We operate out of our existing facility located in Sherbrooke, Québec, which is
required to comply with Health Canada requirements. Our facility is therefore subject to the adherence of ongoing standards and thresholds in order to maintain the appropriate certificate. Although the Company believes it will continue to meet such
ongoing requirements, there is no guarantee that the required certification will be maintained. Any loss in certification would have a material adverse effect on the business, financial condition and results of the operations of the Company.
Our current license with Health Canada expires on January 4, 2022. Prior to the expiration, we must submit to Health Canada an
application for renewal of such license. There can be no assurance that we will be able to renew our existing license and any failure to renew such license would have a material adverse impact on our business, financial condition and operating
results.
We are subject to risks inherent to the cannabis industry
We operate in a highly regulated and rapidly evolving market. Sometimes new risks emerge and management may not be able to predict all of them,
or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. Failure to comply with the requirements of the license(s) or any failure to maintain the license(s) would have a material
adverse impact on the business, financial condition and operating results of the Company.
The industry is subject to extensive controls
and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond our control and which cannot be predicted, such as changes to
government regulations, including those relating to taxes and other government levies that may be imposed. Changes in government levies, including taxes, could reduce the Corporations earnings and could make future capital investments or the
Corporations operations uneconomic.
Negative Cash Flows from Operating Activities
Despite the Companys positive cash and cash equivalents position of $15,595,388 as at December 31, 2018 and that the Company continues to
operate as a going concern, the Company reported negative cash flow from operating activities of $7,586,519 and $4,873,063 for the year ended March 31, 2018 and for the nine-month period ended December 31, 2018, respectively, and has historically,
in certain prior fiscal years, reported negative cash flow from operating activities. The Company may also continue to have negative cash flow from operating activities until sufficient levels of sales are achieved. Although the Company anticipates
that it will have positive cash flow from operating activities in future periods, it cannot guarantee that such future positive cash flow from operating activities will be obtained.
The Company may also be unable to obtain future borrowings in an amount sufficient to enable it to pay debt or to fund other liquidity needs.
If sufficient liquidity is not obtained, the Company may need to refinance or restructure all or a portion of its debt on or before maturity, sell assets or borrow more money or issue equity, which may not be possible on terms satisfactory to the
Company, or at all. In addition, any refinancing could be at higher interest rates and may require the Company to comply with more onerous covenants which could further restrict its business operations. If the Company continues to report negative
cash flows from operating activities, or any failure to obtain any required additional financing on favourable terms, or at all, such events could have a material adverse effect on the business, financial condition and results of operation of the
Company.
We are subject to changes in laws, regulations and guidelines
The laws, regulations and guidelines generally applicable to the cannabis industry in Canada and other countries may change in ways that impact
our ability to continue our business as currently conducted or proposed to be conducted.
The successful execution of our cannabis
business objectives is contingent upon compliance with all applicable laws and regulatory requirements in Canada and other jurisdictions and obtaining all other required regulatory approvals for the processing, sale, import and export of our
cannabis products. The commercial cannabis industry is a relatively new industry in Canada. The effect of Health Canadas administration, application and enforcement of the regime established by the
Cannabis Act
and the
Cannabis
Regulations
on us and our business in Canada, or the administration, application and enforcement of the laws of other countries by the appropriate regulators in those countries, may significantly delay or impact our ability to participate in the
Canadian cannabis market or cannabis markets outside Canada, to develop cannabis products and produce and sell these cannabis products.
Further, Health Canada may change their administration, interpretation or application of the applicable regulations or their compliance or
enforcement procedures at any time. Any such changes could require us to revise our ongoing compliance procedures, requiring us to incur increased compliance costs and expend additional resources. There is no assurance that we will be able to comply
or continue to comply with applicable regulations.
Failure to comply with applicable regulations
Health Canada inspectors routinely assess cannabis license holders for compliance with applicable regulatory requirements and we will be
subject to certain ongoing inspections and audits once we begin operations. Any failure by us to comply with the applicable regulatory requirements could require extensive changes to our operations; result in regulatory proceedings or
investigations, increased compliance costs, damage awards, civil or criminal fines or penalties or restrictions on our operations; harm our reputation or give rise to material liabilities or a revocation of our licenses and other permits. There can
be no assurance that any future regulatory proceedings, investigations or audits will not result in substantial costs, a diversion of managements attention and resources or other adverse consequences to us and our business.
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