20-F: Grown Rogue International Secures $150,000 Promissory Note, Files 20-F

Grown Rogue International Inc. files its 20-F form including a promissory note for $150,000 and details on its business, financial condition, and risk factors.

Summary

• Grown Rogue International Inc. has filed its annual report on Form 20-F.
• The document includes a promissory note for US$150,000 made by Grown Rogue Gardens, LLC in favor of Thomas Fortner, with a maturity date of December 31, 2021, or upon a change of control.
• The note accrues interest at an annual rate of 10 percent.
• The company has the right to extend the Maturity Date of up to 50% of the principal for an additional six months, with an extension fee of $1,000 for every $10,000 extended.
• The document details various aspects of the company's business, including its operations in Oregon and Michigan, its products, and its expansion plans.
• The company's Oregon operations include four cultivation facilities with approximately 95,000 square feet of flowering cultivation canopy.
• The company also has a 60% controlling interest in Golden Harvests, a Michigan-based cultivation company.
• The document outlines numerous risk factors, including the illegality of cannabis under U.S. federal law, regulatory compliance, operational risks, and competition.
• The company's long-term profitability depends on its ability to successfully implement its business plan.
• The company may require additional capital, which may not be available on acceptable terms.
• The company is subject to complex legal and accounting requirements as a public company.
• The company does not anticipate paying dividends on shares of its common stock.
• The company's websites are accessible in jurisdictions where medicinal or recreational use of marijuana is not permitted, which may lead to legal challenges.
• The company is exposed to currency fluctuations due to its operations in the United States.
• The company may pursue strategic acquisitions, which could expose it to potential risks.
• The company's operations are subject to environmental regulation.
• Border crossing for non-U.S. residents employed or involved with licensed cannabis companies may create additional challenges.
• The company may suffer reduced profitability if it loses foreign private issuer status in the United States.
• The company is treated as a United States corporation for U.S. federal income tax purposes under IRC Section 7874 and is expected to be subject to U.S. federal income tax on its worldwide income.
• The company is also treated as a Canadian resident company for Canadian income tax purposes, resulting in taxation in both Canada and the United States.
• The company has previously identified significant deficiencies in its internal controls related to Section 404 of the Sarbanes-Oxley Act.
• The company is the subject of an SEC enforcement action seeking to revoke registration of its common stock.
• The number of outstanding shares of the issuers common stock as of October 31, 2023, was 182,005,886 shares.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive aspects such as expansion plans and market leadership in certain areas, there are also significant risks and challenges, including the illegality of cannabis under U.S. federal law, regulatory compliance, and financial constraints. The net loss reported for the year ended October 31, 2023, also contributes to a more neutral sentiment.

Positives

• The company has a controlling interest in a Michigan-based cultivation company, expanding its operations.
• The company has a profitable services segment, which leverages its cultivation expertise to generate margin and increase its presence to two new states at low financial risk.
• The company is strategically focused on high quality, low cost production of flower and flower-based products.
• The company has a multi-channel distribution strategy that includes direct-to-retail delivery and third-party delivery, wholesalers, and processors.
• The company employs sustainable business models in all of its operations.
• The company is focused on furthering our footprints and flower market shares in the Oregon and Michigan markets, strengthening our presence in Minnesota and Maryland, continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.

Negatives

• The company is subject to IRC Section 280E, which may have a material adverse effect on the company.
• The company may require additional capital, which may not be available on acceptable terms.
• The company is subject to complex legal and accounting requirements as a public company.
• The company does not anticipate paying dividends on shares of its common stock.
• The company's websites are accessible in jurisdictions where medicinal or recreational use of marijuana is not permitted, which may lead to legal challenges.
• The company is exposed to currency fluctuations between the U.S. dollar and the Canadian dollar.
• The company is treated as a United States corporation for U.S. federal income tax purposes under IRC Section 7874 and is expected to be subject to U.S. federal income tax on its worldwide income.
• The company is also treated as a Canadian resident company for Canadian income tax purposes, resulting in taxation in both Canada and the United States.
• The company has previously identified significant deficiencies in its internal controls related to Section 404 of the Sarbanes-Oxley Act.
• The company is the subject of an SEC enforcement action seeking to revoke registration of its common stock.

Risks

• The company's business is illegal under U.S. federal law, which may subject the company and its investors to enforcement action or asset forfeiture.
• The company's contracts may be unenforceable and property may be subject to seizure due to the federal illegality of cannabis.
• The company may have a difficult time obtaining insurance, which may expose the company to additional risk and financial liabilities.
• The company is vulnerable to rising energy costs due to its energy-intensive marijuana growing operations.
• The company's business premises are a target for theft, which may lead to financial losses.
• The company's participation in the marijuana industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various governmental authorities.
• The company's success depends on its ability to obtain and maintain marijuana licenses from state and local authorities.
• The company's customer base is limited to the jurisdictions it operates in for any cannabis based products.
• The retail and wholesale prices in Oregon and Michigan have demonstrated significant volatility over time.
• Local governments have the ability to limit, restrict, and ban medical or recreational cannabis businesses from operating within their jurisdiction.
• Third party service providers to the company may withdraw or suspend their service.
• The marijuana industry faces significant opposition in the United States.
• The size of the target market is difficult to quantify.
• The company has numerous competitors.
• The company may not be able to obtain or maintain a bank account.
• The protections of U.S. bankruptcy law may be unavailable.
• The company's websites are accessible in jurisdictions where medicinal or recreational use of marijuana is not permitted, and the company may be found to be violating the laws of those jurisdictions.
• The company may suffer reduced profitability if it loses foreign private issuer status in the United States.
• The company is treated as a United States corporation for U.S. federal income tax purposes under IRC Section 7874 and is expected to be subject to U.S. federal income tax on its worldwide income.
• The company is also treated as a Canadian resident company for Canadian income tax purposes, resulting in taxation in both Canada and the United States.
• The market price for our securities may be volatile and is subject to significant fluctuations in response to a variety of factors.
• Our investors may have difficulty selling our securities as there is a limited public trading market for such securities.
• Applicable SEC rules governing the trading of penny stocks will limit the trading and liquidity of our common stock and may affect the trade price for our common stock.
• FINRA sales practice requirements may limit a shareholders ability to buy and sell our securities.
• Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for our management.
• Changes in tax laws or tax rulings could materially affect our financial position and results of operations.
• Because we are quoted on the OTC Markets instead of a national securities exchange in the United States, our U.S. investors may have more difficulty selling their stock or experience negative volatility on the market price of our stock in the United States.
• Volatility in our common share price may subject us to securities litigation, thereby diverting our resources that may have a material effect on our profitability and results of operations.
• Rule 144 sales in the future may have a depressive effect on the price of shares of our common stock as an increase in supply of shares for sale, with no corresponding increase in demand may cause prices to fall.
• Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) could have a material adverse effect on our business and our operating results.

Future Outlook

Grown Rogue continues to focus on taking its learnings and experience from Oregon and Michigan into new markets across the US. Over the next twelve months, Grown Rogue is focused on furthering our footprints and flower market shares in the Oregon and Michigan markets, strengthening our presence in Minnesota and Maryland, continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.

Industry Context

The document provides context on the cannabis industry, noting the trend of legalization in the United States and the expected growth of the market. It also mentions the competitive landscape and the potential impact of the pharmaceutical industry.

Comparison to Industry Standards

• The document mentions that Grown Rogue was the #1 flower producer in Oregon and a top 5 indoor flower wholesaler in Michigan in 2022 and in 2023, according to LeafLinks MarketScape data.
• The document mentions Goodness Growth Holdings Inc. as a company with which Grown Rogue has a consulting agreement.
• The document mentions Plant-Based Investment Corp as a company with which Grown Rogue has had financial transactions.

Legal Proceedings

• The Company is also currently the subject of an SEC enforcement action seeking to revoke registration of our common stock.

Related Party Transactions

• J. Obie Strickler, CEO, owns the Trails End Property that is one of the facility properties leased to GRUP.
• J. Obie Strickler, our CEO, beneficially owns the Lars Property which was leased to GR Gardens during the year ended October 31, 2021, and is located in Medford, Oregon with a term through June 30, 2026.
• During the year ended October 31, 2021, Mr. Strickler leased two pieces of mobile equipment to the Company.
• Through its subsidiary, Golden Harvests, the Company leased Morton, owned by David Pleitner, the Companys Michigan General Manager (GM).
• Through its subsidiary, Golden Harvests, the Company also leased Morton Annex located in Michigan, which is owned by David Pleitner, the Companys GM.
• During the year ended October 31, 2023, we added $4,008,866 (2022 $4,000,874) to property and equipment, including non-cash right-of-use asset additions.
• During the year ended October 31, 2023, we granted 6,800,000 stock options, exercisable at a weighted average exercise price of CAD$0.16 per share and the vesting charge related to the outstanding options was $344,593.

Stakeholder Impact

• The document outlines potential impacts on key stakeholders, including shareholders, employees, customers, suppliers, and creditors.
• Shareholders are subject to the risks attributable to the company's subsidiaries and may experience dilution of their ownership interests due to future issuance of additional shares of common stock.
• Employees may be affected by changes in laws or regulations, labor disputes, and the company's ability to attract, retain, and motivate qualified personnel.
• Customers may be affected by changes in consumer preferences, product liability claims, and the company's ability to provide safe and high-quality products.
• Suppliers may be affected by changes in laws or regulations, healthcare costs, energy usage, and labor issues.
• Creditors may be affected by the company's ability to service its debt obligations and obtain additional financing.

Next Steps

• Grown Rogue continues to focus on taking its learnings and experience from Oregon and Michigan into new markets across the US.
• Over the next twelve months, Grown Rogue is focused on furthering our footprints and flower market shares in the Oregon and Michigan markets, strengthening our presence in Minnesota and Maryland, continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.
• With the recent shift in political landscape, Grown Rogue has also begun analyzing the potential for federal de-regulation and the subsequent ability to export cannabis products across state lines.
• Our strategy to take advantage of what is projected to be a multi-billion dollar export business is developing, and we are excited to begin implementation of this business plan over the coming years.

Key Dates

Keywords

cannabis, marijuana, licenses, regulation, financials, risk factors, promissory note, cultivation, operations, Grown Rogue