Exhibit 99.4

 

 

 

 

Picture 2 

 

Red White & Bloom Brands Inc.

(Formerly Tidal Royalty Corp.)

 

Unaudited Condensed Interim Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2021 and 2020

(Expressed in Canadian dollars)




NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

 

The Company's independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with standards established by the CPA Canada for a review of condensed interim consolidated financial statements by an entity's auditor.




Red White & Bloom Brands Inc.

 

(Formerly Tidal Royalty Corp.)

 

Table of Contents

 

For the Three and Six Month Periods Ended June 30, 2021 and 2020

 

 

 

 

 

Management's responsibility for financial report 

1

Condensed Interim consolidated financial statements 

 

Condensed interim consolidated statements of financial position 

2

Condensed interim consolidated statements of loss and comprehensive loss 

3

Condensed interim consolidated statements of changes in shareholder's equity 

4

Condensed interim consolidated statement of cashflows 

5

Notes to the Condensed interim consolidated financial statements 

6 - 35




Management's Responsibility

For Financial Reporting

 

 

To the Shareholders of Red White & Bloom Brands Inc.:

Management is responsible for the preparation and presentation of the accompanying condensed interim consolidated financial statements, including responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the condensed interim consolidated financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of the condensed interim consolidated financial statements.

The Board of Directors is responsible for overseeing management in the performance of its financial reporting responsibilities. The Board has the responsibility of meeting with management and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Board is also responsible for recommending the appointment of the Company's external auditors.

August 29, 2021

 

/s/ Michael Marchese/s/ Brad Rogers 

 

Michael Marchese, DirectorBrad Rogers, Director 


1



Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Condensed Interim Consolidated Statements of Financial Position

As at June 30, 2021 (Unaudited) and December 31, 2020 (Audited) (Expressed in Canadian dollars)

 

 

 

 

June 30,

 

December 31,

 

Notes

 

2021

 

2020 (Audited)

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

27,136,817

$

1,146,569

Prepaid expenses

 

 

2,715,691

 

1,053,658

Accounts receivable

6

 

14,277,512

 

8,747,261

Biological assets

7

 

2,111,783

 

-

Inventory

8

 

17,901,115

 

17,561,002

Loans receivable

10

 

54,067,954

 

51,676,623

Non-current assets

 

 

 

 

 

Property, plant and equipment, net

9

 

118,143,596

 

87,104,243

Call/put option

11

 

84,928,257

 

112,658,740

Goodwill

 

 

20,202,387

 

6,206,068

Intangible assets, net

12

 

184,141,851

 

152,979,033

 

 

 

407,416,091

 

358,948,084

Total assets

 

$

525,626,963

$

439,133,197

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

28,277,363

$

24,115,714

License liability

 

 

11,997,400

 

11,997,400

Convertible debentures

13

 

24,067,736

 

-

Current loans payable

15

 

74,413,341

 

31,349,759

Lease liabilities

16

 

749,240

 

205,982

Credit facility

14

 

65,455,568

 

-

Current income taxes payable

 

 

3,845,261

 

3,125,261

 

 

 

208,805,909

 

70,794,116

Non-current liabilities

 

 

 

 

 

Credit facility

14

 

-

 

64,815,872

Loans payable, net of current portion

15

 

18,465,507

 

18,704,092

Lease liabilities, net of current portion

16

 

17,356,543

 

186,487

License liability, net of current portion

 

 

47,989,600

 

47,989,600

Deferred income tax liability

 

 

26,437,645

 

27,158,251

Total liabilities

 

 

110,249,295

 

229,648,418

Shareholders' equity

 

 

 

 

 

Share capital

17

 

267,812,286

 

229,772,030

Contributed surplus

 

 

25,459,260

 

14,863,863

Cumulative translation adjustment

 

 

(2,606,342)

 

(1,896,622)

Accumulated deficit

 

 

(100,885,345)

 

(33,254,492)

Non-controlling Interest

 

 

15,791,898

 

-

Total shareholders' equity

 

 

205,571,757

 

209,484,779

Total liabilities & shareholders' equity

 

$

525,626,963

$

439,133,197

 

 

 

 

 

 

Going concern (Note 2)

 

 

 

 

 

Commitments and contingencies (Note 24)

 

 

 

 

 

Subsequent events (Note 25)

 

 

 

 

 


Approved and authorized for issuance on behalf of the Board of Directors on August 29, 2021 by:

/s/ Michael Marchese/s/ Brad Rogers 

Michael Marchese, DirectorBrad Rogers, Director 

 

(The accompanying notes are an integral part of these condensed interim consolidated financial statements)

2



Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

For the three and six month periods ended June 30, 2021 and 2020

(Unaudited)

(Expressed in Canadian dollars)

 

 

 

Three months ended

June 30, 2021

 

Three months ended

June 30, 2020

 

Six months ended

June 30, 2021

 

Six months ended

June 30, 2020

 

 

Notes

$

$

$

$

Sales

23

13,327,814

1,512,050

25,151,219

1,512,050

Cost of Sales

 

3,793,828

272,745

8,263,788

272,745

Gross profit excluding fair value items

 

9,533,986

1,239,305

16,887,431

1,239,305

Unrealized change in fair value of bio-assets

(4,789,817)

(8,274,760)

(5,157,395)

(8,274,760)

Realized fair value amount included in inventory

426,050

 

(133,211)

 

Gross profit

5,170,219

9,514,065

11,596,825

9,514,065

 

Expenses

 

 

 

 

 

 General and administration

 

3,813,099

1,115,965

7,568,926

3,416,104

 Salaries and wages

 

3,458,576

536,781

6,405,721

740,963

 Depreciation and amortization

9, 12

5,475,396

1,321,184

12,697,360

1,322,246

 Share-based compensation

 

4,617,835

153,153

7,439,132

1,275,228

 Professional Fees

 

1,219,153

572,577

1,219,153

830,144

 Sales and marketing

 

588,863

628,422

1,518,507

900,652

 

 

19,172,922

4,328,082

36,848,799

8,485,337

Loss before other expenses (income)

(14,002,703)

5,185,983

(25,251,974)

(1,366,672)

Other expense (income)

 

 

 

 

 

 Finance expense (income), net

 

12,697,168

886,102

13,090,541

1,698,094

 Accretion of loans receivable

 

-

(758,603)

-

(1,440,946)

 Foreign exchange

 

490,230

3,724,549

1,022,515

-

 Management Fees

 

-

-

-

(425,610)

 Disposal of PPE

 

1,871

(149,947)

1,270

(149,947)

 Revaluation of call/put option

11

(14,762,377)

(58,246)

27,730,483

1,420,001

 Revaluation of financial instruments

 

(984,060)

(91,143)

(272,060)

(91,143)

 Write-off of Deposit

 

-

1,853,059

-

1,853,059

 Listing Expense

 

-

22,832,281

-

22,832,281

Total other expense (income)

 

(2,557,168)

28,238,052

41,572,749

25,438,641

Loss before income taxes

 

11,445,535

23,032,069

66,824,723

20,286,540

 Current income tax expense

 

3,115

-

1,511,789

-

Net loss

 

11,448,650

23,032,069

68,336,512

20,286,540

Net loss attributable to shareholders of company

10,742,991

23,032,069

67,630,853

20,286,540

Net loss attributable to non-controlling interest

705,659

-

705,659

-

Currency translation adjustment - subsequently reclassified to profit or loss

 

184,494

1,922,925

(709,720)

1,922,925

Total comprehensive loss

 

11,264,156

24,954,994

69,046,232

22,209,465

Total comprehensive loss attributable to shareholders of company

 

10,558,497

24,954,994

68,340,573

22,209,465

Total comprehensive loss attributable to non-controlling interest

 

705,659

-

705,659

-

Net loss per share, basic and diluted

 

0.06

0.19

0.33

0.16

Weighted average shares outstanding

 

196,334,988

123,933,850

204,062,487

123,497,344


(The accompanying notes are an integral part of these consolidated financial statements)

3



Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity

For the Six Month Periods ended June 30, 2021 and 2020

(Unaudited)

(Expressed in Canadian dollars)

 

 

 

Share Capital

 

 

 

 

 

 

Notes

Convertible Series I

Preferred Shares

Convertible Series II

Preferred Shares

Common Shares

Non-Controlling Interest

Contributed Surplus

Translation Adjustment

Accumulated Deficit

Total

 

 

#

$

#

$

#

$

$

$

$

$

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2020

 

- 

- 

- 

- 

84,211,770 

61,366,160 

 

5,748,899  

 

(14,677,625) 

52,437,424  

Share-based compensation

17 

- 

- 

- 

- 

- 

- 

 

1,275,228  

 

 

1,275,228  

Net loss

 

- 

- 

- 

- 

- 

- 

 

 

 

(20,286,  

(20,286,540) 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2020

 

3,181,250 

3,664,799 

112,040,549 

63,399,626 

151,421,886 

104,174,967 

 

11,380,862  

 

(34,964,165) 

149,579,014  

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2021

 

3,181,250 

5,637,175 

113,585,889 

46,046,088 

191,317,226 

178,088,767 

 

14,863,863  

(1,896,622) 

(33,254,492) 

209,484,779  

Restricted share units issued

 

- 

- 

 

- 

1,854,645 

1,473,657 

 

 

 

 

1,473,657  

Share-based compensation

17 

- 

- 

 

- 

- 

- 

 

5,965,475  

 

 

5,965,475  

Shares issued in lieu of finance charges

17 

- 

- 

 

- 

- 

1,920,510 

 

 

 

 

1,920,510  

Loans payable converted to preferred shares

17 

- 

- 

 

9,759,015 

- 

- 

 

 

 

 

9,759,015  

Shares issued debt settlement

17 

- 

- 

 

- 

237,500 

342,000 

 

 

 

 

342,000  

Conversion feature of convertible debentures

17 

- 

- 

 

- 

- 

- 

 

6,612,946  

 

 

6,612,946  

Warrants exercised

17 

- 

- 

 

- 

11,021,974 

13,269,655 

 

(94,705) 

 

 

13,174,950  

Stock options exercised

17 

- 

- 

1,200,000 

1,430,398 

1,375,000 

1,162,921 

 

(1,888,319) 

 

 

705,000  

Acquisition

17 

- 

- 

 

- 

- 

8,682,100 

16,497,557  

 

 

 

25,179,657  

Currency translation adjustment

 

- 

- 

 

- 

- 

- 

 

 

(709,720) 

 

(709,720) 

Net loss

 

- 

- 

 

- 

- 

- 

(705,659) 

 

 

(67,630,853) 

(68,336,512) 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2021

 

3,181,250 

5,637,175 

114,785,889 

57,235,501 

205,806,345 

204,939,610 

15,791,898  

25,459,260  

(2,606,342) 

(100,885,345) 

205,571,757  

 

 

 

 

 

 

 

 

 

 

 

 

 


(The accompanying notes are an integral part of these consolidated financial statements)

4



Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Condensed Interim Consolidated Statement of Cash Flows

For the Six Month Periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)

 

 

 

 

2021

 

2020

 

Notes

 

 

 

 

Operating activities

 

 

 

 

 

Net loss for the period

 

$

(68,336,512)

$

(20,286,540)

Items not affecting cash:

 

 

 

 

 

Share-based compensation

 

 

7,439,132

 

1,275,228

Foreign exchange

 

 

(2,589,022)

 

335,405

Interest not received in cash

 

 

-

 

(2,334,483)

Revaluation of call/put option

11

 

27,730,483

 

1,420,001

Listing expense

 

 

-

 

22,832,281

Depreciation and amortization

9, 12

 

12,697,360

 

1,322,246

Write off of deposit

 

 

-

 

1,853,059

Realized gain in cost of sales

 

 

(133,211)

 

-

Fair value adjustment on biological assets

 

 

(5,157,395)

 

(8,274,760)

Gain (loss) on disposal of property,

 

 

 

 

 

plant and equipment

9

 

-

 

(149,947)

Interest on lease

 

 

-

 

2,665

Accretion of loans receivable

 

 

-

 

(1,440,946)

Finance fees

 

 

1,920,510

 

-

Accrued interest payable

 

 

-

 

-

Financing expense (income)

 

 

-

 

-

 

 

 

(26,428,655)

 

(3,445,791)

Changes in non-cash operating working capital

22

 

1,602,329

 

(5,265,632)

 

 

 

(24,826,326)

 

(8,711,423)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Disposition of property, plant and equipment

9

 

-

 

770,684

Purchase of property, plant and equipment

9

 

(112,531)

 

-

Deposits

10

 

-

 

-

Acquisition of Mid-American Growers, Inc.

 

 

-

 

(22,155,328)

Cash paid on business combination of MAG

 

 

-

 

-

Cash provided through acquisitions

 

 

(12,093,874)

-

 

Loan receivable

 

 

(1,253,486)

 

(268,218)

 

 

 

(13,459,891)

 

(21,652,862)

Financing activities

 

 

 

 

 

Credit facility

14

 

639,696

 

-

Reverse takeover transaction

 

 

-

 

1,772,141

Principal payments on lease liabilities

16

 

(205,440)

 

-

Exercise of warrants

17

 

13,174,950

 

493,500

Exercise of stock options

17

 

705,000

 

487,500

Proceeds from convertible debentures

 

 

30,680,682

 

-

Loans payable

15

 

19,281,575

 

-

Credit facility - repayment of existing loan

14

 

-

 

-

Lease payments

 

 

-

 

(49,253)

Credit facility - new borrowing

14

 

-

 

28,880,864

 

 

 

64,276,463

 

31,584,752

Increase in cash

 

 

25,990,246

 

1,220,467

Cash, beginning

 

 

1,146,569

 

1,378,687

Cash, ending

 

$

27,136,815

$

2,599,154

 

 

 

 

 

 

Supplemental disclosure of cash flow information (Note 22)

 

 


(The accompanying notes are an integral part of these consolidated financial statements)

5


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


1.BACKGROUND AND NATURE OF OPERATIONS 

Red White & Bloom Brands Inc. (formerly Tidal Royalty Corp.) (the “Company” or “RWB”) was incorporated on March 12, 1980 pursuant to the Business Corporations Act, British Columbia.

The Company’s head office and registered office is located at Suite 810 – 789 West Pender Street, Vancouver, British Columbia, V6C 1H2. The shares of the Company are traded on the Canadian Stock Exchange under the trading symbol "RWB".

On April 24, 2020, Tidal Royalty Corp. (“Tidal”) and a private Ontario company named MichiCann Medical Inc. (“MichiCann”) completed an amalgamation structured as a three-corned amalgamation whereby MichiCann was amalgamated with a newly incorporated subsidiary of Tidal, forming the Company.

Immediately prior to the amalgamation, Tidal completed a consolidation of the Tidal common shares on the basis of one post- consolidated Tidal share for every sixteen pre-consolidation Tidal common shares and changed its name from “Tidal Royalty Corp.” to “Red White & Bloom Brands Inc.”. Each MichiCann share was exchanged to one common share and one convertible series II preferred share of the Company.  Due to the terms of the exchange ratio, the previous shareholders of MichiCann acquired a controlling interest in Tidal and as such, the amalgamation has been accounted for as a reverse takeover transaction with MichiCann being the resulting issuer for financial reporting purposes.

2.GOING CONCERN 

These condensed interim consolidated financial statements have been prepared under the assumption of a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2021, the Company has accumulated losses of $(100,885,345) since inception, and for the six month period ended June 30, 2020, the Company incurred a net loss of $(68,336,512) and net cash used in operations was $24,826,326. The Company’s operations are mainly funded with debt and equity financing, which is dependent upon many external factors and may be difficult to raise additional funds when required. The Company may not have sufficient cash to fund the acquisition and development of assets therefore will require additional funding, which if not raised, may result in the delay, postponement, or curtailment of some of its activities.

In assessing whether the going concern assumption was appropriate, management took into account all relevant information available about the future, which was at least, but not limited to, the twelve-month period following June 30, 2021. To address its financing requirements, the Company will seek financing through debt and equity financing, asset sales, and rights offering to existing shareholders. The Company will also seek to improve its cash flows by prioritizing certain projects with a greater expected return and reducing operating costs by streamlining its operations and support functions. While the Company has been successfully in obtaining financing to date, and believes it will be able to obtain sufficient funds int the future and ultimately achieve profitability and positive cash flows from operations, the Company’s ability to raise capital may be adversely impacted by: market conditions that have resulted in a lack of normally available financing in the cannabis industry; increased competition across the industry, and overall negative investor sentiment in light of the ongoing COVID-19 pandemic. Accordingly, there can be no assurance that the Company will achieve profitability, or secure financing on terms favorable to the Company or at all.

If the going concern assumption were not appropriate for these condensed interim consolidated financial statements then adjustments would be necessary to the carrying values of assets and liabilities, the reported expenses and the consolidated statements of financial position classifications used. Such adjustments could be material.


6


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


COVID-19

Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID- 19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including the closure of non-essential businesses.  Government measures did not materially disrupt the Company’s operations during the six month period ended June 30, 2021.  The production and sale of cannabis has been recognized as an essential service across the U.S and the Company has not experienced production delays or prolonged retail closures as a result.  

The duration and further impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. Management has been closely monitoring the impact of COVID-19. The Company has implemented various measures to reduce the spread of the virus, including implementing social distancing at its cultivation facilities, manufacturing facilities and dispensaries, enhancing cleaning protocols and encouraging employees to practice preventive measures recommended by governments and health officials.

Due to the uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on the business and financial position.  In addition, the estimates in the Company’s condensed interim consolidated financial statements will possibly change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in impairment of long-lived assets including intangibles (Note 12).   

3.BASIS OF PRESENTATION 

a)Statement of Compliance 

The Company's condensed interim consolidated financial statements have been prepared in accordance with and using accounting policies in full compliance with International Reporting Standards ("IFRS") and International Accounting Standards ("IAS") as issued by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations Committee ("IFRIC"), effective for the Company's reporting for the six month period ended June 30, 2021 and 2020, specifically IAS 31 Interim Financial Reporting. The same accounting policies and methods of computation were followed in the preparation of these condensed interim consolidated financial statements as were followed in the preparation of the condensed interim consolidated financial statements for the six months ended June 30, 2021.

The condensed interim consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements. Accordingly, these condensed interim consolidated financial statements for the six months ended June 30, 2021 and 2020 should be read together with the annual consolidated financial statements for the year ended December 31, 2020.

The preparation of condensed interim consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are consistent with those disclosed in the notes to the condensed interim consolidated financial statements for the three and six months ended June 30, 2021 and 2020. These condensed interim consolidated financial statements were authorized for issue by the Board of Directors on August 29, 2021.


7


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


a)Basis of Consolidation 

The condensed interim consolidated financial statements for the three and six month periods ended June 30, 2021 and 2020 include the accounts of the Company and its wholly owned subsidiaries.  Subsidiaries are entities controlled by the Company.  Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities.  The financial statements of subsidiaries are included in the condensed interim consolidated financial statements from the date that control commences until the date that control ceases.  All inter-company transactions, balances, income and expenses are eliminated in full upon consolidation. These condensed interim consolidated financial statements include the accounts of the following active entities:

 

Name of Subsidiary

Jurisdiction

Percentage Ownership

2021

Percentage Ownership

2020

MichiCann Medical Inc.

Ontario, Canada

100%

100%

1251881 B.C. Ltd.

British Columbia, Canada

100%

100%

Mid-American Growers, Inc.

Delaware, USA

100%

100%

Mid-American Cultivation LLC

Delaware, USA

100%

100%

RWB Platinum Vape Inc.

California, USA

100%

100%

Vista Prime Management, LLC

California, USA

100%

100%

GC Ventures 2, LLC

Michigan, USA

100%

100%

RWB Licensing Inc.

British Columbia, Canada

100%

100%

RWB Freedom Flower, LLC

Illinois, USA

100%

100%

RWB Illinois, Inc.

Delaware, USA

100%

100%

Vista Prime 3, Inc.

California, USA

100%

100%

PV CBD LLC

California, USA

100%

100%

Vista Prime 2, Inc.

California, USA

100%

100%

Royalty USA Corp.

Delaware, USA

100%

100%

RLTY Beverage 1 LLC

Delaware, USA

100%

100%

RLTY Development MA 1 LLC

Delaware, USA

100%

100%

RLTY Development Orange LLC

Massachusetts, USA

100%

100%

RLTY Development Springfield LLC

Massachusetts, USA

100%

100%

Red White & Bloom Florida, Inc.

Florida, USA

77%

-

RWB Florida LLC

Florida, USA

77%

-

a)Functional and Presentation Currency 

The Company’s presentation currency, as determined by management, is the Canadian dollar.  Management has determined that the functional currency of its parent and Canadian subsidiaries is the Canadian dollar and the functional currency of its United States subsidiaries is the United States dollar.  These financial statements are presented in Canadian dollars unless otherwise specified.


8


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


4.SIGNIFICANT ACCOUNTING POLICIES 

a)New accounting pronouncements  

Amendments to IFRS 3, Business Combinations (“IFRS 3”) – Definition of a Business

In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not. The amendments clarify the minimum requirements for a business, removed the assessment of whether market participants are capable of replacing any missing elements, added guidance to help entities assess whether an acquired process is substantive, narrowed the definitions of a business and of outputs, and introduced an optional fair value concentration test. Effective January 1, 2020, the Company adopted the amendments to IFRS 3, with no material impact on its condensed interim consolidated financial statements.

Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”); and IAS 8, Accounting policies, changes in accounting estimates and errors (“IAS 8”) – Definition of Material

In October 2018, the IASB issued amendments to IAS 1 and IAS 8 to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Effective January 1, 2020, the Company adopted the amendments to IAS 1 and IAS 8, with no material impact on its condensed interim consolidated financial statements.

Amendments to IAS 1 – Presentation of financial statements: classifications of liabilities as current or non-current

In January 2020, the IASB issued amendments to clarify the requirements for classifying liabilities as current or non-current. The amendments specify that the conditions that exist at the end of a reporting period are those which will be used to determine if a right to defer settlement of a liability exists. The amendments also clarify the situations that are considered a settlement of a liability. The amendments are effective January 1, 2023, with early adoption permitted. The amendments are to be applied retrospectively. The Company does not intend to early adopt these amendments and is currently assessing the impact of these amendments on its condensed interim consolidated financial statements.


9


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


5.ACQUISITION 

During the six month period ended June 30, 2021, the Company completed the following transaction.

Florida operations from Acreage Holdings

On April 28, 2021, the Company completed the acquisition of 77.17% of the issued and outstanding shares of Acreage Florida, Inc. (“RWB Florida”). The Company has recorded a 22.83% non-controlling interest at its fair value and consolidated the results of RWB Florida from the date of acquisition onwards. RWB Florida is licensed to operate medical marijuana dispensaries, a processing facility, and a cultivation facility in the state of Florida.

The previous shareholders of RWB Florida received aggregate consideration as follows:

1.A cash payment of $12,438,531;  

2.5,950,971 Common Shares of the Company on closing, subject to a 12 month lock-up agreement pursuant to which 1/6 if the shares will be released each month commencing the 6th month after close; and 

3.$34,644,437 in vendor take back promissory notes maturing within 13 months from close of the transaction and bearing interest at 8% per annum.  

The acquisition of RWB Florida was accounted for as a business combination because the acquisition met the requirements under IFRS 3. The consideration and net identifiable assets acquired were recorded in the accounts of the Company at their respective fair values, as follows:

 

 

Consideration paid:

 

 

Cash paid upon closing

$

12,438,531

Common Shares issued

 

8,682,100

Promissory note

 

34,644,437

 

$

55,765,068

Net identifiable assets acquired:

 

 

Cash and cash equivalents

$

344,657

Inventory

 

379,847

Biological assets

 

641,633

Prepaid expenses

 

132,459

Other Assets

 

219,453

Property, plant and equipment

 

32,118,177

License

 

42,483,218

Goodwill

 

14,161,073

Current liabilities

 

(299,138)

Lease obligation

 

(17,918,754)

Non-controlling interest

 

(16,497,557)

 

$

55,765,068

 

Goodwill arose in the acquisition of RWB Florida, primarily due to the assembled work force of RWB Florida.  These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.


10


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


For the six month period ended June 30, 2021, RWB Florida accounted for $2,385,269 in net losses since April 28, 2021, of which $705,659 in net losses was attributable to non-controlling interests.

6.ACCOUNTS RECEIVABLE 

The Company’s accounts receivable as at June 30, 2021 and December 31, 2020 consists of the following:

 

 

 

June 30,

 

December 31,

 

 

2021

 

2020

Trade receivables

$

14,118,761

$

8,619,200

Sales tax receivable

 

158,751

 

128,261

 

$

14,277,512

 

8,747,461

Sales tax receivable represents excess of input tax credits on purchased goods or services received over sales tax collected on the taxable sales in Canada.

 

 

June 30, 2021

December 31, 2020

Current

$       4,645,225

$         2,835,810

1-30 Days

7,464,420

4,556,868

31-60 Days

472,132

288,226

61-90 Days

1,500,622

916,098

91 Days and over

36,362

22,198

Total trade receivables

$      14,118,761

$         8,619,200

7.BIOLOGICAL ASSETS 

The Company’s biological assets consist of 165,657 plants growing as at June 30, 2021 and 0 plants growing as at December 31, 2020.  The continuity of biological assets is as follows:

 

 

 

June 30,

 

December 31,

Carrying amount, beginning of year

 

2021

 

2020

Acquired from MAG acquisition

$

-

$

26,842

Acquired from Acreage acquisition

 

641,168

 

-

Capitalized cost

 

8,665,416

 

12,606,343

Fair value adjustment

 

(4,462,973)

 

(543,116)

Transferred to inventory

 

(2,731,828)

 

(12,090,069)

Carrying value, end of the period

$

2,111,783

$

-


11


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Fair Value Measurement Disclosure

The Company measures its biological assets at their fair value less costs to sell. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, and then adjusts that amount for the expected selling price per gram and also for any additional costs to be incurred, such as post-harvest costs.

The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model:

 

*Selling price - calculated as the weighted average historical selling price for all strains of cannabis sold by the Company, which is expected to approximate future selling prices  

*Stage of growth - represents the weighted average number of weeks out of the 15 weeks growing cycle that biological assets have reached as of the measurement date 

*Yield by plant – represents the expected number of grams of finished cannabis inventory which are expected to be obtained from each harvested cannabis plant 

*Attrition – represents the weighted average percentage of biological assets which are expected to fail to mature into cannabis plants that can be harvested  

*Post-harvest costs – calculated as the cost per gram of harvested cannabis to complete the sale of cannabis plants post harvest, consisting of the cost of direct and indirect materials and labour related to labelling and packaging  

Sensitivity Analysis

Significant unobservable assumptions used in the valuation of biological assets, including the sensitivities on changes in these assumptions and their effect on the fair value of biological assets, are as follows:

 

Weighted average assumption

10% Change of inputs ($)

Selling Price

$0.19

1,211,741

Yield by plant

71.41

1,147,615

Attrition

5.52%

70,859

Post-harvest costs ($/gram)

$0.01

262,754

As a plant matures the likelihood of wastage declines.  As a result, attrition estimates were relatively low in the periods. However, due to the onset of COVID-19, a restricted labour pool forced the Company to prioritize higher margin crops while leaving less profitable plants to die.

The Company accretes fair value of biological assets on a straight-line basis according to stage of growth. As a result, a hemp plant that is 50% through its 15-week growing cycle would be ascribed approximately 50% of its harvest date expected fair value (subject to attrition adjustments).


12


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


8.INVENTORY 

The Company’s inventory as at June 30, 2021 and December 31, 2020 consists of the following:

 

 

 

 

June 30,

2021

 

December 31,

2020

Hemp finished goods

$

12,761,749

$

13,101,032

Cannabis finished goods

 

382,048

 

-

Hard Goods/Tools

 

743,853

 

265,890

Cannabis and CBD derivative finished goods

 

2,942,950

 

418,116

Raw materials

 

1,060,872

 

2,477,747

Consumables and non-cannabis merchandise

 

9,643

 

1,298,217

 

$

17,901,115

$

17,561,002

 

During the six month period ended June 30, 2021 and the twelve month period ended December 31, 2020, the total inventory expensed through cost of sales was $2,592,733 (2020 - $4,469,690).

9.PROPERTY, PLANT AND EQUIPMENT 

Property, plant and equipment as of June 30, 2021 consists of the following:

 

 

 

 

 

Building

 

Machinery

 

Right

 

 

 

 

 

 

and Improve-

 

and

 

of Use

 

 

 

 

Land

 

ments

 

equipment

 

Asset

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2020

$

2,879,315

$

76,590,398

$

12,641,498

$

459,146

$

92,570,357

Acquired from Acreage

 

446,508

 

8,893,130

 

7,071,744

 

19,905,164

 

36,316,546

Additions

 

-

 

-

 

109,219

 

3,312

 

112,531

Disposals

 

-

 

-

 

-

 

-

 

-

Translation Adjustment

 

(76,438)

 

(2,032,094)

 

(335,258)

 

(12,189)

 

(2,455,979)

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

$

3,249,385

$

83,451,434

$

19,487,203

$

20,355,433

$

126,543,455

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2020

$

-

$

4,003,716

$

1,395,440

$

66,958

$

5,466,114

Depreciation

 

-

 

2,041,519

 

754,566

 

297,997

 

3,094,082

Disposals

 

-

 

-

 

-

 

-

 

-

Translation Adjustment

 

-

 

(117,950)

 

(43,947)

 

1,560

 

(160,337)

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2021

$

-

$

5,927,285

$

2,106,059

$

366,515

$

8,399,859

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2021

$

3,249,385

$

77,524,149

$

17,381,144

$

19,988,918

$

118,143,596


13


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


10.LOANS RECEIVABLE 

Loans receivable as at June 30, 2021 and December 31, 2020 consist of the following:

 

 

 

June 30,

 

December 31,

 

 

2021     

 

2020

Advances to PharmaCo Inc.

$

14,039,728

$

11,084,278

Promissory note receivable from PharmaCo Inc.

 

32,627,617

 

32,627,616

Promissory note acquired with RTO

 

3,521,613

 

4,231,664

Accrued interest on promissory note acquired with RTO

 

754,210

 

686,288

Net receivable from sellers of Platinum Vape

 

3,124,786

 

3,046,777

Total

$

54,067,954

$

51,676,623

Advances to PharmaCo Inc.

The loan receivable balance was amounting to $4,810,000 as at December 31, 2018.  During the year ended December 31, 2019, PharmaCo paid $428,671 to the Company. The loan receivable balance was amounting to $4,381,329 as at December 31, 2019.

During year ended December 31, 2020, the Company issued 2,339,200 units consisting of one common share and one convertible series II preferred share to a third-party to pay for $5,848,000 owed by PharmaCo to its related party. The amount of $5,848,000 has been recorded as a loan receivable from Pharmaco. The loan receivable is interest free and does not have fixed terms of repayment. During the year ended December 31, 2020, the Company advanced additional $854,949 to PharmaCo.  During the six month period ended June 30, 2021, the Company advanced additional $2,955,451 to PharmaCo, and the balance was amounting to $14,039,728 as at the June 30, 2021.  The balance is expected to be settled upon the closing of the acquisition of PharmaCo.

Promissory note receivable from PharmaCo Inc

On June 7, 2019, the Company entered a Promissory Note Agreement (“Promissory Note”) with PharmaCo. Under the terms of this agreement, the Company advanced a principal amount of $30,648,517. The Promissory Note is non-interest bearing, unsecured, and matured on January 2, 2020. On January 2, 2020, the Company agreed to extend the Promissory Note with PharmaCo until January 22, 2021.  On January 2, 2021, the Company agreed to extend the Promissory Note with PharmaCo until January 2, 2022.

On January 2, 2020, the Company advanced a principal amount of $1,979,099. The Promissory Note is non-interest bearing, unsecured, and matures on January 22, 2021.  The funds advanced under the Promissory Note were received from the Bridging Finance Inc. on which date under the credit facility (Note 14). On January 22, 2021, the Company agreed to extend the Promissory Note with PharmaCo until January 22, 2022.

Those Promissory Notes are included in current loans receivable as of June 30, 2021 and the balance as of June 30, 2021 was amounting to $32,627,617.


14


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Promissory note acquired with RTO

On April 24, 2020, promissory note of value of $4,169,009 was acquired pursuant to the RTO transaction.  During the year ended December 31, 2020, the Company recorded revaluation gain of $673,585.  The promissory note balance as of June 30, 2021 was $3,521,613.

During the six month period ended June 30, 2021, the Company accrued $67,922 interest, and the accrued interest balance as of June 30, 2021 was $754,210.

Other amounts

The net balance receivable amount from sellers of Platinum Vape as at June 30, 2021 was $3,124,786.  The balance is non-interest bearing, unsecured and matures on September 14, 2021.

11.CALL/PUT OPTION 

 

On January 4, 2019, MichiCann entered into a call/put option agreement (the “Call/Put Option Agreement”) with PharmaCo Inc. (“PharmaCo”) and its shareholders (“PharmaCo Shareholders”) pursuant to which the PharmaCo Shareholders granted MichiCann the call right to acquire 100% of the issued and outstanding shares of PharmaCo from the PharmaCo shareholders, and MichiCann granted all of the PharmaCo Shareholders the put right to sell 100% of the issued and outstanding shares of PharmaCo to MichiCann, in exchange for the issuance of 37,000,000 MichiCann common shares in aggregate (subject to standard anti-dilution protections) subject to all state and local regulatory approvals including the approval of the Medical Marihuana Licensing Board and/or the Bureau of Medical Marihuana Regulation within the Department of Licensing and Regulatory Affairs (“LARA”) in the State of Michigan. Each PharmaCo shareholder shall have the right, but not the obligation, as its sole direction, to sell to MichiCann all, but not less than all, of the PharmaCo common shares held by it.  37,000,000 MichiCann common shares will be converted to 37,000,000 common shares and 37,000,000 convertible series II preferred shares of the Company in accordance with the terms outlined in the amalgamation transaction.

 

On January 4, 2019, MichiCann entered a Debenture Purchase Agreement with PharmaCo. Under the terms of this agreement, the MichiCann will advance a principal amount of up to USD $114,734,209. The principal amount of the Opco Debenture is convertible into common shares of PharmaCo at a conversion price equal to the then outstanding balance of the Opco Debenture divided by the total number of PharmaCo common shares then outstanding. As of December 31, 2019, MichiCann has advanced $48,502,029, plus $5,700,400 that was advanced during the year ended December 31, 2018, and was transferred to the OpCo Debenture in 2019. The OpCo Debenture earns interest at 8% per annum and is secured by all real and personal property and interests in the real and personal property of PharmaCo, whether now owned or subsequently acquired. The principal amount and accrued interest of the Opco Debenture outstanding is convertible at any time on or prior to the earlier of the business day immediately preceding: (i) the Maturity Date; and (ii) the date that is 30 days after the Company received LARA’s written approval of the application seeking permission to convert the Opco Debenture and own the common shares of PharmaCo. The OpCo Debenture including all accrued interest has a maturity date of January 4, 2023.

 

During the year ended December 31, 2019, MichiCann recorded accretion income of $2,340,164 and accrued interest income of $3,832,577 on the OpCo Debenture.  Amount of $23,955,576 was transferred to call/put option.  The fair value of OpCo Debenture as of December 31, 2019 was amounting to $36,419,594.

 

During the year ended December 31, 2019, MichiCann recorded a loss on revaluation of call option of $4,407,819.  The fair value of call/put option as of December 31, 2019 was amounting to $19,547,757.


15


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


OpCo Debenture and call/put option are measured at fair value through profit or loss.  OpCo Debenture and call/put option are presented as one financial instrument for a financial statements presentation purpose. The combined fair value of OpCo Debenture and call/put option as of December 31, 2019 was amounting to $55,967,351.

As at June 30, 2021, the combined fair value of the OpCo Debenture, accrued interest and call/put option  was determined to be $84,928,257 (2020 - $112,658,740).  During the three month period ended June 30, 2021, the company recorded in its condensed interim consolidated statement of loss and comprehensive loss a fair value gain of $14,762,377.  During the six month period ended June 30, 2021, the Company recorded in its condensed interim consolidated statement of loss and comprehensive loss a fair value loss of $27,730,483.

The fair value of the convertible debenture and the fair value of the call/put option are measured together as one instrument. The fair value of call/put option component was estimated using a Monte Carlo simulation valuation model.  Key inputs and assumptions used for the valuations as of June 30, 2021 and December 31, 2020 were as follows.

 

 

June 30, 2021

December 31, 2020

Share Price

$2.25

$2.25

Volatility - MichiCann

110%

100%

Volatility - PharmaCo Inc.

210%

210

Risk-free rate

0.19% for 1.51 years

0.13% for 2.01 years

Pharmaco Inc. enterprise value

$154.3 mm

$154.3 mm


16


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


12.INTANGIBLE ASSETS AND GOODWILL 

Intangible assets as of June 30, 2021 and December 31, 2020 consist of the following:

 

 

 

Platinum Vapes

license

 

Platinum Vapes

brand

 

1251881

B.C. Ltd.

license

 

Total

Cost

 

 

 

 

 

 

 

 

Balances, December 31, 2020

$

28,901,640

$

32,848,560

$

101,887,000

$

163,637,200

Acquired from Platinum Vapes

 

-

 

-

 

-

 

-

Acquired from 1251881 B.C. Ltd.

 

-

 

-

 

-

 

-

Additions

 

-

 

-

 

-

 

-

Disposals

 

-

 

-

 

-

 

-

Translation Adjustment

 

(356,390)

 

(405,060)

 

-

 

(761,450)

Balance, June 30, 2021

$

28,545,250

$

32,443,500

$

101,887,000

$

162,875,750

Accumulated amortization

 

 

 

 

 

 

 

 

Balances, December 31, 2020

$

-

$

-

$

10,658,167

$

10,658,167

Amortization

 

-

 

-

 

4,746,696

 

4,746,696

Disposals

 

-

 

-

 

-

 

-

Translation Adjustment

 

-

 

-

 

-

 

-

Balance, June 30, 2021

$

-

$

-

$

15,404,863

$

15,404,863

Balances, December 31, 2020

$

28,901,640

$

32,848,560

$

-

$

152,979,033

Balances, June 30, 2021

$

28,545,250

$

32,443,500

$

86,482,137

$

147,470,887

The Company has determined that the Platinum Vape License (California) and Brand (California and Michigan) have indefinite lives.  The retail license and product license acquired on 1251881 B.C. Ltd. acquisition has a useful life of 5.0 years and 5.5 years, respectively. For the three month period ended June 30, 2021, $4,384,955 of amortization was expensed.  For the six month period ended June 30, 2021 $9,681,101 of amortization was expensed.

The following table outlines the estimated future annual amortization expense related to intangible assets acquired from 1251881 B.C. Ltd.

 

 

 

 

Estimated   

 

 

 

amortization

2021

 

$

9,305,764

2022

 

 

18,986,865

2023

 

 

18,986,865

2024

 

 

18,986,865

2025

 

 

15,281,373

 

 

$

81,547,732

 

 

 

 

 

 

 

 

At the end of each reporting period, the Company assesses whether there were events or changes in circumstances that would indicate that a Cash Generating Unit (“CGU”) or group of CGUs were impaired. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment. The following factors were identified as impairment indicators:


17


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


1.Sales decline – Constraints in the retail distribution network, including a decrease of expected sales and profitability as compared to outcomes initially forecasted by management; 

2.Change in strategic plans – The Company’s management determined that certain business units were no longer commercially viable and decided to halt all further construction and operations;  

3.Decline in stock price and market capitalization – As at June 30, 2021, the carrying amount of the Company’s total net assets exceeded the Company’s market capitalization. 

Key assumptions used in calculating the recoverable amount for each CGU grouping tested for impairment as at June 30, 2021 are outlined in the following table:

 

 

 

PV license

(CA)

 

PV brand

(CA)

 

PV brand

(MI)

 

High Times Retail lic.

Agreement

 

High Times

Prodct lic.

Agreement

Discount rate

 

43.50%

 

38.50%

 

38.50%

 

21.00%

 

19.00%

Terminal growth rate

 

2.69%

 

2.69%

 

2.69%

 

-%

 

-%

Terminal capitalization multiple

 

4.36

 

5.25

 

6.49

 

-

 

-

Recoverable amount

$

34,249,080

$

10,440,240

$

34,631,040

$

23,044,920

$

73,336,320

PV License (CA) CGU - The Company’s PV License (CA) represents its operations including development, manufacturing and distribution of cannabis vape products within the state of California.  This CGU is attributed to the Company’s California operating segment. As a result of the impairment test, management concluded that the carrying value was lower than the recoverable amount and recorded no impairment.

PV Brand (CA) CGU -The Company’s PV Brand (CA) represents its operations dedicated to the sale of cannabis products and accessories within the state of California.  This CGU is attributed to the Company’s California operating segment. As a result of the impairment test, management concluded that the carrying value was lower than the recoverable amount and recorded no impairment.

PV Brand (MI) CGU - The Company’s PV Brand (MI) represents its operations dedicated to the sale of cannabis products and accessories within the state of California.  This CGU is attributed to the Company’s California operating segment.  As a result of the impairment test, management concluded that the carrying value was lower than the recoverable amount and recorded no impairment.

High Times Retail Licensing agreement CGU - The Company’s High Times Retail Licensing agreement represents its right to use certain intellectual property associated with retail dispensary and local delivery services for cannabis products, cannabis accessories and merchandise in the states of Michigan, Illinois and Florida. As a result of the impairment test, management concluded that the carrying value was lower than the recoverable amount and recorded no impairment.

High Times Product Licensing agreement CGU - The Company’s High Times Retail Licensing agreement represents its right to use certain intellectual property related to the commercialization of cannabis products in Michigan, Illinois and Florida and CBD products nationally carrying HT brands. As a result of the impairment test, management concluded that the carrying value was lower than the recoverable amount and recorded no impairment.  


18


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Goodwill arose from the acquisition of MAG, PV and Acreage.  Goodwill as of June 30, 2021 and December 31, 2020 consists of the following:

 

 

 

June 30,

 

December 31,

 

 

2021

 

2020

As of beginning of year

$

 

 

 

Acquisition of PV

 

281,172  

 

281,172  

Acquisition on MAG

 

6,083,036  

 

6,083,036  

Acquisition on Acreage

 

14,161,073  

 

 

Translation adjustment

 

(322,894) 

 

(158,140) 

 

$

20,202,387  

 

6,206,068  

13.CONVERTIBLE DEBENTURES 

During the year ended December 31, 2019, the Company issued a $17,650,000 (consisting of advances of CAD $15,000,000 and USD $2,000,000) senior secured convertible debenture (the “Tidal Debenture”) to Tidal. The Tidal Debenture becomes due and payable (the “Tidal Debenture Maturity Date”) on the earlier of: (i) September 30, 2019 (extended to April 30, 2020) and (ii) the date that all amounts owing under the Tidal Debenture become due and payable in accordance with the terms of the Tidal Debenture, including following an event of default. In the event of a default, the Tidal Debenture will bear interest at 12% per annum. On March 12, 2020, the Tidal Debenture Maturity Date was extended to April 30, 2020.  The amount was settled on RTO date, and no gain or loss was recorded.

The Tidal debenture is convertible into common shares of the Company in the event that the proposed transaction with Tidal is not completed prior to the Tidal debenture maturity date and the Company instead completes a “Change of Control” or a “Go Public Transaction” as such terms are defined in the Tidal Debenture. In such circumstances, Tidal has the right to convert the Tidal Debenture into common shares of the Company at a price equal to the lesser of (i) $2.50; and (ii) a 20% discount to the issue price or effective price for any financing completed as part of or concurrently with the Go Public Transaction, if applicable, or the effective purchase price per common share of the Company in the case of a Change of Control transaction. The Tidal Debenture is secured against the assets of the Company pursuant to a general security and pledge agreement dated February 25, 2019 (the “GSA and Pledge Agreement”).

The Company may repay the Tidal Debenture prior to the Tidal Debenture Maturity Date at a price equal to 110% of the principal amount and any accrued interest without the prior written consent of Tidal if (i) the Proposed Transaction with Tidal is not capable of being completed prior to October 25, 2019; and (ii) both the Company and Tidal have acted in good faith and have used all commercially reasonable efforts to complete the Proposed Transaction.

On issuance, the Company determined that the conversion feature met the definition of a derivative liability and elected to measure the entire Tidal Debenture at fair value through profit or loss. This derivative liability component was determined to have a value of $Nil as at December 31, 2019.  The Company can convert the principal into common shares

On April 23, 2021, the Company issued USD $6,234,400 convertible debenture to a third party institution.  The debentures becomes due on April 23, 2024.  The debenture will bear interest at 8% per annum, and the interest becomes payable on the maturity date.  The Company can convert the princial into common shares of the Company at a fixed conversion price of USD $2.75 per share.  On conversion, the holder shall not be enitled to receive the accrued interest.  The issuer may prepay the debenture in cash at or after its first-anniversary date.


19


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


On June 4, 2021, the Company issued USD $20,112,015 convertible debenture to a third party institution. The debenture becomes due and payable on June 4, 2024.  The debenture will bear interest at 8% per annum.  The Company shall issue 753,385 common shares on the closing date.  on the anniversary date and the second anniversary date, the Company shall issue common shares in an amout equal to 4% of the adjusted principal balance at the volume-weighted average trading price for a period of 15 trading days.  The Company can convert the principal and interest into common shares of the Company at a fixed conversion price of USD $2.75 per share.  The issuer may prepay the note in cash at or after its first-anniversary date.  The issuer may prepay before the first-anniversary date by paying accrued interest as if no prepayment of principal was paid to the Company.  

14.CREDIT FACILITY 

On June 4, 2019, Bridging Finance Inc. (the “Lender”) entered into a credit agreement (the “Credit Agreement”) with the Company and PharmaCo Inc. (“PharmaCo”) (collectively, the “Borrowers”) pursuant to which the Lender established a non-revolving credit facility (the “Facility”) for the Borrowers in a maximum principal amount of  $36,610,075  (the “Facility Limit”). The purpose of the Facility was so that the Borrowers can purchase certain real estate and business assets in the state of Michigan, to make additional permitted acquisitions and for general corporate and operating purposes.

The obligations under the Facility were due and payable on the earlier of: (a) the termination date (being January 4, 2020); and (b) the acceleration date (being the earlier of the date of an insolvency event or that a demand notice is delivered pursuant to the terms of the Credit Agreement).  

In respect of the advance made by the Lender to the Borrowers under the Facility, the Borrowers agreed to pay the Lender:

(a) Interest at the prime rate plus 10.55% per annum calculated and compounded monthly, payable monthly in arrears on the last day of each month; and

(b) A work fee equal to $909,360 (the “Work Fee”) (paid by the Company).    

The obligations under the Facility are secured by general security agreements on each Borrower, mortgages on certain owned real property of PharmaCo among other security obligations.

As the funds under the Facility (net of the Work Fee, commissions and other transaction expenses of the Lender) were advanced by the Lender directly to MichiCann, MichiCann in turn advanced the funds (net of MichiCann’s transaction expenses) to PharmaCo pursuant to a Promissory Note issued by PharmaCo to MichiCann in the principal amount of $30,648,547 (Note 10).

The Company paid financing fees related to the Facility, including the Work Fee, of $2,361,459 which has been included as finance expenses for the year ended December 31, 2019.

The Company also deducted a debt service reserve of $3,323,524 from the total principal amount which serves to pay the interest on the Facility as it is incurred. During the year ended December 31, 2019, the Company incurred interest expense of $3,540,353 on the Facility. As such, as of December 31, 2019 the debt service reserve balance is $nil as it was applied against the interest reserve amount. As at December 31, 2019, interest payable of $235,675 has been included in the bridge financing amount. As a result, the bridge financing balance as at December 31, 2019 was $36,610,075.

On January 10, 2020, the Facility was amended (the “Amended Facility”) pursuant to an amended and restated agreement between the Lender, MichiCann (as guarantor) and PharmaCo, RWB Illinois, Inc. (“RWB”) and MAG. The Amended Facility consisting of Non-revolving Facility A and Facility B.  Non-revolving Facility A for USD$27,000,000 was used to pay the outstanding advances from the bridge financing of CAD$36,610,075.  As a result, the old bridge financing facility balance was fully paid.


20


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


The obligations under the Amended Facility are due and payable on the earlier of:

 

(a) the termination date (being July 10, 2021 subject to the right of the Borrowers to extend the termination date by paying a 1% fee for two additional six-month periods for a total of 30 months); and

(b) the acceleration date (being the earlier of the date of an insolvency event or that a demand notice is delivered pursuant to the terms of the Amended Facility).

The Company exercised the right to extend the termination date on July 10, 2021, and January 10, 2022 became a maturity date.  Therefore, the outstanding balance at June 30, 2021 has been treated as a current liability.

In respect of the advance made by the Lender to the Borrowers under the Facility, the Borrowers agreed to pay the Lender:

 

(a) Interest at the prime rate plus 12% per annum calculated and compounded monthly, payable monthly in arrears on the last day of each month; and

(b) A work fee equal to $1,492,500 (the “Amended Work Fee”) (paid by the Company).

 

The work fee of $1,492,500 was recognized as transaction cost and offset against the debt.  $817,462 of the total work fee was expensed in the year ended December 31, 2020.

 

During the six months ended June 30, 2021, the Company satisfied all financial covenants.  Covenants include prompt payment, preservation of corporate existence, compliance with laws, payment of taxes, maintain of records, maintenance of properties, inspection, insurance coverage, perform obligations, notice of certain events, completion of RTO, discharge of all obligations and liabilities arising under ERISA and further assurance.  

 

The total interest recorded during the six months ended June 30, 2021 was $3,897,158 (year ended December 31, 2020 - $7,922,884).

A continuity of the credit facility balance is as follows:

 

Balances, December 31, 2018

$

-

Original credit agreement

 

36,610,075

Balances, December 31, 2019

$

36,610,075

Repaid on January 10, 2020

$

(36,610,075)

Amended credit agreement

 

65,490,910

Work fee recognized contra liability

 

(1,966,043)

Work fee expensed

 

1,291,005

Balances, December 31, 2020

$

64,815,872

Work fee expensed

 

639,696

Balances, June 30, 2020

$

65,455,568


21


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


15.LOANS PAYABLE 

Current loans payables as at June 30, 2021 and December 31, 2020 are as follow:

 

 

June 30, 2021

December 31, 2020

Platinum Vapes loan - original loan of $16,655,835 – non-interest bearing, principal due on maturity, due on January 12, 2021

$        2,636,204

$        16,394,996

Private loans - original loan of $7,329,616 interest bearing, principal due on demand

6,824,579

1,069,616

1260356 Ontario Ltd. - original loan of $9,658,595 – non-interest bearing, due on demand - 1

-

9,658,595

Mid-American Growers SBA loan 1 - original loan of $1,364,888 - 1% interest, principal and interest payable at maturity, due on April 6, 2021

1,328,654

1,364,888

Payable to Oakshire - original loan of $1,080,947 – non-interest bearing, no fixed payment terms

1,052,251

1,080,947

Payable to Pharmaco - original loan of $1,717,056 – non-interest bearing, no fixed payment terms

1,721,049

1,717,056

Payable to Luna - original loan of $63,660 – non-interest bearing, no fixed payment terms

61,970

63,660

Mid-American Growers SBA loan 1 - original loan of $781,727 – 1% interest, principal and interest payable at maturity on April 6, 2022

870,141

-

Mid-American Growers SBA loan 2 - original loan of $190,853 – 1% interest, principal and interest payable at maturity on April 6, 2022

184,880

-

Acreage acquisition 1 - original loan of $14,529,715- 12% interest, principal and interest payable at maturity, due on July 11, 2021

2,499,235

-

Acreage acquisition 1 - original loan of $7,798,966 - 7% interest, principal and interest payable at maturity, due on August 3, 2021

7,798,966

-

Acreage acquisition 1 - original loan of $7,605,095 - 12% interest, principal and interest payable at maturity, due on October 21, 2021

7,605,095

-

Acreage acquisition 1 - original loan of $8,185,880 - 12% interest, principal and interest payable at maturity, due on November 12, 2021

8,185,880

-

Acreage acquisition 2 - original loan of $12,373,013 - 8% interest, principal and interest payable at maturity, due on November 28, 2021

12,373,013

-

Acreage acquisition 2 - original loan of $22,271,424 - 8% interest, principal and interest payable at maturity, due on May 31, 2022

22,271,424

-

Total

$        75,413,341

$          31,349,758


22


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Non-current loans payable as at June 30, 2021 and December 31, 2020 are as follow:

 

 

June 30, 2021

December 31, 2020

Platinum Vapes note payable - original loan of $17,219,398 – non-interest bearing, principal due on maturity on  September 11, 2023

$        18,444,157

$        17,705,058

Vista Prime Management Ford loan - original loan of $16,218 – 5.90% interest, repayable in monthly installments of principal and interest of $314, maturing on January 12, 2023

5,826

7,313

Vista Prime Management Ram loan - original loan of $26,872 – 6.10% interest, repayable in monthly installments of principal and interest of $670, maturing on July 25, 2023

15,524

19,141

Mid-American Growers SBA loan 1 - original loan of $781,727 – 1% interest, principal and interest payable at maturity on April 6, 2022

-

781,727

Mid-American Growers SBA loan 2 - original loan of $190,853 – 1% interest, principal and interest payable at maturity on April 6, 2022

-

190,853

Total

$         18,465,507

$         18,704,092

All short-term and long term loans are unsecured and do not have any covenants.

 

The Platinum vapes notes payable may be converted at the option of the holder into common shares of the Company after twelve months from issuance at a conversion price of USD $0.57, as adjusted pursuant to the terms of the notes.  Obligations under the Platinum vapes notes payable shall be secured by all assets and ownership interests of the Company. Beginning on the date four months following issuance, in the event that the closing price of the common shares of the Company quoted on OTCQX exceeds one hundred fifty percent (150%) of the conversion price for at least ten consecutive trading days, then the Company has the right to force the conversion of the notes into common shares of the Company.


23


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


The fair value of Platinum Vapes note payable was estimated using a binomial lattice methodology based on a Cox-Ross-Rubenstein approach.  Key inputs and assumptions used for the valuations as of December 31, 2020 were as follows.

 

Stock price as of December 31, 2020 (USD)

$0.596

Risk-free rate

0.16%

Expected volatility

92%

Discount for lack of marketability

3%

Total debt repayments are as follows:

 

 

2021

$

61,481,172

2022

 

23,326,445

2023

 

18,465,507

Total

$

103,273,124

16.LEASE LIABILITIES 

The Company's leases are comprised of leased premises and offices.  The Company's liabilities as of June 30, 2021 were as follows:

 

Contractual undiscounted cashflows

 

 

Less than one year

$

1,891,666

Two years and beyond

 

26,397,038

Total undiscounted lease obligations

$

28,288,704

Current portion

$

749,240

Non-current portion

 

17,356,543

Total Discounted lease obligations

$

18,105,783

The Company has a lease for manufacturing and distribution facility in San Diego, which expires on October 15, 2022.  The lease was accounted for under IFRS 16, using an incremental borrowing rate of 6.00%. The Company recognized a right-of-use asset of $392,188 and a corresponding lease liability of $392,469.

The Company has a lease for office space in Concord, which expires on October 1, 2022.  The Company's future monthly rental payments for this office space are approximately $24,150.


24


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


17.SHARE CAPITAL 

Authorized Share Capital

Unlimited number of common shares without par value.

Unlimited number of convertible series I preferred shares without par value, each share convertible into one common share by the holder, and non-voting.

Unlimited number of convertible series II preferred shares without par value, each share convertible into one common share by the holder, and voting. Upon conversion of series II preferred shares into common shares, preferred shareholders will receive equivalent common shares plus an additional 5% common shares for each twelve month period up to twenty-four months.

Private Placement

On September 24, 2020, the Company closed the bought deal offering for a total issuance of - units of the Company at a price of $0.75 per unit for aggregate gross proceeds of $25,012,500, which includes the full exercise of the over-allotment option.

Each unit consists of one common share in the capital of the Company (a “Common Share”) and one Common Share purchase warrant (a “Warrant”). Each Warrant entitles the holder thereof to purchase one Common Share at an exercise price of $1.00, for a period of 24 months following the close. If, at any time prior to the expiry date of the Warrants, the volume-weighted average price of the Common Shares on the Canadian Securities Exchange (the “CSE”) (or such other stock exchange where the majority of the trading volume occurs) exceeds $1.50 for 10 consecutive trading days, the Company may provide written notice to the holders of the Warrants by way of a news release advising that the Warrants will expire at 5:00 p.m. (Vancouver time) on the 30th day following the date of such notice unless exercised by the holders prior to such date.

The Company has paid the Underwriters a cash fee of 6% ($1,500,750) of the aggregate gross proceeds, and an aggregate of 2,001,000 non-transferable compensation warrants, with each compensation warrant being exercisable into units at a price of $0.75 for a period of 24 months following the closing of the Offering. Other transaction fees were also incurred in the amount of $211,482. Net cash proceeds received after the underwriter fee is $22,241,753.

A unit price of $0.75 per unit was allocated to a common share and a common share purchase warrant using a relative fair value of $0.58 and $0.178 per common share and common share purchase warrant respectively. The gross proceeds of $19,138,852 and $5,873,648 were allocated to common shares and common shares purchase warrants respectively. The fair value of the common share purchase warrants was determined using a Monte Carlo valuation model with the following main assumptions:

 

Black-Scholes inputs

September 24, 2020

Risk free rate

0.23% (2 yrs)

Exercise price

$1.00

Stock price

$0.58

Expected volatility

101%

The fair value of the compensation warrants of $894,450 was estimated using both Black-Scholes and Monte Carlo valuation models with the following main assumptions:


25


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Black-Scholes inputs

September 24, 2020

Risk free rate

0.23% (2 yrs)

Exercise price

$0.75

Stock price

$0.58

Expected volatility

101%

Total transaction fees paid in cash and compensation warrants amounted to $2,606,682 which were deducted $1,994,556 and $612,126 from common shares and common shares purchase warrants, respectively.

The Company issued 1,411,333 units to settle a debt of $1,058,500, of which 866,666 units were issued to the CEO of the Company.

Debt Settlement

During year ended December 31, 2020, the Company issued - units consisting of one common share and one series II preferred shares to a third-party to pay for $- owed by PharmaCo to its related party. The balance due to the Company upon issuance of shares has been recorded as a loan receivable from Pharmaco.

On June 14, 2021, the Company issued 8,976,426 units of series II preferred shares to a third-party to settle a debenture totalling USD $7,500,000.

Common Shares

On January 5, 2021, the Company issued 300,000 of common shares and 300,000 convertible series II preferred shares pursuant to the  exercise of 300,000 stock options for gross proceeds of $150,000.

On January 6, 2021, the Company issued 1,500,000 common shares pursuant to the exercise of 1,500,000 restricted share units.

On January 14, 2021, the Company issued 25,000 common shares pursuant to the exercise of 25,000  warrants for gross proceeds of $18,750.

On January 14, 2021, the Company issued 325,000 common shares and 325,000 convertible series II preferred shares pursuant to the exercise of 325,000 stock options for gross proceeds of $162,500.

On January 27, 2021, the Company issued 354,645 common shares pursuant to the exercise of 354,645 restricted share units.

On January 28, 2021, the Company issued 575,000 common shares and 575,000 convertible series II preferred shares pursuant to the exercise of 575,000 stock options for gross proceeds of $287,500.

On January 29, 2021, the Company issued 3,745 common shares pursuant to the exercise of 3,745 warrants for gross proceeds of $2,809.

On February 3, 2021, the Company issued 7,489 common shares pursuant to the exercise of 7,489 warrants for gross proceeds of $5,617.

On February 4, 2021, the Company issued 1,000 units of common shares for the purchases of 1,000 deal warrants for gross proceeds of $1,000.


26


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


On February 9, 2021, the Company issued 298,000 units of common shares for the purchases of 298,000 deal warrants for gross proceeds of $298,000.

On February 9, 2021, the Company issued 199,194 common shares pursuant to the exercise of 199,194 warrants for gross proceeds of $149,396.

On February 10, 2021, the Company issued 220,000 units of common shares for the purchases of 220,000 deal warrants for gross proceeds of $220,000.

On February 11, 2021, the Company issued 871,732 common shares pursuant to the exercise of 871,732 warrants for gross proceeds of $653,799.

On February 11, 2021, the Company issued 617,500 units of common shares for the purchases of 617,500 deal warrants for gross proceeds of $617,500.

On February 12, 2021, the Company issued 2,000 units of common shares for the purchases of 2,000 deal warrants for gross proceeds of $2,000.

On February 16, 2021, the Company issued 279,800 units of common shares for the purchases of 279,800 deal warrants for gross proceeds of $279,800.

On February 16, 2021, the Company issued 175,000 common shares pursuant to the exercise of 175,000 stock options for gross proceeds of $105,000.

On March 11, 2021, the Company issued 487,014 common shares pursuant to the exercise of 487,014 warrants for gross proceeds of $365,261.

On March 17, 2021, the Company issued 2,000 units of common shares for the purchases of 2,000 bought deal warrants for gross proceeds of $2,000.

On March 18, 2021, the Company issued 7,500 units of common shares for the purchases of 7,500 bought deal warrants for gross proceeds of $7,500.

On March 23, 2021, the Company issued 8,000,000 units of common shares for the purchases of 8,000,000 bought deal warrants for gross proceeds of $8,000,000.

On March 31, 2021, the Company issued 237,500 units of common shares for the conversion of debt in the amount of $342,000 to common shares for gross proceeds of $342,000.

On April 5, 2021, the Company issued 64,000 units of common shares pursuant to the exercise of 64,000 RSU units for gross proceeds of $Nil.

On April 22, 2021, the Company issued 900,000 units of common shares pursuant to transaction fee of convertible debenture issued.

On April 27, 2021, the Company issued 5,950,971 units of common shares pursuant to transaction detailed in note 5.

On April 28, 2021, the Company issued 750,000 common shares pursuant to the exercise of 750,000 warrants for gross proceeds of $750,000.

On April 30, 2021, the Company issued 110,500 units of common shares pursuant to the exercise of 110,500 RSU units for gross proceeds of $Nil.


27


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


May 12, 2021, the Company issued 531,000 units of common shares pursuant to transaction fee of convertible debenture issued.

Convertible Series II Preferred Shares

On January 5, 2021, the Company issued 300,000 of common shares and 300,000 convertible series II preferred shares pursuant to the  exercise of 300,000 stock options for gross proceeds of $150,000.

On January 14, 2021, the Company issued 325,000 common shares and 325,000 convertible series II preferred shares pursuant to the exercise of 325,000 stock options for gross proceeds of $162,500.

On January 28, 2021, the Company issued 575,000 common shares and 575,000 convertible series II preferred shares pursuant to the exercise of 575,000 stock options for gross proceeds of $287,500.

Warrants

On December 19, 2018, MichiCann issued 595,340 finders' warrants with an exercise price of $1.00 per common share of MichiCann.  No warrants were issued and exercised during the year ended December 31, 2019.

On April 24, 2020, the Company issued 862,813 warrants to holders of Tidal warrants pursuant to Amended Agreement of the reverse takeover transaction.  The warrants are exercisable at the price of $0.80 per common share of the Company.

On April 24, 2020, as a result of the completion of the reverse takeover transaction, the Company issued 323,898 warrants towards finder's fee.  The warrants are exercisable at the price of $5.28 per common share of the Company.

On June 10, 2020, the Company issued 4,500,000 special warrants related to the 1251881 B.C. Ltd. acquisition.  The special warrants are automatically convertible into 4,500,000 common shares of the Company should the volume weighted average price of the Company’s common shares be less than $1.50 for the first 180 days following the acquisition date.  The 4,500,000 warrants were exercised on December 14, 2020.

On September 24, 2020, the Company issued 33,350,000 warrants pursuant to bought deal financing agreement.  The warrants are exercisable at the price of $1.00 per common share of the Company for a period of 24 months.

On September 24, 2020, the Company issued 2,001,000 warrants to finders pursuant to bought deal financing agreement.  The warrants are exercisable at the price of $0.75 per unit for a period of 24 months.  The unit consists of one common share of the Company and one warrant exercisable at the price of $1.00 per common share of the Company.  

On May 12, 2021, the Company issued 4,222,713 warrants in the form of debt units. The warrants are exercisable at the price of $1.15 per unit for a period of 24 months.  The unit consists of series 2 preferred shares and warrants to purchase common shares of the Company.


28


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Warrant transactions and the number of warrants outstanding are summarized as follows:

 

 

Number of

 

Weighted average

 

 

Warrants

 

Exercise Price

Balances, December 31, 2020

 

35,351,000

$

0.99

Exercised

 

(11,021,974)

 

0.96

Balances, March 31, 2021

 

24,329,026

$

0.99

Issued

 

4,222,713

 

1.15

Exercised

 

(749,999)

 

1.00

Balances, June 30, 2021

 

27,801,740

$

1.03

 

The following warrants were outstanding and exercisable at June 30, 2021:

 

 

 

 

 

Number of

Number of

 

 

 

Exercise

Warrants

Warrants

Issue Date

Expiry Date

 

Price

Outstanding

Exercisable

September 24, 2020

September 24, 2022

$

1.00

23,922,200

23,922,200

September 24, 2020

September 24, 2022

 

0.75

406,826  

406,826

May 12, 2021

May 12, 2021

 

1.15

4,222,713  

4,222,713

Balance at June 30, 2021

 

$

1.02

28,551,739

28,551,739

Options

On July 27, 2020, the Company adopted a rolling stock option plan (the “Option Plan”), under which the maximum number of common shares (“Shares”) reserved for issuance under the Option Plan at any one time shall not exceed at any time 20% of the then-issued and outstanding shares.

Under the Option Plan, the Board of Directors may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Company. Pursuant to the Option Plan, the Company may issue options for such period and exercise price as may be determined by the Board of Directors, and in any case not exceeding ten (10) years from the date of grant. The minimum exercise price of an option granted under the Option Plan must not be less than the closing price of the Shares  on the date preceding the  option grant date.

The total number of options awarded to any one individual in any 12 month period shall not exceed 5% of the issued and outstanding Shares as at the grant date (unless the Company becomes a Tier 1 issuer of the Toronto Stock Exchange or Toronto Stock Exchange – Venture (a “Tier 1 Issuer”) and has obtained disinterested shareholder approval).

The total number of options awarded to any one Consultant in a 12 month period shall not exceed 2% of the issued and outstanding Shares as at the grant date. The total number of Options awarded in any 12 month period to employees performing investor relations activities for the Company shall not exceed 2% of the issued and outstanding Shares as at the grant date.

On January 6, 2021, the Company granted 100,000 stock options to an employee of the Company.  These options vested 100% on January 6, 2020.  These stock options have an exercise price of $0.75 and expire on January 6, 2026.


29


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


Options transactions and the number of options outstanding are summarized are as follows:

 

 

 

Number of

 

Weighted average

 

 

Options

 

Exercise Price

Balances, December 31, 2019

 

7,430,000

$

0.80

Granted

 

8,157,679

 

0.34

Assumed from RTO

 

1,799,110

 

0.64

Exercised

 

(2,050,000)

 

0.54

Cancelled

 

(787,500)

 

2.14

Balances, December 31, 2020

 

14,549,289

 

0.49

Granted

 

629,145

 

0.75

Exercised

 

(2,929,645)

 

0.56

Balances, March 31, 2021

 

12,248,789

 

0.48

Granted

 

1,417,500

 

1.29

Exercised

 

(174,500)

 

1.43

Balances, June 30, 2021

 

13,491,789

$

0.55

Restricted Share Units

Restricted Share Units (“RSU”) and Deferred Share Units (“DSU”) Under the terms of the RSU plan, directors, officers, employees and consultants of the Company may be granted RSUs that are released as common shares upon completion of the vesting period. Each RSU gives the participant the right to receive one common share of the Company. The Company may reserve up to a maximum of 20% of the issued and outstanding common shares at the time of grant pursuant to awards granted under the plan.

On January 6, 2021, the Company issued 1,500,000 common shares pursuant to the exercise of 1,500,000 restricted share units.

On January 27, 2021, the Company granted 354,645 restricted share units to employees of the Company.  These share units vested 100% on January 27, 2021.  These restricted share units were valued at $1.17 and expire on January 27, 2026.

On March 31, 2021, the Company granted 174,500 restricted share units to employees of the Company.  These share units vested 100% on March 31, 2021. These restricted share units were valued at $1.43 and expire on January 27, 2026.

On May 5, 2021, the Company granted 500,000 restricted share units to employees of the Company.  These share units vested 100% on May 5, 2021. These restricted share units were valued at $1.30 and expire on May 5, 2026.

On April 1, 2021, the Company granted 500,000 restricted share units to employees of the Company.  These share units will vest 100% on April 1, 2022. These restricted share units were valued at $1.43 and expire on May 5, 2026.


30


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


18.LOSS PER SHARE 

Following is a reconciliation for the calculation of basic and diluted loss per share for the six month period ended June 30, 2021 and 2020:

 

 

 

2021

 

2020

Net loss for the year

$

68,336,512

$

20,286,5

Average common shares outstanding during the year

 

204,062,478

 

123,497,344

Loss per share - basic

$

0.33

$

0.16

 

19.FINANCIAL INSTRUMENTS AND RISKS 

a)Fair Value 

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s consolidated statements of financial position as at June 30, 2021 and December 31, 2020 as follows:

 

 

 

Quoted prices in

 

Significant

 

 

 

 

 

 

active markets

 

other

 

Significant

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

 

instruments

 

inputs

 

inputs

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

June 30, 2021

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

27,136,817 

$

-

$

 

$

27,136,817  

Call/put option

 

- 

 

-

 

84,928,257  

 

84,928,257  

TDMA loan

 

- 

 

-

 

3,521,613  

 

3,521,613  

PV convertible loan

 

- 

 

-

 

(18,444,157) 

 

(18,444,157) 

Total

$

27,136,817 

$

-

$

70,005,713  

$

97,142,530  

December 31, 2020

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,146,569 

$

-

$

 

$

1,146,569  

Call/put option

 

- 

 

-

 

112,658,740  

 

112,658,740  

TDMA loan

 

- 

 

-

 

4,231,664  

 

4,231,664  

PV convertible loan

 

- 

 

-

 

(17,705,058) 

 

(17,705,058) 

Total

$

1,146,569 

$

-

$

99,185,346  

$

100,331,915  

The fair values of other financial instruments, which include accounts receivable, accounts payable and accrued liabilities, loans receivable, loans payable, approximate their carrying values due to the relatively short-term maturity of these instruments.


31


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


a)Credit Risk 

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet it's contractual obligations. Financial instruments that are subject to such risk include cash, accounts receivable and loans receivable. Accounts receivable balances are receivable from financial stable companies with good credit history. No credit loss allowance is required as the accounts receivable balances outstanding as at June 30, 2020 are considered collectible. The Company limits its exposure to credit loss by placing its cash with reputable financial institutions. Deposits held with these institutions may exceed the amount of insurance provided on such deposits. The Company is exposed to significant credit risk on its loans receivable. The carrying amount of financial assets represents the maximum credit exposure. The Company mitigates credit risk on loans receivable by monitoring the financial performance of borrowers.

a)Foreign Exchange Risk 

The Company has cash and loans receivable denominated in United States dollars and, as a consequence, the financial results of the Company’s operations as reported in Canadian dollars are subject to changes in the value of the Canadian dollar relative to the US dollar. Therefore, exchange rate movements in the United States dollar can have a significant impact on the Company’s operating results due to the translation of monetary assets.

At June 30, 2021, a 4% (2019 – 4%) strengthening (weakening) of the Canadian dollar against the US dollar would have increased (decreased) the Company’s net loss by approximately $482,000 (2019 - $2,064,000).

a)Interest Rate Risk 

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Interest earned on cash is at nominal interest rates, and therefore the Company does not consider interest rate risk for cash to be significant.

As at June 30, 2021, the interest rate on loans receivable, credit facilities, and convertible debentures are fixed based on the contracts in place. As such, the Company is exposed to interest rate risk to the extent as stated on these financial assets and liabilities.

a)Liquidity Risk 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities.

As at June 30, 2021, the Company had a cash balance of $27,136,817 (December 31, 2020 - $1,146,569) available to apply against short-term business requirements and current liabilities of $208,805,909 (December 31, 2020 -$70,794,116). All of the liabilities presented as accounts payable and accrued liabilities are due within 120 days of June 30, 2021.


32


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


20.RELATED PARTY TRANSACTIONS 

The following is a summary of related party transactions that occurred during six months ended June 30, 2021 and 2020:

a)Included in accounts payable and accrued liabilities is $275,010 (December 31, 2020 - $374,232) payable to officers and a director of the Company. Amounts due to related parties have no stated terms of interest and/or repayment and are unsecured. 

b)Key management personnel include the directors and officers of the Company. Key management compensation consists of the following: 

 

 

 

2021

 

2020

Consulting fees paid or accrued to a company controlled by a director of the Company

$

271,020

$

98,850

Salary accrued to management of the Company

 

75,000

 

248,812

Share-based compensation

 

257,660

 

115,913

 

$

603,680

$

463,575

There were no post-employment benefits, termination benefits or other long-term benefits paid to key management personnel for the six month ended June 30, 2021.

21.CAPITAL MANAGEMENT 

The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of cash, loans receivable, convertible debentures, loans payable, credit facilities, and equity, comprised of issued share capital.

The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share issues or by undertaking other activities as deemed appropriate under the specific circumstances. There were no changes to the Company’s approach to capital management during the three month period ended June 30, 2021.

The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains the same for the periods presented.


33


Red White & Bloom Brands Inc.

(formerly Tidal Royalty Corp.)

Notes to Condensed Interim Consolidated Financial Statements

For the three and six month periods ended June 30, 2021 and 2020

(Expressed in Canadian dollars)


22.SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION 

The changes in non-cash working capital items during the six month periods ended June 30, 2021 and 2020 are as follows:

 

 

 

2021

 

2020

Prepaid expenses

$

(1,529,574)

$

-

Accounts receivable

 

(5,310,798)

 

-

Accounts payable and accrued liabilities

 

4,582,511

 

-

Warrants issued for intangible asset

 

-

 

4,995,000

Inventory

 

3,860,190

 

-

Loans receivable

 

-

 

5,848,000

Loans payable

 

-

 

10,605,100

Cash consideration on acquisition included in

deposits interest paid

 

-

 

3,915,943

Shares issued for intangible assets

 

-

 

16,983,000

 

$

1,602,329

$

42,347,043

23.SEGMENTED INFORMATION 

The Company's disaggregated revenue by source, primarily due to the Company's contracts with its external customers for the six month periods ended June 30, 2021 and 2020 were as follows:

 

 

 

2021

 

2020

Sales from contracts with external customers

$

759,925

$

-

Wholesale

 

24,391,294

 

1,512,140

Total

$

25,151,219

$

1,512,140

The Company's business activities are conducted through one operating segment, cannabis and hemp.   

24.COMMITMENTS AND CONTINGENCIES 

A third party consultant worked for the Company as in 2017.  On or about December 18, 2017, the Company had a oral discussion with the consultant on the compensation of the service the consultant provided.  On January 10, 2019, the Company amended the contract.  Although the Company made a full compensation to the consultant according to the amended contract, the consultant filed a statement of claim against the Company on April 26, 2021.  The Company is in process of finalizing the defense.  The statement of claim is not clear as to the precise nature of the allegations ag