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Nextleaf Solutions Ltd. — Management Reports 2025
Jan 29, 2025
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Management Reports
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2019 Southeast
NEXTLEAF™
CSE:OILS
Nextleaf Solutions Ltd.
Management’s Discussion & Analysis
September 30, 2024
Page 24 | 45
1
NEXTLEAF SOLUTIONS LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
The following discussion and analysis of the financial condition and results of operations of Nextleaf Solutions Ltd. ("Nextleaf" or the "Company") for the year ended September 30, 2024, should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended September 30, 2024, and the related notes thereto (collectively, the "financial statements"). The financial statements have been prepared in accordance with IFRS Accounting Standards ("IFRS"). All monetary amounts in this MD&A are expressed in Canadian dollars, or as otherwise indicated.
The information contained herein is presented as at January 28, 2025 (the "MD&A Date").
Additional information relating to the Company is filed with Canadian securities regulatory authorities (www.sedarplus.ca) and on the Company's website at www.nextleafsolutions.com.
For the purposes of preparing this MD&A, Management, in conjunction with the Board of Directors, considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of Nextleaf's common shares; or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board of Directors, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A constitute "forward-looking information" and "forward-looking statements." All statements other than statements of historical fact contained in this MD&A, without limitation, those regarding the future financial position and results of operations, strategy, plans, objectives, goals, targets and future developments of the Company in the markets where the Company participates or is seeking to participate, and any statements preceded by, followed by or that include the words "believe", "expect", "aim", "intend", "plan", "continue", "will", "may", "would", "anticipate", "estimate", "forecast", "predict", "project", "seek", "should" or similar expressions or the negative thereof, are forward-looking statements.
Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of Nextleaf set out throughout this MD&A, including statements regarding: the Company's revenue, sales, income, profitability, expectations regarding the market for cannabis products; the Company's expectations regarding legislation, regulations and licensing related to the import, export, processing and sale of cannabis products by the Company; the ability to enter and participate in international market opportunities; the ability to secure dried cannabis inventory through long-term supply contracts or otherwise; intellectual property and patent value; product diversification and future corporate development; anticipated results of research and development; production capacity expectations including discussions of plans or potential for expansion of capacity at existing or new facilities; and expectations with respect to future expenditures and capital activities.
These statements are not historical facts but instead represent only the Company's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Management provides forward-looking statements because it believes they provide useful information to readers when considering their investment objectives and cautions readers that the information may not be appropriate for other purposes. Consequently, all of the forward-looking statements made in this MD&A are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are made as of the date of this MD&A and the Company assumes no obligation to update or revise them to reflect subsequent information, events or circumstances or otherwise, except as required by law.
The forward-looking statements in this MD&A are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future, including assumptions regarding business and operating strategies, and the Company's ability to operate on a profitable basis.
RISKS AND UNCERTAINTIES
Risk is inherent in all business activities and cannot be entirely eliminated. An investment in the Company's common shares involves risk. Investors should carefully consider the risks and uncertainties described below and, in the Annual Information Form ("AIF") from November 2021, filed with Canadian securities regulators which may not be a comprehensive list of risks and uncertainties as additional risks and uncertainties, including those unknown by the Company at this time, or are currently considered immaterial, may exist, and other risks may apply.
There are many external factors that can adversely affect general workforces, economies, and financial markets globally. For example and not limited to political conflict in other regions. It is not possible for the Company to predict the duration or magnitude of adverse results of such external factors and their effect on the Company's business or ability to raise funds.
COMPANY OVERVIEW
Nextleaf® is an innovative cannabis processor and life science firm with a portfolio of federally regulated emerging consumer brands, market validated cannabis derivative products, and high-potency bulk ingredients. Nextleaf's multi-patented, highly automated, closed loop extraction and distillation technology sets the global standard for processing cannabis at scale. With coast-to-coast distribution, Nextleaf brands are sold through both medical and recreational channels and includes acclaimed legacy-era brand Glacial Gold™, and High Plains Cannabis™.
Nextleaf is a global leader in cannabinoid innovation and intellectual property. The Company has been issued several U.S. patents issued, and several more patents issued globally, on cannabinoid processing including extraction, distillation, and acetylation. Nextleaf's patented ingredient processing technology transforms unsold cannabis and hemp biomass into high-purity distillate at an industrial scale.
The Company sells its branded cannabinoid vapes, oils, and softgels to the British Columbia Liquor Distribution Branch ("BCLDB"), Ontario Cannabis Store ("OCS"), Nova Scotia Liquor Commission ("NSLC"), Manitoba Liquor & Lotteries ("MBLL") National Cannabis Distribution in Saskatchewan, and across Canada through multiple medical platforms, select pharmacies.
As announced on December 23, 2024, the Company is also expanding its distribution in the prairie provinces by integrating additional partners to service Saskatchewan based retailers. Lineage Distribution, currently servicing the Company in Manitoba and the northern Provinces, will now complement the existing distribution network established in Saskatchewan.
Through its wholly-owned subsidiary Nextleaf Labs Ltd. ("Nextleaf Labs"), the Company holds a Standard Processing License from Health Canada that authorizes the sale of cannabis products directly to government distributors and authorized retailers across Canada. Nextleaf Labs has received all necessary sales amendments, removing restrictions on sale of any class of cannabis products including dried flower, pre-rolls, vapes, softgels capsules, edibles, ingestible oils, and other extracts. Nextleaf develops cannabinoid-based formulations and delivery technology through its Health Canada Research License with sensory evaluation of cannabis via human testing.
The Company's common shares are listed for trading on the Canadian Securities Exchange (the "Exchange") under the trading symbol "OILS", on the OTCQB Market in the United States under the symbol "OILFF".
The Company was incorporated under the Business Corporations Act of British Columbia (the "BCBCA") on December 8, 2016, under the name "1099582 B.C. Ltd.". The Company changed its name to "Legion Metals Corp." on March 28, 2017, and to "Nextleaf Solutions Ltd." on March 14, 2019. The Company's head office is located at #3 - 68 Schooner Street, Coquitlam, British Columbia, V3B 7B1 and its registered and records office is located at #600 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7.
OVERALL PERFORMANCE
For the year ended September 30, 2024, and through to the MD&A Date, the Company's performance includes key milestones as listed below. Performance drivers for fiscal 2024 are driven by expanded market presence and increased distribution channels through Alberta and other provinces, and strategically investing in inventory across key categories to boost commercialization efforts and expand territory sales.
According to Headset Sales Data (Dec 6, 2024), Glacial Gold is consistently ranked as the Top Softgel Brand in Alberta and BC (Aug - Nov 2024) and within the Top 5 in Ontario. "Glacial Gold has earned its reputation as a reliable option for either experienced cannabis users or those exploring the cannabis landscape" quotes Headset data analytics platform, Dec 2024. The report highlights significant gains in the Company's Oil category dominance in BC, alongside brand loyalty and a strong growth trend nationally. It highlights growing interest in balanced and minor cannabinoid products, as well as the need for continual innovation within the vape and infused preroll category to remain competitive. The Company's recent efforts within the vape and oil category, particularly on minor cannabinoid formulations and convenience-based formats, have been well-received by Provincial Distribution Boards nationwide.
FISCAL 2024 HIGHLIGHTS
- Revenue of approximately $16,527,000, representing a 66% increase from fiscal 2023.
- Gross profit of approximately $3,795,000 and a gross profit margin of 22.6%.
- In January 2024, Nextleaf reported its audited annual 2023 financial performance, highlighting a debt-free position, and positive cash flows from operations.
-
Concurrently in January 2024, alongside reporting its fiscal 2023 results, Nextleaf provided an overview of its fiscal 2023 achievements, which included strategic milestones and commercial growth:
-
Diverse Product Launches: Successfully introduced 20+ new products into the Canadian recreational market, enhancing its product portfolio to meet evolving consumer preferences. This includes the launch of 8 Vape SKUs, 5 Softgels SKUs, 4 Ingestible Oil SKUs, and 3 infused pre-rolls. Nextleaf
also launched some seasonal SKUs under the partner brand Miracle Valley in the flower & pre-roll categories.
- Market Expansion: Successfully entered three new provincial markets including Yukon, Nunavut, and Northwest Territories, broadening Nextleaf's brand presence across Canada.
- Extensive Product Listings: Secured and maintained over 150 individual product listings across nine provincial markets, underscoring a commitment to widespread accessibility. Nextleaf brands and products are now accessible in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Yukon, Nunavut, Northwest Territories, and Nova Scotia.
- Brand Traction in Alberta: Glacial Gold gained immediate traction in Alberta, emerging as a top-selling brand for softgels and oils in the region for 2024.
- Regional Leadership in BC: Maintained #1 category leader position in softgels in British Columbia during 2024, capturing over 50% market share and accounting for more than 60% of all individual cannabis softgels sold across the province.
-
Ontario Market Performance: Secured the #3 brand position in softgels rankings in Ontario wholesale during fiscal 2024.
-
In February 2024, Nextleaf announced its strategic market expansion through a wholesale distribution agreement, alongside a robust line-up of national product launches slated for Spring 2024. The wholesale distribution agreement is with Lineage Distribution ("Lineage"), a licensed cannabis processor and distributor based in Manitoba. Under the terms of this agreement, Lineage will exclusively distribute Nextleaf's complete product catalogue of over 35 SKUs across four initial categories, including CBD and THC vapes, drops/oils, infused pre-rolls, and softgels. The distribution agreement spans across the Province of Manitoba, Northwest Territories, Nunavut, and the Yukon Territories, showcasing Nextleaf's commitment to broadening its market reach and accessibility.
- On April 2, 2024, the Company provided a commercial update announcing category expansion with the launch of infused prerolls under the Glacial Gold brand. Additionally, recent Health Canada recommendations to expand access to medical cannabis in-person at pharmacies would facilitate increased distribution of the Company's softgels enabling Canadian's better access to affordable solutions. Refer to the Company's April 2, 2024, news release for further details about the infused prerolls product launch.
- On April 19, 2024, the Company announced additional product launches under the Glacial Gold brand including vapes, softgels, infused prerolls and oils throughout fiscal 2024. The Company also announced a new brand activation with the national roll out of the 'Glacial Cones' shaved ice featuring top selling vape flavours non-infused syrups on ice.
- On October 1, 2024, the Company announced 12 new product listing nationally across 5 categories which will be launching between September 2024 and early 2025.
- On October 17, 2024, the Company launched a virtual facility tour of its processing facility in Coquitlam, B.C. The on-demand, self-guided, 4-part tour was made possible by a grant from the Canadian Digital Adoption Program (CDAP). This level of transparency into cannabis processing paired with user navigated content is a first-of-its-kind offered in the Canadian cannabis industry. Nextleaf has been actively integrating digital adoption strategies across all areas of their business to support operational effectiveness, and scaling-up for future growth. In addition to the work completed under the CDAP grant, the Company has also recently invested in ERP software for integration across inventory and accounting, and an EQMS system for quality assurance.
- On December 23, 2024, the Company announced fourteen (14) new product listings under the Glacial Gold brand nationally across four (4) categories including vapes, softgels, oils, and infused prerolls launching between January 2025 and April 2025. The product pipeline focuses on smokeless ingestible extracts such as softgels and oils, ready-to-consume convenience formats like All-in-One liquid diamond vapes, infused prerolls, and minor cannabinoid formulations (notably CBG and CBN) across multiple categories. These products solidify Nextleaf's market leadership in these emerging segments.
2025 OUTLOOK
The Company will prioritize the following strategic initiatives for fiscal 2025:
- Brand Building & Marketing: Implementing strategic marketing campaigns and activations to elevate brand awareness and recognition among Canadian consumers.
- Increasing Points of Distribution: Expanding the number of distribution points within core markets and strengthening retailer relationships.
- Commercialization & Product Development: 15+ new SKUs with target of 50+ new provincial listings.
- Inventory Building: Continued investment into building up inventory, including biomass procurement, through to finished products.
- Operational Efficiency: Improving operational efficiency through the integration of an ERP system.
- Commercial Partners Program Expansion: achieved through ingredient supply, white labeling, contract manufacturing, and toll processing activities for new and recurring clients.
CHANGE IN MANAGEMENT AND BOARD OF DIRECTORS
For the year ended September 30, 2024 and to the MD&A Date, the Company had the below changes to its Executive Officers and Board of Directors. As of the MD&A Date, the Company's Board of Directors comprised of the following four members: Emma Andrews (President and CEO), Sam Kassem (CFO), Fred Bonner, and Sherry Boodram.
- On September 8, 2023, Paul Pedersen departed as Company CEO and was replaced by Emma Andrews on an interim basis until September 26, 2024 when she became the permanent CEO of the Company. Emma Andrews was appointed to the Board of Directors on September 27, 2023. Paul Pedersen served as a Director until December 19, 2023.
- Sam Kassem replaced Kevin Keagan as CFO on an interim basis on September 27, 2023 until October 1, 2024 when he became the permanent CFO of the Company. Sam Kassem was appointed to the Board of Directors on December 19, 2023. Kevin Keagan served on the Board of Directors until December 19, 2023.
SELECTED ANNUAL INFORMATION
The following table sets out selected historical financial information of Nextleaf. Such information is derived from the audited financial statements of Nextleaf.
| September 30, 2024 $ | September 30, 2023 $ | September 30, 2022 $ | |
|---|---|---|---|
| Revenue | 16,567,537 | 9,962,919 | 5,351,509 |
| Gross profit | 3,742,561 | 2,310,280 | 661,238 |
| Income (loss) and comprehensive income (loss) | (1,435,991) | 223,334 | (3,486,716) |
| Earnings (loss) per share - basic and diluted | (0.01) | 0.00 | (0.03) |
| Working capital | 1,631,985 | 780,408 | (1,038,353) |
| Cash flows from operating activities | (614,092) | 875,455 | (802,192) |
| Total assets | 8,565,077 | 8,537,035 | 7,152,074 |
| Total liabilities | 4,060,137 | 4,403,354 | 4,136,858 |
| Shareholders' equity | 4,504,940 | 4,133,681 | 3,015,216 |
FOURTH QUARTER AND DISCUSSION OF OPERATIONS
For the three and twelve months ended September 30, 2024 and September 30, 2023
The Company's performance during the three and twelve months ended September 30, 2024 and September 30, 2023, is outlined below (amounts are rounded):
| Twelve months ended | September 30, 2024 $ | September 30, 2023 $ | Change $ |
|---|---|---|---|
| Revenue | 16,567,000 | 9,963,000 | 6,604,000 |
| Gross profit | 3,743,000 | 2,310,000 | 1,433,000 |
| Operating expenses | (5,268,000) | (2,279,000) | (2,989,000) |
| Income (loss) and comprehensive income (loss) | (1,436,000) | 223,000 | (1,659,000) |
| Three months ended | September 30, 2024 $ | September 30, 2023 $ | Change $ |
| --- | --- | --- | --- |
| Revenue | 3,815,000 | 3,296,000 | 519,000 |
| Gross profit | 946,000 | 862,000 | 84,000 |
| Operating expenses | (1,255,000) | (748,000) | (507,000) |
| Income (loss) and comprehensive income (loss) | (240,000) | 387,000 | (627,000) |
See "Liquidity and Capital Resources" section below for a discussion on cash flows.
Revenue
Refer to the "Overall Performance" section above for key operational aspects contributing to the increase in revenue over the comparative period and certain preceding quarters.
The Company disaggregated its revenues from the sale of goods between sales of bulk distillate, branded (Glacial Gold) vape pens, oils, and softgels ("branded extract products"), and private label, which includes toll processing and other services.
| Revenue stream | Year ended September 30, 2024 | Year ended September 30, 2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Bulk distillate | Branded extract products | Private label | Total | Bulk distillate | Branded extract products | Private label | Total | |
| Wholesale | 1,480,439 | 13,437,803 | 1,649,295 | 16,567,537 | 1,988,509 | 6,149,366 | 1,825,044 | 9,962,919 |
| British Columbia | 322,358 | 8,250,008 | 867,452 | 9,439,818 | 244,661 | 4,585,757 | 154,077 | 4,984,495 |
| Rest of Canada | 1,158,081 | 5,187,795 | 781,843 | 7,127,719 | 1,743,848 | 1,563,609 | 1,670,967 | 4,978,424 |
| Total | 1,480,439 | 13,437,803 | 1,649,295 | 16,567,537 | 1,988,509 | 6,149,366 | 1,825,044 | 9,962,919 |
The Company's revenue growth is driven by sustained momentum across all product categories within the consumer brand portfolio, including vapes, oils, and softgels. The Company substantially increased its distribution Province-wide and achieved successful sell-through of all initial purchase orders, receiving reorders on all items during fiscal 2024.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA)
| September 30, 2024 | September 30, 2023 | |
|---|---|---|
| Twelve months ended | $ | $ |
| Income (loss) and comprehensive income (loss) | (1,435,991) | 223,334 |
| Non-operating Items: | ||
| Depreciation and amortization | 701,882 | 739,737 |
| Interest expense (finance costs) | 56,829 | 38,430 |
| Taxes | - | - |
| EBITDA | (677,280) | 1,001,501 |
| Non-operating Items: | ||
| Share-based payments expense | 1,352,893 | - |
| Adjusted EBITDA | 675,613 | 1,001,501 |
| September 30, 2024 | September 30, 2023 | |
| --- | --- | --- |
| Three months ended | $ | $ |
| Income (loss) and comprehensive income (loss) | (239,675) | 59,028 |
| Non-operating Items: | ||
| Depreciation and amortization | 176,566 | (188,315) |
| Interest expense (finance costs) | 13,383 | (15,513) |
| Taxes | - | - |
| EBITDA | (49,726) | (144,800) |
| Non-operating Items: | ||
| Share-based payments expense | - | - |
| Adjusted EBITDA | (49,726) | (144,800) |
Certain components of operating expenses for the three and twelve months ended September 30, 2024 and September 30, 2023, were as follows (amounts are rounded):
| Twelve months ended | September 30, 2024 $ | September 30, 2023 $ | Change $ |
|---|---|---|---|
| Investor relations and marketing | 812,000 | 408,000 | 404,000 |
| Professional fees and consulting | 339,000 | 242,000 | 97,000 |
| Salaries and fees, net | 1,874,000 | 999,000 | 875,000 |
| Three months ended | September 30, 2024 $ | September 30, 2023 $ | Change $ |
| --- | --- | --- | --- |
| Operating expenses | |||
| Investor relations and marketing | 257,000 | 140,000 | 117,000 |
| Professional fees and consulting | 109,000 | 99,000 | 10,000 |
| Salaries and fees, net | 557,000 | 232,000 | 325,000 |
A Contribution Agreement executed with NRC-IRAP (National Research Council of Canada's Industrial Research Assistance Program), for non-repayable contributions relating to the reimbursement of certain salaries paid to employees of the Company, generated proceeds of approximately $75,000 in the comparative period and accordingly a reduction of salaries and fees, with no amounts received during year ended September 30, 2024.
SUMMARY OF QUARTERLY RESULTS
The following table shows results from the last eight quarters:
| Period Ending | Revenue $ | Income (loss) and comprehensive income (loss) $ | Basic and Diluted Earnings (loss) Per Share $ |
|---|---|---|---|
| September 30, 2024 | 3,815,146 | (239,675) | (0.01) |
| June 30, 2024 | 4,011,992 | (317,264) | (0.00) |
| March 31, 2024 | 4,618,706 | (1,011,873) | 0.00 |
| December 31, 2023 | 4,121,693 | 132,821 | 0.00 |
| September 30, 2023 | 3,295,840 | 387,640 | 0.00 |
| June 30, 2023 | 2,662,626 | 419,875 | (0.00) |
| March 31, 2023 | 2,576,657 | (25,168) | (0.00) |
| December 31, 2022 | 1,427,796 | (559,013) | (0.03) |
Fluctuations in quarterly results are not due to significant seasonal variations.
Variations in income (loss) and comprehensive income (loss) for certain of the above periods were affected primarily by the following factors:
- Gross revenue of $3,815,000 in Q4 2024 marks a 16% year-over-year increase, reflecting strong demand and expanded market reach. The 5% decline from the preceding quarter is consistent with typical seasonal fluctuations observed in the industry during late summer.
- Gross revenue from Q3 2024 (June 30, 2024) of approximately $4,012,000, representing a 51% increase compared to Q3 2023. This significant growth highlights the success of the Company's expanded market presence and increased distribution channels. However, variations in income (loss) and comprehensive income (loss) for this period were primarily driven by significant share-based payment expenses, which totaled approximately $914,000, impacting net income. Additionally, the overall economic environment contributed to a decrease in revenue from Q2 to Q3 2024, as market conditions softened, and consumer spending slowed. Additionally, increased marketing and distribution costs, associated with ongoing market expansion, temporarily elevated operating expenses.
- Gross revenue for Q2 2024 (March 31, 2024) of approximately $4,600,000 was an increase over the comparative period (Q2 2023) of 80% (increase of approximately $2,042,000), and 12% over the preceding quarter (Q1 2024) (increase of approximately $500,000). As noted above, revenue growth is attributable to expanded market presence and increased distribution channels. The net loss incurred for Q2 2024 however, was attributable to share-based payments expense (non-cash expense) recognized on the grant and vesting of stock options which totaled approximately $1,054,000. When deducting share-based payments from expenses, the Company would have recognized income for the period of approximately $43,000, and approximately $175,000 for the six months ended March 31, 2024.
- The variance in net income for Q1 2024 (December 31, 2023), compared to Q4 2023 (September 30, 2023) was primarily attributed to non-recurring legal fees. Additionally, the variance in net income for Q1 2024 was caused by reduced production capacity due to the holiday season in December. Gross revenue for Q1 2024 of approximately $4,100,000 was an increase over the comparative period (Q1 2023) by 190% and increased 25% over the preceding quarter (Q4 2023).
LIQUIDITY AND CAPITAL RESOURCES
The Company aims to support further advancement of its business objectives and ensure its ability to meet financial obligations as they come due when managing liquidity and capital.
Cash and working capital
As at September 30, 2024, the Company held approximately $439,000 in cash, a net decrease of approximately $460,000 for the year then ended. The Company's working capital stood at approximately $1,632,000 as at September 30, 2024, marking a decrease of approximately $74,000 over the preceding quarter ended June 30, 2024, and an increase of approximately $852,000 over the previous year end. The decrease as at September 30, 2024 compared to the preceding June 30, 2024 quarter end, was driven by a greater net decrease in current assets than current liabilities as the Company continued a focus on reducing its payables.
Cash flow activities (amounts are rounded):
| Twelve months ended | September 30, 2024 $ | September 30, 2023 $ | Change $ |
|---|---|---|---|
| Cash provided by (used in) operating activities | (614,000) | 875,000 | (1,489,000) |
| Cash used in investing activities | (68,000) | (24,000) | (44,000) |
| Cash provided by (used in) financing activities | 222,000 | (331,000) | 553,000 |
| Change in cash | (460,000) | 520,000 | |
| Three months ended | September 30, 2024 $ | September 30, 2023 $ | Change $ |
| Cash provided by (used in) operating activities | (176,000) | 233,000 | (409,000) |
| Cash used in investing activities | (3,000) | (5,000) | 2,000 |
| Cash used in financing activities | (31,000) | (31,000) | - |
| Change in cash | (210,000) | 197,000 |
- The Company incurred negative cash flows from operating activities for the quarter and year to date period ended Q4 2024 as a result of unfavorable fluctuations in working capital over the comparative period driven by an emphasis on reducing payables. This is despite current year operating results generating cash flows of approximately $672,000 inclusive of higher gross margins than the comparative period.
- Investing and financing activities included an investment of approximately $68,000 in new manufacturing equipment and leasehold improvements alongside approximately $122,000 in lease payments on the manufacturing facility. In January 2024, the Company repaid $30,000 of its Government loan (resulting in a $10,000 balance forgiveness recognized within other income). Further, $374,000 was received on the exercise of warrants at $0.08 each, with the majority being received during Q3 2024, with none received during Q4 2024.
SHARE CAPITAL INFORMATION
In November 2023, the Company adopted a shareholder rights plan (the "Rights Plan"), which provides for the issuance of one right for each outstanding common share of the Company. Pursuant to the terms of the Rights Plan, any bid that meets certain criteria intended to protect the interests of all shareholders will be deemed a "permitted bid". These criteria require, among other things, that the bid be made by means of a take-over bid circular to all holders of voting shares other than the offeror under the bid and be left open for at least 105 days. In the event a take-over bid fails to meet the permitted requirements of the Rights Plan, the rights issued will entitle shareholders (excluding those involved in the bid) to purchase additional common shares of the Company at a specified exercise price, which is a substantial discount to the market price. The Rights Plan was approved by the Company's shareholders on December 19, 2023.
The Company's annual general and special meeting of shareholders occurred on December 19, 2023, during which the Company resolved to elect the Board of Directors (see below) and approved the Company's shareholder rights plan agreement (see above) in addition to other business in the normal course.
8
Issued and Outstanding
As at the MD&A Date, the total issued and outstanding common shares amounted to 166,333,801.
During the year ended September 30, 2024, the Company issued:
- 4,675,000 common shares on the exercise of warrants at price of $0.08 each for proceeds of $374,000; and
- 535,714 common shares to certain employees and executives of the Company for past and future services at fair value of $0.15 each.
- 3,675,000 warrants on a compensatory basis exercisable at $0.14 each.
- On October 15, 2024, the Company issued 1,666,667 common shares at a fair value of $125,000 ($0.075 each) in settlement of accounts payable totalling $330,101.
Stock Options
As at the MD&A Date, the Company had 11,585,000 stock options outstanding, with a weighted average exercise price of $0.16 each.
Warrants
At the MD&A Date, the Company had 6,875,000 warrants outstanding, with a weighted average exercise price of $0.11 each.
OFF-BALANCE SHEET ARRANGEMENTS
Nextleaf does not engage in off-balance-sheet arrangements.
PROPOSED TRANSACTIONS
There are no proposed transactions as at the MD&A Date.
TRANSACTIONS BETWEEN RELATED PARTIES
Key management personnel compensation
The remuneration of key management for the years ended September 30, 2024 and September 30, 2023, is as follows:
| September 30, 2024 | September 30, 2023 | |
|---|---|---|
| $ | $ | |
| Directors' fees (within professional fees and consulting) | 47,300 | 33,000 |
| Executive salaries and fees (paid or accrued) | 218,931 | 361,654 |
| 266,231 | 394,654 |
During the year ended September 30, 2024, 357,143 common shares with a fair value of $53,571 ($0.15 each) were issued for executive salaries and fees. This amount was recognized within salaries and benefits for past services during the year ended September 30, 2024.
During the year ended September 30, 2024, the Company granted 2,300,000 stock options to officers and directors of the Company exercisable at $0.14 each which vested immediately. Accordingly, share-based payments expense of $244,319 was recognized on grant.
Related party balances
As at September 30, 2024 and September 30, 2023, related party balances are as follows:
| September 30, 2024 | September 30, 2023 | |
|---|---|---|
| Balances included in accounts payable and accrued liabilities: | $ | $ |
| Directors' fees | - | 49,300 |
| Management fees | - | 192,683 |
| - | 241,983 | |
| September 30, 2024 | September 30, 2023 | |
| Prepaid expenses | $ | $ |
| Directors' fees | 1,000 | - |
| Professional fees and consulting | 6,875 | - |
| 7,875 | - |
On September 8, 2023, the service contract between the Company and a company controlled by Paul Pedersen, former CEO, was terminated. On December 19, 2023, Paul Pedersen also resigned as a Company Director. The related party balances as at September 30, 2023, remain presented in the table above for informational purposes.
CHANGES IN ACCOUNTING POLICIES
New accounting policies
Certain pronouncements have been issued by the IASB or IFRIC that are effective for the Company's accounting period beginning on October 1, 2024. The Company has reviewed these updates and determined that none are applicable or consequential to the Company and have been excluded from discussion within the significant accounting policies. Additionally, the Company did not adopt any new accounting policies during the year ended September 30, 2024.
Standards issued but not yet effective
IFRS 18, Presentation and Disclosure in Financial Statements ("IFRS 18"), which will replace IAS 1, Presentation of Financial Statements aims to improve how companies communicate in their financial statements, with a focus on information about financial performance in the statement of profit or loss, in particular additional defined subtotals, disclosures about management-defined performance measures and new principles for aggregation and disaggregation of information. IFRS 18 is accompanied by limited amendments to the requirements in IAS 7 Statement of Cash Flows. IFRS 18 is effective from January 1, 2027. Companies are permitted to apply IFRS 18 before that date.
The Company has not yet determined the impact of these amendments on its consolidated financial statements.
In June 2023, the International Sustainability Standards Board ("ISSB") issued the following IFRS Sustainability Disclosure Standards: General Requirements for Disclosure of Sustainability-related Information (IFRS S1); and Climate-related Disclosure (IFRS S2), which are effective for accounting periods beginning on or after January 1, 2024, but are not currently mandated in Canada. The Company will monitor the continued development of mandating these standards and the requisite disclosure requirements.
IFRS S1 sets out general reporting requirements for disclosing sustainability-related financial information. IFRS S2 requires an entity to disclose information about climate-related risks and opportunities and the impact on an entity's financial position, performance, cash flows, strategy, and business model.
FINANCIAL RISK INSTRUMENTS
The Company classifies its financial instruments as follows:
| Financial assets: | Classification: | Subsequent measurement: |
|---|---|---|
| Cash | FVTPL | Fair value |
| Trade receivables | Amortized cost | Amortized cost |
| Deposits | Amortized cost | Amortized cost |
| Financial liabilities: | Classification: | Subsequent measurement: |
| --- | --- | --- |
| Accounts payable and accrued liabilities | Other financial liabilities | Amortized cost |
| Customer deposits | Other financial liabilities | Amortized cost |
| Lease liability | Other financial liabilities | Amortized cost |
| Government loan | Other financial liabilities | Amortized cost |
The Company's financial instruments other than cash approximate their fair values. Cash, under the fair value hierarchy, is based on Level 1 quoted prices in active markets for identical assets or liabilities. The Company is exposed to varying levels and degrees of risk, including credit risk (also see below), liquidity risk, and market risk as detailed in Note 10 to the financial statements.
Economic dependence
Economic dependence risk is the risk of reliance upon a select number of customers which significantly impacts the financial performance of the Company. During the nine months ended June 30, 2024 the Company's cannabis concentrate sales (sale of bulk distillate) and product sales were generated from multiple customers, with a single customer accounting for approximately 50% (2023 – 44%) of total revenue.
Credit risk
During the year ended September 30, 2024, the Company recognized a net recovery of historical loss provisions associated with certain debtors of $2,716 (2023 - $nil).
During the year ended September 30, 2024, the Company did not recognize any loss provisions. During the year ended September 30, 2023, the Company recognized loss provisions totaling $81,324 in respect of credit losses associated with two debtors
During the year ended September 30, 2024, the Company recorded a gain on settlement of accounts payable totalling $71,638 (2023 - $378,190) which included the forgiveness of accounts payable involving four vendors.
As at September 30, 2024, and September 30, 2023, the Company was owed an aggregate $801,868 from a company relating to amounts loaned, or advanced as deposits for equipment, by the Company in previous years. As at September 30, 2024, and September 30, 2023, the carrying value of the amount owed from the equipment supplier was $nil after historical recognition of loss provisions for the balances in full.
In 2020, the Company issued the equipment supplier a demand notice requesting repayment of the equipment deposit and loan in full (not paid). Accordingly, the Company commenced legal action in 2021 by way of issuing a notice of claim against the equipment supplier, which was met with the equipment supplier issuing a statement of defence and counterclaim involving a third party. The Company does not believe that there is any substantive merit to any of the claims asserted against it and denies that any of the claims are supported by evidence.
To the MD&A Date, the Company and the equipment supplier have not negotiated terms for the repayment to the Company of principal and interest on the amounts loaned, and the refund of equipment deposits. There have been no material developments in respect of this matter, and the claims have not been contested in the courts.
CRITICAL ACCOUNTING ESTIMATES
Nextleaf prepares its financial statements in conformity with IFRS which requires management to make judgments estimates and assumptions that affect the report amounts of assets, liabilities and contingent liabilities at each reporting date and the reporting amounts of income and expenses during each reporting period. Nextleaf details its significant areas of estimation uncertainty, and significant areas of judgment within its significant accounting policies in Note 2 to its annual audited consolidated financial statements for the year ended September 30, 2024.
CAUTIONARY STATEMENT REGARDING NON-GAAP PERFORMANCE MEASURES
This MD&A contains certain financial performance measures that are not recognized or defined under IFRS (termed "Non-GAAP Measures"). As a result, this data may not be comparable to data presented by other cannabis companies. For an explanation of these measures to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the discussion below. The Company believes that these Non-GAAP Measures are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company. These Non-GAAP Measures include, but are not limited to working capital.
APPROVAL
The Board of Directors of Nextleaf have approved the disclosures in this MD&A.
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