Board of Directors or controlling shareholders than they would as public shareholders of a U.S. based company.
• The company does not intend to pay dividends on its Common Shares in the near future, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of its Common Shares.
• If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about the company, its share price and trading volume could decline.

Future Outlook

The company expects to have sufficient capital to fund its current operations at least through the middle of 2024 and intends to use the proceeds from the initial public offering primarily for property, plant and equipment, operations, working capital and general corporate purposes. The company plans to develop THC and CBD facilities at the British Columbia site.

Industry Context

The cannabis industry is highly competitive and subject to evolving regulations. Akanda faces competition from both established players and new market entrants. The legalization of adult-use cannabis in some jurisdictions may also impact the medical cannabis market.

Comparison to Industry Standards

• Tilray and Clever Leaves, competitors in Portugal, have decided to close or reduce operations.
• Germany's medical cannabis market relies on imports, with Portugal gaining ground on Canada as a supplier.
• The UK's CBPM market is highly regulated, with competition from established suppliers like The Lyphe Group, Grow Pharma, and IPS Pharma.

Management Changes

Legal Proceedings

• Louisa Mojela filed a claim against Canmart and Akanda for wrongful termination of her Service Agreement, which the company is contesting.
• Trevor Scott, former CFO, filed a claim against the company for amounts owing under his employment agreement, which has been settled.
• Tejinder Virk, former CEO, issued a claim for detriment and dismissal for alleged protected disclosures, which the company is contesting.
• Vidya Iyer, former SVP of Finance, filed a claim against the company for amounts owing under her employment agreement, which has been settled.
• Shailesh Bhushan, former CFO, filed a complaint with the Employment Standards Branch of British Columbia claiming unpaid salary and invoices, which the company believes to be frivolous and intends to vigorously defend.

Related Party Transactions

• The company has outstanding loans from Halo Collective Inc., a related party, totaling $1.33 million as of March 31, 2024.
• The company has balances payable to related parties totaling $2.26 million as of December 31, 2023.
• The company has loans outstanding to 1248787 B.C. Ltd., a company controlled by Jatinder Dhaliwal, a director of Akanda, totaling $53,021 as of December 31, 2023.

Stakeholder Impact

• Shareholders face the risk of further dilution and a decline in the share price.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Customers may experience disruptions in the supply of products.
• Suppliers may face delays in payments or contract renegotiations.
• Creditors face the risk of non-payment or restructuring of debt.

Next Steps

• The company intends to monitor the closing bid price of its Common Shares and may consider implementing a reverse stock split to regain compliance with Nasdaq listing rules.
• The company plans to develop THC and CBD facilities at the British Columbia site.
• The company will continue to pursue legal rights and remedies against Louisa Mojela and the MMD Trust.

Key Dates

Keywords

Akanda Corp, financial results, cannabis, medical cannabis, RPK Biopharma, Somai Pharmaceuticals, going concern, liquidation, litigation, Nasdaq, AKAN, revenue, net loss, financial statements, risk factors