F-1/A 1 tm2129724-6_f1a.htm F-1/A tm2129724-6_f1a - block - 55.9221814s
As filed with the Securities and Exchange Commission on February 14, 2022
Registration No. 333-262436
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Akanda Corp.
(Exact name of Registrant as specified in its charter)
Ontario, Canada
(State or other jurisdiction of
incorporation or organization)
2833
(Primary Standard Industrial
Classification Code Number)
Not Applicable
(I.R.S. Employer
Identification No.)
Akanda Corp.
1a, 1b Learoyd Road
New Romney TN28 8XU, United Kingdom
Tel: +44 (203) 488-9514
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
C T Corporation System
1015 15th Street N.W., Suite 1000
Washington, D.C., 20005
Tel: +1 (866) 925-9916
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Mark C. Lee
Rimon, P.C.
423 Washington Street, Suite 600
San Francisco, CA 94111
Tel: +1 (916) 603-3444
Eric Foster
Dentons Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, ON M5K 0A1 Canada
Tel: +1 (416) 863-4511
Louis A. Bevilacqua
Bevilacqua PLLC
1050 Connecticut Ave., NW, Suite 500
Washington, DC 20036
Tel: +1 (202) 869-0888
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging Growth Company   ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the U.S. Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities, nor a solicitation of an offer to buy these securities, in any jurisdiction where the offer, solicitation, or sale is not permitted.
 SUBJECT TO COMPLETION DATED FEBRUARY 14, 2022
PRELIMINARY PROSPECTUS
4,000,000 Common Shares
[MISSING IMAGE: lg_akanda-bw.jpg]
Akanda Corp.
This is our initial public offering of 4,000,000 Common Shares, no par value per share. We currently expect the initial public offering price to be $4.00 per Common Share.
Prior to this offering, there has been no public market for our Common Shares. We have applied to list our Common Shares on the Nasdaq Capital Market under the symbol “AKAN.” We cannot guarantee that we will be successful in listing our Common Shares on Nasdaq; however, we will not complete this offering unless we are so listed.
We are organized under the laws of the Province of Ontario, Canada and are an “emerging growth company” and a “foreign private issuer” as defined under applicable United States federal securities laws, and are eligible for reduced public company reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”
Investing in our securities is highly speculative and involves a high degree of risk. See “Risk Factors” beginning on page 11 for a discussion of information that should be considered in connection with an investment in our securities.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Common Share
Total
Initial public offering price
$        $     
Underwriting discounts and commissions(1)
$ $
Proceeds to us (before expenses)
$ $
(1)
We have agreed to reimburse the Boustead Securities, LLC for certain expenses in addition to underwriting discounts and commissions. We also have agreed to issue to Boustead Securities, LLC certain warrant compensation in connection with this offering. See “Underwriting” for additional information regarding compensation payable to the underwriters.
This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and purchase all of the Common Shares offered under this prospectus if any such shares are taken.
We have granted the underwriters an option to purchase up to 600,000 additional Common Shares from us at the public offering price, less underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable to the underwriters will be $        , and the total proceeds to us, before expenses, will be $        . If we complete this offering, net proceeds will be delivered to us on the closing date.
The underwriters expect to deliver the Common Shares to purchasers in the offering on or about      , 2022.
BOUSTEAD SECURITIES, LLC
The date of this prospectus is      , 2022

 
TABLE OF CONTENTS
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F-1
You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us. Neither we nor the underwriters have authorized anyone to provide you with information that is different, and neither we nor the underwriters take any responsibility for, or provide any assurance as to the reliability of, any information, other than the information in this prospectus and any free writing prospectus prepared by us. We are offering to sell our securities, and seeking offers to buy our securities, only in jurisdictions where such offers and sales are permitted. This prospectus is not an offer to sell, or a solicitation of an offer to buy, our securities in any jurisdictions where, or under any circumstances under which, the offer, sale, or solicitation is not permitted. In particular, our securities have not been qualified for distribution by prospectus in Canada and may not be offered or sold in Canada during the course of their distribution hereunder except pursuant to a Canadian prospectus or prospectus exemption. The information in this prospectus and in any free writing prospectus prepared by us is accurate only as of the date on its respective cover, regardless of the time of delivery of this prospectus or any free writing prospectus or the time of any sale of our securities. Our business, results of operations, financial condition, or prospects may have changed since those dates.
Before you invest in our securities, you should read the registration statement (including the exhibits thereto and the documents incorporated by reference therein) of which this prospectus forms a part.
For investors outside of the United States:   Neither we nor the underwriters have done anything that would permit this offering, or the possession or distribution of this prospectus, in any jurisdiction where
 
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action for that purpose is required, other than in the United States. You are required to inform yourselves about, and observe any restrictions relating to, this offering and the distribution of this prospectus.
ABOUT THIS PROSPECTUS
As used in this prospectus, unless the context otherwise requires or otherwise states, references to “Akanda,” the “Company,” “we,” “us,” “our,” and similar references refer to Akanda Corp., a corporation formed under the laws of the Province of Ontario, Canada and its subsidiaries. References to “Bophelo” refer to Bophelo Bio Science and Wellness (Pty) Ltd., a company incorporated in the Kingdom of Lesotho, Africa and an indirect wholly-owned subsidiary of Akanda. References to “Canmart” refer to Canmart Ltd, a company incorporated under the laws of England and Wales and an indirect wholly-owned subsidiary of Akanda.
Our functional currency and reporting currency is the U.S. dollar, the legal currency of the United States (“USD”, “US$” or “$”).
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Our financial statements are prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board. Our fiscal year ends on December 31 of each year as does our reporting year.
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.
MARKET AND INDUSTRY DATA
This prospectus contains references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us. Some data is also based on our good faith estimates, which are derived from our review of internal surveys or data, as well as the independent sources referenced above. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”
TRADEMARKS
We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus also contains additional trademarks, trade names and service marks belonging to other companies. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this prospectus, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as “may”, “might”, “will”, “should”, “believe”, “expect”, “could”, “would”, “intend”, “plan”, “anticipate”, “estimate”, “continue”, “predict”, “project”, “potential”, “target,” “goal” or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this prospectus under the headings “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this prospectus, including among other things:

our limited operating history;

unpredictable events, such as the COVID-19 outbreak, and associated business disruptions;

changes in cannabis laws, regulations and guidelines;

decrease in demand for cannabis and cannabis-derived products;

exposure to product liability claims and actions;

damage to our reputation due to negative publicity;

risks associated with product recalls;

the viability of our product offerings;

our ability to attract and retain skilled personnel;

maintenance of effective quality control systems;

regulatory compliance risks;

risks inherent in an agricultural business;

increased competition in the markets in which we operate and intend to operate;

the success of our continuing research and development efforts;

risks associated with expansion into new jurisdictions;

risks related to our international operations in the United Kingdom and the Kingdom of Lesotho, including the implications of the United Kingdom’s recent withdrawal from the European Union;

our ability to obtain and maintain adequate insurance coverage;

our ability to identify and integrate strategic acquisitions, investments and partnerships and to manage our growth;

our ability to raise capital and the availability of future financing;

emerging market risks;

global economy risks; and

our ability to maintain the listing of our securities on Nasdaq.
 
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These and other factors are more fully discussed in the “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by the forward-looking statements contained in this prospectus.
Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this prospectus. The forward-looking statements contained in this prospectus are not guarantees of future performance, and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this prospectus, they may not be predictive of results or developments in future periods.
All forward-looking statements included herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Any forward-looking statement that we make in this prospectus speaks only as of the date of this prospectus. Except as required by applicable law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise, after the date of this prospectus.
 
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PROSPECTUS SUMMARY
This summary highlights selected information presented in greater detail elsewhere in this prospectus. This summary does not include all the information you should consider before investing in our securities. You should read this summary together with the more detailed information appearing elsewhere in this prospectus, including our financial statements, pro forma combined financial statements and related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. Some of the statements in this summary and elsewhere in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Our Company
We are a cannabis cultivation, manufacturing and distribution company whose mission is to provide premium quality medical cannabis products to patients worldwide. We cultivate and process natural cannabis at our facilities in the Kingdom of Lesotho, Africa and intend to supply medicinal-grade cannabis biomass, cannabis flower and cannabis concentrates to wholesalers in international markets. We also import and sell medical cannabis-based products to the domestic market in the United Kingdom.
We are an early stage, emerging growth company headquartered in London, the United Kingdom. We have a limited operating history and minimal revenues to date. We require funding from this offering to expand and further develop our operations in the Kingdom of Lesotho and to develop sales channels in international markets and in particular, in Europe, the United Kingdom and Africa.
Our Lesotho Operations
Our cultivation operations at Bophelo in the Kingdom of Lesotho were initially established in 2018, with initial non-commercial harvests undertaken in 2019, 2020 and 2021 as part of the establishment and set-up of our cultivation facility in the Kingdom of Lesotho. While we have successfully cultivated cannabis at our Lesotho site, we have not yet achieved any revenues from the sale of cannabis and we have not exported medical cannabis flower or biomass to the United Kingdom or any other country. To date, our Lesotho operations have yielded less than 1,500kg of dried cannabis flower.
The cultivation of cannabis at our Lesotho operations is subject to a number of risks, such as the seasonality of our cannabis production. Additionally, our ability to successfully cultivate cannabis is subject to emerging market related risks, exchange control restrictions, high domestic inflation and interest rates, as well as socio-political risk inherent in Southern African jurisdictions.
Our operations in Lesotho are dependent on access to land that is leased from a local non-profit development trust which is jointly controlled by our Executive Chairman.
Our United Kingdom Operations
Our distribution operations in the United Kingdom were established in 2019 and are at a very early stage. Our revenues from the sale and distribution of medical cannabis in the United Kingdom have not exceeded more than $20,000 in any 12 month period since the inception of our operations in the United Kingdom. The medical cannabis market in the United Kingdom is still emerging and a number of local companies are competing to supply this market. We have recently entered into a non-binding agreement to acquire Cellen Life Sciences Limited, a United Kingdom based digital pain clinic that prescribes and provides cannabis based medical products to patients in the United Kingdom, for a total purchase consideration of £10 million (US$13.361 million) to be settled through an issue of common shares of the Company. Furthermore, we have entered into a bridge loan facility with Cellen. In terms of the bridge loan facility, we will extend a line of credit of up to $500,000 in secured bridge finance to Cellen Life Sciences Limited. We are also working towards expanding sales of cannabis products produced by Bophelo to international markets, subject to regulatory conditions in such countries.
International Cannabis Market
We are targeting what we believe to be the lucrative international medical cannabis market, which is estimated to be worth approximately $47 billion by 2027, according to Emergen Research (October 2020).
 
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We believe there has been a growing demand for medical cannabis around the world as a result of the increased legalization of cannabis for medical purposes as well as the rise in cannabis-related medical research activities. Our site at Bophelo offers us a cultivation environment that we believe can yield exceptional growing economics for premium quality cannabis. We intend to address the market needs of wholesalers in the international market for medicinal-grade cannabis supplied at a competitive price.
We also intend to address the growing market demand for medical cannabis-based products in the United Kingdom which, according to Prohibition Partners (2019), is estimated to be worth $3 billion by 2024.
Regulatory and Competitive Landscape
The cultivation, manufacturing, import and export of medical cannabis was legalized by the Kingdom of Lesotho in 2017. Bophelo is one of many companies in the Kingdom of Lesotho that hold licenses issued by the Lesotho Ministry of Health which enables it to cultivate medical cannabis. The number of licenses granted in Lesotho is not of public record. In addition to other medical cannabis companies operating in the Kingdom of Lesotho, Bophelo competes with medical cannabis producers based in other countries, most notably those in low-cost jurisdictions based in South America, such as Colombia. In terms of local laws and regulations applicable to cannabis license holders, Bophelo is required to pay an annual fee to renew its cannabis license annually with the Ministry of Health.
In the United Kingdom, the importation and supply of medical cannabis products is lawful when undertaken in terms of a relevant license issued by the United Kingdom Home Office. Canmart holds such a license issued by the United Kingdom Home Office and competes with a number of companies that import medical cannabis products into the United Kingdom for distribution to patients in the domestic market. Our licenses are subject to annual renewal fee requirements with the Home Office, which would also possibly require ad-hoc inspections of our distribution premises in the United Kingdom.
While there are no assurances that our operating licenses will be renewed on an annual basis, we are not aware of any current circumstances that could result in a non-renewal of our licenses.
Our Competitive Strengths
We believe that the following competitive strengths can contribute to our success and differentiate us from our competitors:

Lesotho Cultivation Advantage.   Through the cultivation operations of our indirect wholly-owned subsidiary Bophelo, our past harvests have shown that we have the ability to cultivate high yielding strains of cannabis for medical purposes, with certain strains historically cultivated reflecting cannabinoid concentrations in excess of 20%. Conditions at Bophelo’s site of operations near T’sakholo in the Mafeteng District of the Kingdom of Lesotho are conducive for the cultivation of medical-grade cannabis including suitable environmental conditions, abundant supply of semi-skilled and unskilled labor, quality road and air infrastructure network and favorable tax treatments.

Significant Potential to Scale Up Production.   Bophelo is one of the largest licensed landholders engaging in cannabis cultivation in the Kingdom of Lesotho. Bophelo is licensed to cultivate cannabis over an initial 5-hectare area under greenhouse or indoor conditions, with conditional government approval to expand our cultivation footprint up to 200 hectares. Such approval for expansion may be granted by the Ministry of Health on the main condition that Bophelo has fully utilized all of the first 5 hectares of its licensed cultivation area. This gives us the potential ability to significantly scale up production once the company has met this requirement of the Ministry of Health. Bophelo has leased a 200-hectare land package in an emerging Special Economic Zone in the Kingdom of Lesotho which is intended to be dedicated to the cannabis cultivation and related operations.

Strong Partnership with Local Communities.   Bophelo has worked and expects to continue to work with Mophuthi Matsoso Development Trust, a Lesotho non-profit organization (the “MMD Trust”), to provide for the construction of a learning center, a place of worship, feeding programs and other public good initiatives for the local community of T’sakholo. We believe a commitment to such initiatives and building a strong working relationship with the local African communities can promote
 
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goodwill towards our local operations and brands and benefit our long-term business growth. The MMD Trust is controlled by our Executive Chairman and Bophelo leases its premises on which it operates from the MMD Trust pursuant to a long-term lease agreement between the MMD Trust and Bophelo. As such, a potential conflict of interest may arise regarding the ongoing administration of the lease and any future negotiations around the lease terms.

Experienced Management Team.   Our management is experienced and has an extensive knowledge of the international cannabis industry as well as local conditions in Europe, the United Kingdom, and the Kingdom of Lesotho.
Our Growth Strategies
Our goal is to become a market leader in the cultivation, processing and supply of medicinal-grade cannabis and cannabis based medical and wellness products for international markets. Our primary strategies to achieve our goals include:

Expanding our production capacity.   In the near term, our primary strategy is to expand our production capacity as quickly as possible at Bophelo. We plan to take advantage of favorable cultivation conditions in the Kingdom of Lesotho to achieve economies of scale in our production of premium quality cannabis products, within the confines of market forces such as customer demand and pricing, as well as regulatory hurdles that may impede our ability to access foreign markets or which may slow overall market growth.

Expanding our geographic footprint.   While we currently import and sell cannabis-based products for medicinal use (“CBPMs”) sourced from third parties to dispensing pharmacists, clinics and other wholesale distributors in the United Kingdom, our plan is to establish direct sales channels to patients through Canmart-owned and operated clinics and pharmacies in the United Kingdom. Medical cannabis is currently scheduled as a “Schedule 2” unlicensed medicine and, as such, can only be prescribed by or under the care of a specialist medical practitioner. Furthermore, regulatory authorities in the United Kingdom require cannabis dispensing clinics to obtain a license from the Care Quality Commission (“CQC”). The CQC regulates clinics and conducts frequent audits and inspections to ensure compliance with license terms. Given the regulatory environment in the United Kingdom, we intend to achieve our plan to establish direct sales channels to patients by acquiring established clinics and pharmacies that are dispensing medical cannabis products in the United Kingdom, however, this strategy is dependent on identifying potential targets, negotiating acceptable purchase price and other conditions based on revenues, number of patients and size of the local market, and complying with any regulatory and licensing requirements. To that end, we recently entered into a non-binding letter of intent to acquire 100% of the issued and outstanding ordinary shares of Cellen Limited, a United Kingdom based provider of pain-focused clinical services for GBP £10 million (US$13.361 million) in common shares of the Company. In furtherance of that potential transaction, on December 1, 2021, we entered into a bridge loan facility with Cellen whereby we agreed to extend a line of credit of US$500,000 to Cellen, secured by all of the assets of Cellen. To date, Cellen has borrowed approximately $336,600 under the facility. We are also working towards expanding sales of cannabis products produced by Bophelo to international markets, subject to regulatory conditions in such countries.

Pursuing accretive acquisitions.   We believe that our deal-making capabilities and experience can allow us to successfully identify, consummate and integrate acquisitions.

Strong Partnership with Local Communities.   We are committed to empowering women and vulnerable persons in local communities where Bophelo operates. We believe our efforts will enable us to build strong partnerships with the communities in which we operate, enhance the reputation of our brands and benefit our long-term growth.
Our History and Relationship with Halo
Acquisition of Subsidiaries from Halo
Akanda was incorporated in the Province of Ontario, Canada on July 16, 2021 in connection with the plan of Halo Collective Inc. (“Halo”), a publicly-traded, vertically integrated multinational cannabis
 
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company, to reorganize its medical cannabis market focused international business assets. On September 29, 2021, we entered into a share purchase agreement with Halo. Pursuant to this agreement, we acquired all the issued and outstanding equity interests of Cannahealth Limited, a Republic of Malta company (“Cannahealth”), from Halo (the “Acquisition”). At the closing of the Acquisition on November 3, 2021, Cannahealth owned all the issued and outstanding equity interests of Canmart and Bophelo Holdings Limited, a company incorporated under the laws of England and Wales (“Bophelo Holdings”), which owned all the issued and outstanding equity interests of Bophelo. As a result of the Acquisition, both Bophelo and Canmart became our indirect wholly-owned subsidiaries. As consideration for this Acquisition, we issued 13,129,212 Common Shares to Halo at a price of $1.00 per share, resulting in Halo owning approximately 68.3% of all our outstanding Common Shares at the closing of the Acquisition.
Issuance of Secured Convertible Debenture to Halo
Historically, Halo has advanced loans to Bophelo to fund its operations and capital expenditures. In connection with our acquisition of Bophelo, at the closing of the Acquisition, we issued a secured convertible debenture to Halo in the principal amount of $6,559,294 (the “Debenture”) in exchange for setting off all outstanding indebtedness owed by Bophelo to Halo. The Debenture bears a compounded interest rate of 1.00% annually, which amount may be paid in the form of Common Shares to be issued by the Company at the applicable conversion price upon a conversion of the Debenture. The debenture matures on November 2, 2022 and is secured by all our assets except for any ownership interest or securities of Bophelo or any assets owned thereby.
The Debenture will be automatically converted into our Common Shares upon certain liquidity events including an initial public offering of our Common Shares resulting in our Common Shares being listed on a qualified stock exchange in Canada or the United States, which shall occur during the six months from the date of the Debenture (each, a “Triggering Event”). We may also elect to convert the Debenture prior to the maturity date. Upon an automatic or optional conversion, the conversion price shall be, subject to customary adjustments, the Current Market Price (as defined below) or, if no Current Market Price exists, the price of the last private placement of our securities where we raised more than $1,000,000. Current Market Price shall mean (i) the price of our Common Shares sold to the public in this offering to the extent that this offering qualifies as a Triggering Event or, (ii) the weighted average of the sale prices per Common Share at which our Common Shares have traded on a qualified stock exchange or, if the Common Shares are not listed on any stock exchange, then on the over-the-counter market, for any 20 consecutive trading days selected by us commencing not later than 45 trading days and ending no later than 5 trading days before the conversion date, subject to certain exceptions. Any conversion of the outstanding principal and accrued interest under the Debenture is subject to a limitation on the number of Common Shares that can be issued to Halo, which issuance shall not cause Halo to own more than 50% of our issued and outstanding Common Shares after the conversion (the “Ownership Limitation”).
We expect that the consummation of this offering will trigger a conversion of the Debenture pursuant to the terms of the Debenture, and upon such conversion, an estimated aggregate of 1,639,810 Common Shares will be issued to Halo at a conversion price of $4.00 per Common Share, which equals the initial public offering price.
Under the Debenture, Halo agrees that within 10 business days of the date of the Debenture, it shall dispose of such number of the Common Shares held by Halo that are necessary for Halo to hold less than 50% of our issued and outstanding Common Shares.
Additionally, under the Debenture, Halo agrees to enter into a lock-up agreement with us and Boustead Securities, LLC, pursuant to which Halo shall not offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any of our securities for a period of 270 days from the date on which the trading of our Common Shares on the Nasdaq Stock Market, LLC (“Nasdaq”) commences (the “Lock-Up Trigger Date”), subject to customary carve-outs. The lock-up agreement will permit that up to 50% of our securities held by Halo may be sold or transferred from the 271st day through the 365th day following the Lock-Up Trigger Date, and the remaining 50% of such securities may be sold or transferred without the lock-up restrictions beginning on the 366th day following the Lock-Up Trigger Date. The lock-up restrictions shall not prohibit Halo from selling or transferring such number of our Common Shares to comply with the Ownership Limitation.
 
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Halo Investor Rights Agreement
In connection with the closing of the Acquisition, we entered into an investor rights agreement with Halo (the “Investor Rights Agreement”), pursuant to which Halo has the right to nominate one director to our Board of Directors or, if Halo’s nominee is not a current director, to appoint an observer to our Board of Directors, so long as Halo holds at least 10% of our Common Shares. Philip van den Berg, the Chief Financial Officer and a director of Halo, is currently serving as Halo’s appointee to our Board of Directors. The Investor Rights Agreement contains a similar requirement for Halo to enter into a lock-up agreement as required by the Debenture.
Legal Entity Structure
On November 12, 2021, Halo transferred 2,100,000 Common Shares to an unaffiliated party, 1306077B.C. LTD. (the “Halo Transferee”), which resulted in Halo owning 49.6% of our issued and outstanding Common Shares (the “Halo Transfer”). The Halo Transferee is not affiliated with Halo, any of our founding shareholders, or any other shareholder which owns more than 5% of our outstanding Common Shares as of the date of the Halo Transfer. The following diagram summarizes our legal entity structure following the closing of the Acquisition and the Halo Transfer. Assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus is sold in this offering, Halo will own approximately 43.8% of our issued and outstanding Common Shares at the closing of this offering.
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*
includes 880,000 Common Shares issued to our Executive Chairman to settle the Bridge Loan Facility
Recent Private Placements
On August 26, 2021, the Company sold 468,900 Common Shares to an accredited investor at a subscription price of $0.53 and received $250,000 in gross proceeds (the “Seed Financing”).
 
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On November 10, 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of $2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.
On November 12, 2021, the Company completed the initial closing of a private placement to accredited investors of 2,126,400 Common Shares, at a purchase price of $2.50 per share, for approximately $5,316,000 in gross proceeds and on January 17 and 26, 2022, the Company completed additional and final closings to accredited investors of 162,000 Common Shares at a purchase price of $2.50 per share, for approximately $405,000 (the “Private Placement”).
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering except that Boustead Securities, LLC served as the placement agent for the Seed Financing and the Private Placement. Boustead Securities, LLC waived any commission for the Seed Financing and received under the Private Placement: (a) a commission equal to 7% of the gross proceeds and (b) a non-accountable expense allowance equal to 0.5% of the gross proceeds. The issuances of the above Common Shares were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. The sale and issuance of Common Shares to investors outside the United States under these financings was also in reliance upon Regulation S promulgated under the Securities Act.
Corporate Information
Akanda Corp. was incorporated on July 16, 2021 in the Province of Ontario, Canada under the Business Corporations Act (Ontario). Our principal executive offices and mailing address are located at London, the United Kingdom, and our telephone number is +44 (203) 488-9514.
Our website is www.akandacorp.com. The information contained on our website or accessible through our website is not incorporated into this prospectus.
Summary of Risks Related to Our Business and Industry
There are a number of risks that you should carefully consider before making an investment decision regarding this offering. These risks are discussed more fully in the section entitled “Risk Factors” beginning on page 11 of this prospectus. You should read and carefully consider these risks and all of the other information in this prospectus, including our financial statements, pro forma combined financial statements and the related notes thereto included in this prospectus, before deciding whether to invest in our securities. If any of these risks actually occur, our business, financial condition, operating results and cash flows could be materially and adversely affected. In such case, the trading price of our securities would likely decline, and you may lose all or part of your investment. These risk factors include, but are not limited to:

our limited operating history;

unpredictable events, such as the COVID-19 outbreak, and associated business disruptions;

changes in cannabis laws, regulations and guidelines;

decrease in demand for cannabis and cannabis-derived products;

exposure to product liability claims and actions;

damage to our reputation due to negative publicity;

risks associated with product recalls;

the viability of our product offerings;

our ability to attract and retain skilled personnel;

maintenance of effective quality control systems;

regulatory compliance risks;
 
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risks inherent in an agricultural business;

increased competition in the markets in which we operate and intend to operate;

the success of our continuing research and development efforts;

risks associated with expansion into new jurisdictions;

risks related to our international operations in the United Kingdom and the Kingdom of Lesotho, including the implications of the United Kingdom’s recent withdrawal from the European Union;

our ability to obtain and maintain adequate insurance coverage;

our ability to identify and integrate strategic acquisitions, investments and partnerships and to manage our growth;

our ability to raise capital and the availability of future financing;

emerging market risks;

global economy risks; and

our ability to maintain the listing of our securities on Nasdaq.
Implications of Being an Emerging Growth Company and a Foreign Private Issuer
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to reporting companies that make filings with the U.S. Securities and Exchange Commission (the “SEC”). For so long as we remain an emerging growth company, we will not be required to, among other things:

present more than two years of audited financial statements and two years of related management’s discussion and analysis of financial condition and results of operations disclosure in our registration statement of which this prospectus forms a part;

have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

disclose certain executive compensation related items, to the extent applicable to our Company as a foreign private issuer; and

seek shareholder non-binding advisory votes on certain executive compensation matters and golden parachute arrangements, to the extent applicable to our Company as a foreign private issuer.
We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year during which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which means the market value of our common shares that are held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, upon the consummation of this offering, we will report in accordance with the rules and regulations applicable to a “foreign private issuer.” As a foreign private issuer, we will take advantage of certain provisions under the rules that allow us to follow the laws of the Province of Ontario for certain corporate governance matters. Even when we no longer qualify as an emerging growth company, as long as we continue to qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act;

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events; and
 
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Regulation Fair Disclosure (“Regulation FD”), which regulates selective disclosures of material information by issuers.
As a foreign private issuer, we will have four months after the end of each fiscal year to file our annual report on Form 20-F with the SEC. In addition, our executive officers, directors, and principal shareholders will be exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act.
Foreign private issuers, like emerging growth companies, are exempt from certain more stringent executive compensation disclosure rules. As such, even when we no longer qualify as an emerging growth company, as long as we continue to qualify as a foreign private issuer under the Exchange Act, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are not foreign private issuers.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:
(i)
the majority of our executive officers or directors are U.S. citizens or residents;
(ii)
more than 50% of our assets are located in the United States; or
(iii)
our business is administered principally in the United States.
In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
 
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THE OFFERING
Issuer
Akanda Corp., an Ontario corporation
Common Shares Offered
4,000,000 Common Shares (or 4,600,000 Common Shares if the underwriters exercise their over-allotment option in full)
Public Offering Price
$4.00 per Common Share.
Common Shares to be Outstanding Immediately After this Offering
28,903,090 Common Shares (or 29,503,090 Common Shares if the underwriters exercise the over-allotment option in full).
Underwriting; Over-Allotment Option
This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and pay for all of the Common Shares if any such shares are taken. We have granted to the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to 600,000 additional Common Shares from us at the initial public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.
Representative’s Warrants
We will issue to Boustead Securities, LLC (the “Representative”), the representative of the underwriters, or its permitted designees warrants to purchase up to 280,000 Common Shares (or 322,000 Common Shares if the underwriters exercise their over-allotment option in full). The Representative’s warrants will have an exercise price equal to the per Common Share public offering price, will be exercisable for a five year period from the date of commencement of the sales of the Common Shares in connection with this offering.
Use of Proceeds
We estimate that the net proceeds to us from this offering will be approximately $14.2 million, assuming an initial public offering price of $4.00 per Common Share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use these proceeds for acquisitions, capital expenditures (including without limitation the construction of our planned greenhouse, post-harvest drying and extraction facilities at Bophelo), working capital, and general corporate purposes. See the “Use of Proceeds” and “Certain Relationships and Related Party Transactions” sections of this prospectus.
Lock-ups
Our Company, our directors, executive officers and beneficial holders of 1% or more of our Common Shares have agreed with the Representative not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any of our securities for a period of 365 days from the date on which the trading of our Common Shares on Nasdaq commences, subject to certain exceptions. Additionally, certain other holders of our Common Shares have agreed to enter into lock-up agreements with us and the Representative. See “Underwriting” for more information.
Listing
We intend to qualify our Common Shares for listing on The Nasdaq Capital Market under the symbol “AKAN.” The approval of our listing on Nasdaq is a condition of closing this offering.
Transfer Agent
The transfer agent and registrar for our Common Shares is Continental Stock Transfer & Trust Company.
 
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Risk Factors
Investing in our securities is highly speculative and involves a high degree of risk. You should carefully read and consider the information set forth under the heading “Risk Factors” beginning on page 11, and all other information contained in this prospectus, before deciding to invest in our securities.
The number of Common Shares to be outstanding immediately after this offering is based on 24,903,090 Common Shares as of February 14, 2022, and excludes:

up to 322,000 Common Shares issuable upon the exercise in full of the Representative’s warrants; and

5,394,976 Common Shares reserved for future issuance under our Stock Option Plan (the “Plan”) as well as any automatic evergreen increases in the number of Common Shares reserved for future issuance under our Plan.
Unless otherwise indicated, the information in this prospectus assumes the following:

the issuance of 13,129,212 Common Shares to Halo pursuant to the acquisition of Cannahealth Ltd,Bophelo Holdings Ltd, Canmart Ltd and Bophelo Bio Science and Wellness (Pty) Ltd;

the issuance of 2,288,400 Common Shares pursuant to the completion of the Private Placement;

the issuance of 880,000 Common Shares to settle the Bridge Loan Facility;

the issuance of 869,963 Common Shares to the ESG Trust;

the issuance of 1,639,810 Common Shares to Halo upon conversion of the Debenture; and

no exercise by the underwriters of their option to purchase additional Common Shares.
 
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RISK FACTORS
An investment in our securities is highly speculative and involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information contained in this prospectus, including our financial statements, pro forma combined financial statements and the related notes included in this prospectus, before deciding whether to invest in our securities. These risk factors are not presented in the order of importance or probability of occurrence. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. In that event, the market price of our securities could decline, and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to our Business and Industry
We are an early-stage company with limited operating history and may never become profitable.
Akanda was only recently incorporated to be a holding company. Each of our operating subsidiaries, Bophelo and Canmart, has a very limited operating history and has generated minimal revenue. Bophelo was formed and commenced operations in 2018 and has primarily engaged in construction and preparation activities since its inception. Bophelo has made only one sale of cannabis flower to a local buyer in March 2021 to date and generated sales revenue of $nil in the nine-month period ended September 30, 2021. Canmart was formed in 2018 and commenced operations in 2020. Canmart generated sales revenue of approximately $2,000 in 2020 and $17,359 in the nine-month period ended September 30, 2021. Following the completion of the Acquisition, we remain an early-stage company and will have limited financial resources and minimal operating cash flow. If we cannot successfully develop, manufacture and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to develop or offer market-ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market or expand our market share. A failure by us to achieve a low-cost structure through economies of scale or improvements in cultivation, manufacturing or distribution processes would have a material adverse effect on our commercialization plans and our business, prospects, results of operations and financial condition.
We expect to require adequate proceeds generated from this offering and additional funding to maintain and expand our operations and develop our sales and distribution channels. However, there can be no assurance that additional funding will be available to us for the development of our business, which will require the commitment of substantial resources. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that an early stage company with a very limited operating history will face. In particular, potential investors should consider that we may be unable to:

successfully implement or execute our business plan, or that our business plan is sound;

effectively pursue business opportunities, including potential acquisitions;

adjust to changing conditions or keep pace with increased demand;

attract and retain an experienced management team; or

raise sufficient funds in the capital markets to effectuate our business plan, including expanding production capacity, licensing and approvals.
Our financial situation creates doubt as to whether we will continue as a going concern.
Each of Akanda, Bophelo and Canmart has generated no revenue or, only minimal revenue, since inception, and after the completion of the Acquisition, we expect to incur a net loss for the fiscal year ending December 31, 2021 and thereafter, primarily as a result of the costs of listing, as well as increased operating expenses to execute our business plan and growth strategy. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain
 
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funding from this offering or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
Future acquisitions and strategic investments could be difficult to integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value, and harm our results of operations and financial condition.
We may in the future seek to acquire or invest in, businesses, products, or technologies that we believe could complement our operations or expand our breadth, enhance our capabilities, or otherwise offer growth opportunities. While our growth strategy includes broadening our product offerings, implementing an aggressive marketing plan and employing product diversification, there can be no assurance that our systems, procedures and controls will be adequate to support our operations as they expand. We cannot assure you that our personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of our planned growth and diversified product offerings, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. Additionally, the integration of our acquisitions and pursuit of potential future acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In addition, we have limited experience in acquiring other businesses. Specifically, we may not successfully evaluate or utilize the acquired products, assets or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized, or we may be exposed to unknown risks or liabilities associated with our acquisitions.
We may not be able to find and identify desirable acquisition targets or we may not be successful in entering into an agreement with any one target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could harm our results of operations. In addition, if an acquired business fails to meet our expectations, our business, results of operations, and financial condition may suffer. In some cases, minority shareholders may exist in certain of our non-wholly-owned acquisitions (for businesses we do not purchase as an 100% owned subsidiary) and may retain minority shareholder rights which could make a future change of control or necessary corporate approvals for actions more difficult to achieve and/or more costly.
We may also make strategic investments in early-stage companies developing products or technologies that we believe could complement our business or expand our breadth, enhance our technical capabilities, or otherwise offer growth opportunities. These investments may be in early-stage private companies for restricted stock. Such investments are generally illiquid and may never generate value. Further, the companies in which we invest may not succeed, and our investments could lose their value.
Demand for cannabis and its derivative products could be adversely affected and significantly influenced by scientific research or findings, regulatory proceedings, litigation, or media attention.
The legal cannabis industry in the United Kingdom, the European Union and in many other potential international markets for us is at an early stage of its development. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of medicinal cannabis are mixed and evolving and can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of medicinal cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other
 
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research findings or publicity will be favorable to the medicinal cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity, could have a material adverse effect on the demand for medicinal cannabis and on our business, results of operations, financial condition and cash flows. Public opinion and support for medicinal cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. Our ability to gain and increase market acceptance of our business may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure to materialize into significant demand may have an adverse effect on our financial condition.
Our success will depend, in part, on our ability to continue to enhance our product offerings to respond to technological and regulatory changes and emerging industry standards and practices.
Rapidly changing markets, technology, emerging industry and regulatory standards and frequent introduction of new products characterize our business. The process of cultivating and processing our cannabis products to meet applicable standards and successfully marketing such products and obtaining necessary licenses requires significant continuing costs, marketing efforts, third-party commitments and regulatory approvals. Canmart has made a limited number of sales and Bophelo has made one sale to a local buyer to date. We currently aim to commence exporting medical cannabis biomass from Bophelo to Europe in 2022. From 2023 and beyond, we plan to expand our product offering to include cannabis oils and extracts, and ultimately, to produce consumer branded cannabis products for discerning patients. We may not be successful in timely expanding our production capacity, or obtaining any required regulatory approvals or licenses, to implement our growth plans, which, together with any capital expenditures made in our operations, may have a material adverse effect on our business, financial condition and operating results.
We are subject to the inherent risk of exposure to product liability claims.
As a cultivator and distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused bodily harm or injury. In addition, the sale of our products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning health risks, possible side effects or interactions with other substances. Product liability claims or regulatory actions against us could result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products.
We are subject to the inherent risks involved with product recalls.
Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection therewith. There can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if our products are subject to recall, our reputation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial condition. Additionally, product recalls may lead to increased scrutiny of our
 
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operations by regulatory agencies, requiring further management attention, potential loss of applicable licenses, and increased legal fees and other expenses.
Research regarding the medical benefits, viability, safety, efficacy, use and social acceptance of cannabis or isolated cannabinoids (such as cannabidiol and tetrahydrocannabinol) remains in early stages.
There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as cannabidiol and tetrahydrocannabinol. Although we believe that the articles, reports and studies support our beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions related to medical cannabis, which could have a material adverse effect on the demand for our products and could result in a material adverse effect on our business, financial condition and results of operations or prospects.
We may not be able to maintain effective quality control systems.
We may not be able to maintain an effective quality control system. The effectiveness of our quality control system and our ability to obtain or maintain EU Good Manufacturing Practice (“EU GMP”) and Good Agricultural and Collecting Practices (“GACP”) certifications with respect to our manufacturing, processing and testing facilities depend on a number of factors, including the design of our quality control procedures, training programs, and the ability to ensure that our employees adhere to our policies and procedures. We also may depend on third party service providers to manufacture, process or test our products, that are subject to EU GMP and GACP requirements.
We expect that regulatory agencies will periodically inspect our and our service providers’ facilities to evaluate compliance with applicable EU GMP and GACP requirements. Failure to comply with these requirements may subject us or our service providers to possible regulatory enforcement actions. Any failure or deterioration of our or our service providers’ quality control systems, including loss of EU GMP and GACP certifications, may have a material adverse effect on our business, results of operations and financial condition.
The medical cannabis industry and market may not continue to exist or develop as we anticipate and we may ultimately be unable to succeed in this industry and market.
We are operating our current business in a relatively new industry, and our success depends on the continued growth of this market as well as our ability to attract and retain patients. Demand for pharmaceutical-grade cannabis and cannabis-based products is dependent on a number of social, political and economic factors that are beyond our control. Our projections on the number of people who have the potential to benefit from treatment with pharmaceutical-grade cannabis or cannabis-based products are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, and market research, and may prove to be incorrect. There is no assurance that an increase in existing demand will occur, that we will benefit from any such increased demand, or that our business will remain profitable even in the event of such an increase in demand.
In addition to being subject to the general business risks applicable to a business involving an agricultural product and a regulated medical product, we need to continue to build brand awareness within the medical cannabis industry and make significant investments in our business strategy and production capacity. These investments include introducing new medical cannabis products into the markets in which we operate, adopting quality assurance protocols and procedures, building our international presence and undertaking regulatory compliance efforts. These activities may not promote our products as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share.
Competitive conditions, physician preferences, patient requirements and spending patterns in the medical cannabis industry and market are relatively unknown and may have been uniquely impacted by circumstances unlike those in other existing industries and markets. Our target patient population may be
 
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smaller than expected, may not be otherwise amenable to treatment with our products, or may become increasingly difficult to identify and access. Further, we may not be successful in our efforts to attract and retain patients, develop new pharmaceutical-grade cannabis and cannabis-based products, produce and distribute these products to the markets in which we operate or to which we export in time to be effectively commercialized. In order to be successful in these activities, we may be required to expend significantly more resources than we currently anticipate, which could adversely affect our business, financial condition, results of operations and prospects.
The cannabis and cannabinoid industries face strong opposition.
Many political and social organizations oppose hemp and cannabis and their legalization, and many people, even those who support legalization, oppose the sale of hemp, cannabis and their derivatives in their geographies. Our business will need support from local governments, industry participants, consumers and residents to be successful. Additionally, there are large, well-funded businesses and industry groups that may have a strong opposition to the cannabis industry. For example, the pharmaceutical and alcohol industries have traditionally opposed cannabis legalization. Any efforts by these or other industries opposed to cannabis to halt or impede the cannabis industry could have detrimental effects on our business.
We, or the medical cannabis industry more generally, may receive unfavorable publicity or become subject to negative patient, physician or investor perception.
We believe that the medical cannabis industry is highly dependent upon positive patient, physician or investor perception regarding the benefits, safety, efficacy and quality of the cannabis distributed to patients for medical use. Perception of the medical cannabis industry, medicinal cannabis products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) both in Israel and in other countries relating to the use of cannabis or cannabis-based products for medical purposes, including unexpected safety or efficacy concerns arising with respect to pharmaceutical-grade cannabis or cannabis-based products or the activities of medical-use cannabis industry participants.
There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the medical-use cannabis market or any particular medicinal cannabis products or will be consistent with prior publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our medicinal cannabis products or cannabis for medical use more generally. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis for medical purposes, or our current or future products specifically, or associating the use of cannabis with illness or other negative effects or events, could adversely affect us. This adverse publicity could arise even if the adverse effects associated with cannabis or cannabis-based products resulted from products that are not derived from medicinal cannabis or a patient’s failure to use such products legally, appropriately or as directed.
We are subject to the risks inherent in an agricultural business.
Following the completion of the Acquisition, our business involves the growing of cannabis, which is an agricultural product. The occurrence of severe adverse weather conditions, especially droughts, fires, storms or floods is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply of cannabis. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce our yields or require us to increase our level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts could reduce the yield and quality of our cannabis production, which could materially and adversely affect our business, financial condition and results of operations.
The occurrence and effects of plant disease, insects and pests can be unpredictable and devastating to agricultural production, potentially rendering all or a substantial portion of the affected harvests unsuitable
 
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for sale. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs may have been incurred. Although some plant diseases are treatable, the cost of treatment can be high and such events could adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plant disease and the production is threatened, we may be unable to adequately supply our customers, which could adversely affect our business, financial condition and results of operations. There can be no assurance that natural elements will not have a material adverse effect on production.
Our business will be reliant upon third party suppliers, service providers and distributors.
As our business grows, we will need a supply chain for certain material portions of the production and distribution process of our products. Our suppliers, service providers and distributors may elect, at any time, to breach or otherwise cease to participate in supply, service or distribution agreements, or other relationships, on which our operations rely. Loss of our suppliers, service providers or distributors would have a material adverse effect on our business and operational results.
Bophelo currently purchases quality cannabis seeds primarily from OG DNA Genetics Inc. and also from other reputable suppliers of cannabis genetics based in Europe. If replacement seeds cannot be obtained at comparable prices, or at all, or if the necessary authorizations are not obtained, our business, financial condition and results of operations would be materially and adversely affected. Our operations could be materially and adversely affected if the supply of cannabis seeds is ceased or delayed and we do not find replacement suppliers and obtain all necessary authorizations.
Part of our strategy is to enter into and maintain arrangements with third parties related to the development, testing, marketing, manufacturing, distribution and commercialization of our products. Our revenues are dependent on the successful efforts of these third parties, including the efforts of our distribution partners. Entering into strategic relationships can be a complex process and the interests of our distribution partners may not be or remain aligned with our interests. Some of our current and future distribution partners may decide to compete with us, refuse or be unable to fulfill or honor their contractual obligations to us, or change their plans to reduce their commitment to, or even abandon, their relationships with us. There can be no assurance that our distribution partners will market our products successfully or that any such third-party collaboration will be on favorable terms.
Our profit margins and the timely delivery of our products are dependent upon the ability of our outside suppliers and manufacturers to supply us with products in a timely and cost-efficient manner. Our ability to develop our business and enter new markets and sustain satisfactory levels of sales in each market depends upon the ability of its outside suppliers and manufacturers to produce the ingredients and products and to comply with all applicable regulations. The failure of our primary suppliers or manufacturers to supply ingredients or produce its products could adversely affect our business operations.
There is no assurance that our sales and promotional activities will be successful.
Our future growth and profitability will depend on the effectiveness and efficiency of sales and promotional expenditures, including our ability to (i) create greater awareness of our products, (ii) determine the appropriate creative message and media mix for future marketing expenditures and (iii) effectively manage sales and promotional costs in order to maintain acceptable operating margins. We plan to continue to develop the direct sale model of Canmart, which may require us to establish our own clinics and pharmacies. There can be no assurance that our sales and promotional expenditures will result in revenues in the future or will generate awareness of our products and services. In addition, no assurance can be given that we will be able to manage our sales and promotional expenditures on a cost-effective basis.
We believe that maintaining and promoting our brand is critical to expanding our customer base. Maintaining and promoting our brand will depend largely on our ability to continue to provide quality, reliable and innovative products, which we may not do successfully. We may introduce new products or services that our customers do not like, which may negatively affect our brand and reputation. Maintaining and enhancing our brand may require us to make substantial investments, and these investments may not
 
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achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business and financial results from operations could be materially adversely affected.
We may be unable to sustain its pricing model.
Significant price fluctuations or shortages in the cost of materials may increase our cost of goods sold and cause its results of operations and financial condition to suffer. If we are unable to secure materials at a reasonable price, we may have to alter or discontinue selling some of our products or attempt to pass along the cost to its customers, any of which could adversely affect our results of operations and financial condition.
Additionally, increasing costs of labor, freight and energy could increase our and our suppliers’ cost of goods. If our suppliers are affected by increases in their costs of labor, freight and energy, they may attempt to pass these cost increases on to us. If we pay such increases, we may not be able to offset them through increases in its pricing, which could adversely affect our results of operations and financial condition.
We may be unable to effectively manage future growth.
We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Rapid growth of our business may significantly strain our management, operations and technical resources. If we are successful in obtaining large orders for its products, we will be required to deliver large volumes of products to our customers on a timely basis and at a reasonable cost. We may not obtain large-scale orders for our products and if we do, we may not be able to satisfy large-scale production requirements on a timely and cost-effective basis. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations and prospects.
We are subject to significant competition by new and existing competitors in the cannabis industry.
The industry in which we operate is subject to intense and increasing competition. Many of our competitors have greater resources that may enable them to compete more effectively than us in the cannabis industry, or they have a longer operating history and greater capital resources and facilities, which may enable them to compete more effectively in this market. We expect to face additional competition from existing licensees and new market entrants who are granted licenses in the jurisdictions in which we expect to operate, including the United Kingdom and the Kingdom of Lesotho, and other jurisdictions in which we intend to expand our operations. If a significant number of new licenses are granted in the near term, we may experience increased competition for market share and may experience downward pricing pressure on our products as new entrants increase production. Such competition may cause us to encounter difficulties in generating revenues and market share, and in positioning our products in the market. If we are unable to successfully compete with existing companies and new entrants to the market, our lack of competitive advantage will have a negative effect on our business and financial condition.
The legalization of adult-use, recreational cannabis may reduce sales of medical cannabis.
Legalization of the sale to adults of recreational, non-medical cannabis in any country may increase competition in the medical cannabis market. We currently do not plan to sell recreational, non-medical cannabis products. We may not be able to achieve our business plan in a highly competitive market where recreational, adult-use cannabis is legal, or the market may experience a drop in the price of cannabis and cannabis products over time, decreasing our profit margins.
We are dependent upon our management and key employees, and the loss of any member of our management team or any key employee could have a material adverse effect on our operations.
Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management and key employees, including, without limitation, Louisa Mojela, our Executive Chairman, and Tejinder Virk, our Chief Executive Officer. The loss of any member of our management team or any of
 
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our key employees could have a material adverse effect on our business and results of operations. While employment agreements and incentive programs are customarily used as primary methods of retaining the services of key employees, these agreements and incentive programs cannot assure the continued services of such employees. Any loss of the services of such individuals, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on our business, operating results or financial condition. We do not currently maintain key-person insurance on the lives of any of our key employees or members of management. Competition for qualified technical, sales and marketing staff, as well as officers and directors can be intense, and no assurance can be provided that we will be able to attract or retain such qualified individuals in the future, which may adversely affect our operations.
Our directors and officers may have conflicts of interest in conducting their duties.
We may be subject to various potential conflicts of interest because of the fact that some of our officers and directors may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to us. In some cases, our executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect our operations. These business interests could require significant time and attention of our executive officers and directors. For example, our Executive Chairman, Ms. Mojela controls the MMD Trust which leases premises to Bophelo. See a discussion of the Investor Rights Agreement under “Certain Relationships and Related Party Transactions  — Our Transactions with Executive Chairman.”
The recent Coronavirus (“COVID-19”) outbreak and similar disease outbreaks or public health emergencies could adversely affect our future operations.
Our operations could be significantly and adversely affected by the effects of a widespread global outbreak of a contagious disease and other unforeseen events, including the recent outbreak of a respiratory illness caused by COVID-19 and the related economic repercussions. We cannot accurately predict the effects COVID-19 will have on our operations and the ability of others to meet their obligations with us, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In light of the recent COVID-19 pandemic, there could be a negative impact on sourcing medical cannabis products for our distribution in the United Kingdom or, the continued buildout and optimization of our cultivation and manufacturing facilities in the Kingdom of Lesotho in accordance with the requirement of EU GMP and the export of our cannabis products from Lesotho to other areas of the world. Additionally, COVID-19 has caused significant disruptions to the global financial markets, which could impact our ability to raise additional capital. The ultimate impact on us and our significant suppliers and prospective customers is unknown, but our operations and financial condition could suffer in the event of any of these types of unpredictable events. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition and cash flows.
At Bophelo and Canmart’s offices and operations facilities in the United Kingdom and the Kingdom of Lesotho, all employees wear masks and practice social distancing. There are strict protocols on screening of employees and visitors; which include temperature checks and the requirement to complete detailed questionnaires concerning, among other things, possible exposure to COVID-19. Hand sanitizer is provided and hand washing protocols are in place. Signage has been put in place at our operations reminding visitors and staff of COVID-19 protocols. Both the U.K. and Lesotho governments have commenced the roll-out of COVID-19 vaccines to the population of each of those countries. The U.K. population has reached a significant level of vaccination, while Lesotho’s rate of vaccination is still in its early stages. Bophelo and Canmart have encouraged all of their employees to be vaccinated. Despite these measures taken, there is no guarantee that the continued development of COVID-19 will not affect their operations negatively.
We could be subject to a security breach that could result in significant damage or theft of products and equipment.
Breaches of security at our facilities may occur and could result in damage to or theft of products and equipment. A security breach at our facilities could result in a significant loss of inventory or work in process,
 
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expose us to liability under applicable regulations and increase expenses relating to the investigation of the breach and implementation of additional preventative security measures, any of which could have an adverse effect on our business, financial condition and results of operations.
We may incur significant costs to defend our intellectual property and other proprietary rights.
The ownership and protection of trademarks, patents, trade secrets and intellectual property rights are significant aspects of our future success. Unauthorized parties may attempt to replicate or otherwise obtain and use our products and technology. Policing the unauthorized use of our current or future trademarks, patents, trade secrets or intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others.
In addition, other parties may claim that our products infringe on their proprietary rights such as trade secrets. Such claims, regardless of their merit, may result in the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining orders and/or require the payment of damages. Additionally, we may need to obtain licenses from third parties who allege that we have infringed on their lawful rights. Such licenses may not be available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to intellectual property that we do not own.
If we sustain cyber-attacks or other privacy or data security incidents that result in security breaches that disrupt our operations or result in the unintended dissemination of protected personal information or proprietary or confidential information, or if we are found by regulators to be non-compliant with statutory requirements for the protection and storage of personal data, we could suffer a loss of revenue, increased costs, exposure to significant liability, reputational harm and other serious negative consequences.
As our operations expand, we may process, store and transmit large amounts of data in our operations, including protected personal information as well as proprietary or confidential information relating to our business and third parties. Experienced computer programmers and hackers may be able to penetrate our layered security controls and misappropriate or compromise our protected personal information or proprietary or confidential information or that of third parties, create system disruptions or cause system shutdowns. They also may be able to develop and deploy viruses, worms and other malicious software programs that attack our systems or otherwise exploit any security vulnerabilities. Hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Our facilities may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors, or other similar events that could negatively affect our systems and our customer’s data.
Risks Related to Our Expected International Operations and Operations in Emerging Markets
As a company based outside of the United States, we are subject to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated with conducting business outside of the United States. Following the completion of the Acquisition, our operations are based primarily in the United Kingdom and the Kingdom of Lesotho. Our principal office and Canmart’s operations are located in the United Kingdom, and Bophelo’s cultivation operations are located in the Kingdom of Lesotho. Accordingly, our future results could be harmed by a variety of factors, including, without limitation, the following:

economic weakness, including inflation, or political instability in non-U.S. economies and markets;

differing and changing regulatory requirements for product licenses and approvals;

differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;

difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;
 
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changes in applicable non-U.S. regulations and customs, tariffs and trade barriers;

changes in applicable non-U.S. currency exchange rates and currency controls;

changes in a specific country’s or region’s political or economic environment, including the implications of the recent decision of the United Kingdom to withdraw from the European Union;

trade protection measures, import or export licensing requirements or other restrictive actions by governments;

differing reimbursement regimes and price controls in certain non-U.S. markets;

negative consequences from changes in tax laws;

compliance with applicable tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable tax treatment in different jurisdictions of options granted under our share option schemes or equity incentive plans;

workforce uncertainty in countries where labor unrest is more common than in the United States;

difficulties associated with staffing and managing international operations, including differing labor relations;

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, typhoons, floods and fires.
Our business could suffer as a result of the United Kingdom’s withdrawal from the European Union.
While we are incorporated in the Province of Ontario in Canada, our principal office, a number of our executive officers and key employees, and Canmart’s operations and assets are primarily located in the United Kingdom. The United Kingdom formally exited the European Union, commonly referred to as Brexit, on January 31, 2020. Under the terms of its departure, the United Kingdom entered into a transition period during which it continued to follow all European Union rules, and the trading relationship remained the same, until December 31, 2020. On December 24, 2020, the European Union and the United Kingdom entered into a new trade agreement to govern their relationship following Brexit. However, substantial uncertainty remains concerning which EU laws and regulations will continue to be implemented in the United Kingdom after Brexit (including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws).
The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the European Union after Brexit may negatively impact direct foreign investment in the United Kingdom, increase costs, depress economic activity and restrict access to capital. It may also be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise) beyond the date of Brexit. We may also face new regulatory costs and challenges that could have an adverse effect on our operations.
The United Kingdom’s withdrawal from the European Union could lead to increased market volatility, which could make it more difficult for us to do business in Europe or have other adverse effects on our business.
As a result of the United Kingdom’s withdrawal from the European Union, the United Kingdom now has third country status outside of the European Union. Before the end of 2020, the United Kingdom and the European concluded a Trade and Cooperation Agreement (“TCA”) which took effect January 1, 2021. The terms of the TCA allow for tariff-free and quota-free access to the EU market for the United Kingdom so long as the United Kingdom does not diverge from EU laws. To the extent the United Kingdom does diverge from EU laws, access to EU markets may be made more restricted than it currently is. In addition, the TCA does not allow U.K. institutions access to EU markets, so it is possible that there will be a period of considerable uncertainty, particularly in relation to U.K. financial and banking markets, as well as in
 
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relation to the regulatory process in Europe. As a result of this uncertainty, financial markets could experience volatility. We may also face new regulatory costs and challenges that could have a material adverse effect on our operations. In this regard, the European Medicines Agency has already issued a notice reminding marketing authorization holders of centrally authorized medicinal products for human and veterinary use of certain legal requirements that need to be considered as part of Brexit, such as the requirement for the marketing authorization holder of a product centrally approved by the European Commission to be established in the European Union, and the requirement for some activities relating to centrally approved products to be performed in the European Union. As a third country, the United Kingdom will lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers which could make our doing business worldwide more difficult. In addition, currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit. Should this foreign exchange volatility continue, it could cause volatility in our financial results.
We expect to increase our international sales in the future, and such sales may be subject to unexpected exchange rate fluctuations, regulatory requirements and other barriers.
We currently expect that our sales will be denominated in U.S. Dollars and Euro and that we may, in the future, have sales denominated in the currencies of additional countries in which we establish operations or distribution. In addition, we expect to incur the majority of our operating expenses in U.S. Dollars, Euro, South African Rands and Lesotho Maloti. Our international sales may be subject to unexpected regulatory requirements and other barriers. Any fluctuation in the exchange rates of foreign currencies may negatively affect our business, financial condition and results of operations. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs or illiquid markets. In addition, those activities may be limited in the protection they provide from foreign currency fluctuations and can themselves result in losses.
A change in our tax residence could have a negative effect on our future profitability.
Although we are incorporated in the Province of Ontario in Canada, we are a resident in the United Kingdom for tax purposes. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review by our directors or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than the United Kingdom. Should we cease to be tax resident in the United Kingdom, we may have exposure related to unexpected tax liabilities, such as a charge of United Kingdom, capital gains tax on a deemed disposal at market value of our assets and of unexpected tax charges in other jurisdictions on our income. Similarly, if the tax residency of any of our future subsidiaries were to change from their current jurisdiction for any of the reasons listed above, we may be subject to a charge of local capital gains tax on the assets.
Tax regulations and challenges by tax authorities could have a material adverse effect on our business.
We expect to operate in a number of countries and will therefore be regularly examined by and remain subject to numerous tax regulations. Changes in our global mix of earnings could affect our effective tax rate. Furthermore, changes in tax laws could result in higher tax-related expenses and payments. Legislative changes in any of the countries in which we operate could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities. Additionally, the uncertain tax environment in some regions in which we operate may limit our ability to successfully challenge adverse determination by any local tax authorities. We expect to operate in countries with complex tax rules, which may be interpreted in a variety of ways and could affect our effective tax rate. Future interpretations or developments of tax regimes or a higher than anticipated effective tax rate could have a material adverse effect on our tax liability, return on investments and business operations.
In addition, we and our future subsidiaries operate in, are incorporated in and are tax residents of, various jurisdictions. The tax authorities in the various jurisdictions in which we and our subsidiaries operate, or are incorporated, may disagree with and challenge our assessments of our transactions, tax
 
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position, deductions, exemptions, where we or our subsidiaries are tax resident, or other matters. If we are unsuccessful in responding to any such challenge from a tax authority, we may be required to pay additional taxes, interest, fines or penalties, we may be subject to taxes for the same business in more than one jurisdiction or may also be subject to higher tax rates, withholding or other taxes. A successful challenge could potentially result in payments to the relevant tax authority of substantial amounts that could have a material adverse effect on our financial condition and results of operations.
Even if we are successful in responding to challenges by taxing authorities, responding to such challenges may be expensive, consume time and other resources, or divert management’s time and focus from our business operations. Therefore, a challenge as to our tax position or status or transactions, even if unsuccessful, may have a material adverse effect on our business, financial condition, results of operations or liquidity or the business, financial condition, and results of operations.
We may be subject to emerging market risks.
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments.
The Kingdom of Lesotho has a history of economic instability and crises, as well as political instability. Laws and regulations applicable to our cultivation operations in the Kingdom of Lesotho are subject to change in the future and could adversely affect our business, financial condition and results of operations. In particular, fluctuations in the economy in Southern Africa and actions adopted by the government have had and may continue to have a significant impact on companies operating in Southern Africa, including in the Kingdom of Lesotho. Specifically, Bophelo may be impacted by inflation, foreign currency fluctuations, regulatory policies, business and tax regulations and, in general, by the political, social and economic scenarios in the Kingdom of Lesotho and other countries in which we may do business.
Global or regional economic crises could negatively affect investor confidence in emerging markets or the economies of the countries in Southern Africa, including the Kingdom of Lesotho. A significant decline in economic growth or a sustained economic downturn for any of Lesotho’s major trading partners (in particular, the United Kingdom, the United States and China) could have a material adverse impact on the balance of trade and remittances, resulting in lower economic growth. Deterioration in the economic and political situation in South Africa, which surrounds the Kingdom of Lesotho entirely, could adversely affect the local economy and cause instability by disrupting diplomatic or commercial relationships with other nearby countries. Any future tensions may cause political and economic uncertainty, instability, market volatility, low confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity generally in Southern Africa, including in the Kingdom of Lesotho. Such events could materially and adversely affect Bophelo’s business, financial condition and results of operations.
Exchange controls may restrict our ability to convert or transfer sums in foreign currencies.
Companies operating in Southern Africa are subject to exchange control limitations. Exchange controls in the Kingdom of Lesotho are administered by the Central Bank of Lesotho. While exchange controls have been relaxed in recent years and may continue to be relaxed, companies operating in Southern Africa remain subject to restrictions on their ability to export capital outside of the Common Monetary Area, which includes South Africa, Namibia, Lesotho and Eswatini. In addition, as the cash flows of certain countries are highly dependent on the export of certain raw materials, the ability to convert such currencies can be limited by the timing of payments for such exports, which may require us to organize our currency conversions around such constraints. These restrictions may affect the manner in which we finance our transactions outside Southern Africa and the geographic distribution of our debt.
We can offer no assurance that additional restrictions on currency exchange will not be implemented in the future or that these restrictions will not limit our ability to transfer cash, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
The markets in which we may operate are exposed to high inflation and interest rates which could increase our operating costs and reduce our profitability.
The economies of the countries in which we may operate, including the Kingdom of Lesotho, in the past have been, and in the future may continue to be, characterized by rates of inflation and interest rates
 
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that are substantially higher than those prevailing in the United States and other highly developed economies. High rates of inflation could increase our costs in such regions and decrease our operating margins. The CPI inflation in the Kingdom of Lesotho is at 5.1 percent during the ongoing financial year 2021-22. Inflation in Southern African countries generally results in an increase in our operational costs. Higher and sustained inflation in the future, with a consequent increase in operational costs, could have a material adverse effect on our results of operations and our financial condition and could result in operations being discontinued or reduced or rationalized, which could have a material adverse effect on our business, financial condition and results of operations.
Although higher interest rates would increase the amount of income we earn on our cash balances, they would also adversely affect our ability to obtain cost-effective debt financing in certain countries in which we may operate.
Operating in emerging markets may subject us to greater political, economic and market risks than those we would face if we only operated in more developed markets, which could increase our operating costs.
Emerging markets, including the Kingdom of Lesotho in Southern Africa, are subject to greater risks than more developed markets. The political, economic and market conditions in many emerging markets present risks that could make it more difficult to operate our business successfully. These risks include:

the strength of emerging market economies;

fluctuations in interest rates;

political and economic instability, including higher rates of inflation and currency fluctuations;

high levels of crime and unemployment;

higher levels of corruption, including bribery of public officials;

loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;

lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;

potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs, taxation and other laws or policies affecting foreign trade or investment;

restrictions on the right to convert or repatriate currency or export assets;

introduction or changes to indigenization and empowerment programs;

logistical and communications challenges;

difficulties in staffing and managing operations and ensuring the safety of our employees;

greater risk of uncollectible accounts and longer collection cycles; and

future downgrades of the debt ratings of the countries in which we operate.
If we are unable to effectively manage these risks, it could have a material adverse effect on our business, financial condition and results of operations.
Governments in Africa have in the past intervened in the economies of their respective countries and occasionally made significant changes in policy and regulations. Governmental actions have often involved, among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on wages and employee benefits, capital controls, limits on imports and arbitrary interference with private ownership of contract rights. Our business, financial condition and results of operations may be adversely affected by changes in government policies or regulations, including such factors as exchange rate and exchange control policies, inflation control policies, price control policies, consumer protection policies, import duties and restrictions, liquidity of domestic capital and lending markets, electricity rationing, tax policies, including tax increases and retroactive tax claims, and other political, diplomatic, social and economic developments in or affecting the countries where we operate. In the future, the level of
 
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intervention by African governments may continue to increase. It is difficult to predict the future political, economic and market environment in these countries, and these or other measures could have a material adverse effect on the economy of the countries in which we may operate and, consequently, could have a material adverse effect on our business, financial condition and results of operations.
We face the risk of disruption from labor disputes and changes to labor laws, which could result in significant additional operating costs or alter our relationship with our employees.
We are required to comply with extensive labor regulations in each of the countries in which we will have employees, including with respect to wages, social security benefits and termination payments. For example, Lesotho laws relating to labor regulate work time, provide for mandatory compensation in the event of termination of employment for operational reasons, and impose monetary penalties for non-compliance with administrative and reporting requirements in respect of affirmative action policies, which could result in significant costs.
In addition, future changes to Lesotho legislation and regulations relating to labor may increase our costs or alter our relationship with our employees. Resulting disruptions could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to our Regulatory Framework
The medicinal cannabis regulatory regime is very restrictive and new in the United Kingdom, and laws and enforcement could rapidly change again.
There are significant legal restrictions and regulations that govern the cannabis industry in the United Kingdom. The legislative changes recently made to allow for the prescription and possession of medicinal cannabis without Home Office licenses were very narrow. “Cannabis” remains a Class B controlled drug under the Misuse of Drugs Act 1973 and remains a Schedule 1 drug under the Misuse of Drugs Regulation 2001 (“MDR 2001”). Schedule 1 contains drugs which are not used medically. Cultivation, distribution and possession of Schedule 1 controlled drug is illegal without appropriate licenses. It is only CBPMs that have been moved to various other schedules under the MDR 2001, which then allows for the prescription and possession of CBPMs without a license.
However, there are also strict requirements that need to be met for the supply of CBPMs to patients to be compliant with the regulations. Despite the demand for CBPMs, there has been great reluctance from the medical establishment in general to prescribe “medicinal products” for which there are no official prescribing guidelines and a lack of clinical data. In particular, the Royal College of Physicians and NHS England have issued guidelines for medical practitioners stating that there is currently limited evidence of the effectiveness of CBPMs, except in very limited cases. This appears to have made specialist doctors loathe to prescribe CBPMs against this explicit guidance. As the medical establishment and regulators are still firming up their approaches to guidance and enforcement, this can create a level of operating uncertainty.
Our activities are, and will continue to be, subject to evolving regulation by governmental authorities. Due to the current regulatory environment in the United Kingdom, new risks may emerge; management may not be able to predict all such risks.
U.K. based companies also need to be aware of the potential difficulties posed by the U.K. Proceeds of Crime Act 2002 (“POCA”). POCA prohibits dealing with any benefit (directly or indirectly) arising from criminal conduct. Conduct is criminal if it:

constitutes an offence in any part of the United Kingdom, or

would constitute an offence in part of the United Kingdom if it occurred there.
This principle of “dual criminality” means that measures to legalize cannabis overseas can be potentially irrelevant when it comes to investing in the United Kingdom, and medicinal cannabis companies operating in the United Kingdom.
Although the risk of action being taken against a U.K. investor by law enforcement may be considered low when dealing with the indirect proceeds of cannabis, U.K. companies and investors should be sure to
 
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understand the precise nature of their investments or transactions and to keep in mind that investing in, or doing business with, companies involved in recreational cannabis, even where their activity is legal under the laws applicable to them, may nonetheless cause the U.K.-based investor or counterparty to violate U.K. money laundering laws.
Cannabis laws, regulations, and guidelines are dynamic and subject to changes.
Cannabis laws and regulations are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. It is also possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our businesses. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in the cannabis industry in the United Kingdom, the Kingdom of Lesotho and internationally will continue to be dynamic and will require innovative solutions to try to comply with this changing legal landscape in this nascent industry for the foreseeable future. Failure to comply with any such legislation may have a material adverse effect on our business, financial condition and results of operations.
Public opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public’s perception of the cannabis industry could affect future legislation or regulation in different jurisdictions.
There are risks associated with the regulatory regime and permitting requirements of our operations.
Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the cultivation, processing and sale of our products. Bophelo and Canmart currently holds the licenses required to conduct their respective operations. We may not be able to obtain or maintain the necessary licenses, permits, quotas, authorizations, certifications or accreditations to operate our business going forward, or may only be able to do so at great cost. We cannot predict the time required to secure all appropriate regulatory approvals for our products, or the extent of testing and documentation that may be required by local governmental authorities.
Our officers and directors must rely, to a great extent, on our local legal counsel and local consultants retained in the United Kingdom and Lesotho in order to keep abreast of material legal, regulatory and governmental developments as they pertain to and affect our business operations, and to assist us with governmental relations. We must rely, to some extent, on those members of management and the Board who have previous experience working and conducting business in the United Kingdom or the Kingdom of Lesotho in order to enhance our understanding of and appreciation for the local business culture and practices in such jurisdictions.
We also rely on the advice of local experts and professionals in connection with any current and new regulations that develop in respect of banking, financing and tax matters in the jurisdictions in which we operate. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices in such jurisdictions are beyond our control and may adversely affect our business.
We will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate those suffering loss or damage by reason of our operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition.
 
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Any failure on our part to comply with applicable regulations or to obtain and maintain the necessary licenses and certifications could prevent us from being able to carry on our business, and there may be additional costs associated with any such failure.
Our business activities are heavily regulated in all jurisdictions where we do business. Our operations are subject to various laws, regulations and guidelines by governmental authorities relating to the cultivation, processing, manufacture, marketing, management, distribution, transportation, storage, sale, packaging, labelling, pricing and disposal of cannabis and cannabis products. In addition, we are subject to laws and regulations relating to employee health and safety, insurance coverage and the environment. Laws and regulations, applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over our activities, including the power to limit or restrict business activities as well as impose additional disclosure requirements on our products and services.
Any failure by us to comply with applicable regulatory requirements could:

require extensive changes to our operations;

result in regulatory or agency proceedings or investigations;

result in the revocation of our licenses and permits, the imposition of additional conditions on licenses to operate our business, and increased compliance costs;

result in product recalls or seizures;

result in damage awards, civil or criminal fines or penalties;

result in the suspension or expulsion from a particular market or jurisdiction of our key personnel;

result in restrictions on our operations or the imposition of additional or more stringent inspection, testing and reporting requirements;

harm our reputation; or

give rise to material liabilities.
There can be no assurance that any future regulatory or agency proceedings, investigations or audits will not result in substantial costs, a diversion of management’s attention and resources or other adverse consequences to our business.
In addition, changes in regulations, government or judicial interpretation of regulations, or more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increase compliance costs or give rise to material liabilities or a revocation of our licenses and other permits. Furthermore, governmental authorities may change their administration, application or enforcement procedures at any time, which may adversely affect our ongoing regulatory compliance costs. There is no assurance that we will be able to comply or continue to comply with applicable regulations.
The legal cannabis market is a relatively new industry. As a result, the size of our target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of market data.
Because the cannabis industry is in a nascent stage, there is a lack of information about comparable companies available for potential investors to review in deciding whether to invest in us and, few, if any, established companies whose business model we can follow or upon whose success we can build. Accordingly, investors should rely on their own estimates regarding the potential size, economics and risks of the cannabis market in deciding whether to invest in our Common Shares. We are an early-stage company that has not generated net income. There can be no assurance that our growth estimates are accurate or that the cannabis market will be large enough for our business to grow as projected.
Although we are committed to researching and developing new markets and products and improving existing products, there can be no assurances that such research and market development activities will prove profitable or that the resulting markets or products, if any, will be commercially viable or successfully produced and marketed. We must rely largely on our own market research to forecast sales and design
 
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products as detailed forecasts and consumer research are not generally obtainable from reliable third-party sources in the United Kingdom, the European market, Southern Africa, Canada and in other international jurisdictions.
In addition, there is no assurance that the industry and market will continue to exist and grow as currently estimated or anticipated or function and evolve in the manner consistent with management’s expectations and assumptions. We could also be subject to other events or circumstances that adversely affect the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets.
Marijuana remains illegal under U.S. federal law, and the enforcement of U.S. cannabis laws could change.
There are significant legal restrictions and regulations that govern the cannabis industry in the United States. Marijuana remains a Schedule I drug under the Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. In those states in which the use of marijuana has been legalized, its use remains a violation of federal law pursuant to the Controlled Substances Act. The Controlled Substances Act classifies marijuana as a Schedule I controlled substance, and as such, medical and adult use cannabis use is illegal under U.S. federal law. Unless and until the U.S. Congress amends the Controlled Substances Act with respect to marijuana (and the President approves such amendment), there is a risk that federal authorities may enforce current federal law. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money laundering legislation. While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis regulatory programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve us of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against us should we expand our operations into the U.S. Since U.S. federal law criminalizing the use of marijuana pre-empts state laws that legalize its use, enforcement of federal law regarding marijuana may be a significant risk and could greatly harm our business, prospects, revenue, results of operation and financial condition if we were to expand our operations into the United States. We currently have no operations in the United States and no plans to expand our operations into the United States in the foreseeable future.
Our activities are, and will continue to be, subject to evolving regulation by governmental authorities. The legality of the production, cultivation, extraction, distribution, retail sales, transportation and use of cannabis differs among states in the United States. Due to the current regulatory environment in the United States, new risks may emerge; management may not be able to predict all such risks. Due to the conflicting views between state legislatures and the federal government regarding cannabis, cannabis businesses are subject to inconsistent laws and regulations. There can be no assurance that the federal government will not enforce federal laws relating to marijuana and seek to prosecute cases involving marijuana businesses that are otherwise compliant with state laws in the future. To date, federal enforcement agencies have taken little or no action against state-compliant cannabis businesses in the United States. However, the DOJ may change its enforcement policies at any time, with or without advance notice. The uncertainty of U.S. federal enforcement practices going forward and the inconsistency between U.S. federal and state laws and regulations may present risks for us if we expand our operations into the United States in the future.
Risks Related to Financials and Accounting
There are tax risks we may be subject to in carrying out our business in multiple jurisdictions.
We will operate and, accordingly, will be subject to income tax and other forms of taxation in multiple jurisdictions. We may be subject to income taxes and non-income taxes in a variety of jurisdictions and our tax structure may be subject to review by both domestic and foreign taxation authorities. Those tax authorities may disagree with our interpretation and/or application of relevant tax rules. A challenge by a tax authority in these circumstances might require us to incur costs in connection with litigation against the relevant tax authority or reaching a settlement with the tax authority and, if the tax authority’s challenge is successful, could result in additional taxes (perhaps together with interest and penalties) being assessed on
 
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us, and as a result an increase in the amount of tax payable by us. In addition, we may be subject to different taxes imposed by the local governments in the jurisdictions where we operate, and changes within such tax, legal and regulatory framework may have an adverse effect on our financial results.
Taxation laws and rates which determine taxation expenses may vary significantly in different jurisdictions, and legislation governing taxation laws and rates are also subject to change. Therefore, our earnings may be affected by changes in the proportion of earnings taxed in different jurisdictions, changes in taxation rates, changes in estimates of liabilities and changes in the amount of other forms of taxation. The determination of our provision for income taxes and other tax liabilities will require significant judgment (including based on external advice) as to the interpretation and application of these rules. We may have exposure to greater than anticipated tax liabilities or expenses.
There is a risk that we will be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current or any future taxable year, which could result in material adverse U.S. federal income tax consequences if you are a U.S. Holder.
If we (or any of our non-U.S. subsidiaries) are a PFIC for any taxable year during which a U.S. Holder owns Common Shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. The determination of whether a corporation is a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules that are subject to differing interpretations. In addition, the determination of whether a corporation will be a PFIC for any taxable year generally can only be made after the close of such taxable year. Therefore, it is possible that we could be classified as a PFIC for our initial taxable year or in future years due to changes in the nature of our business, composition of our assets or income, as well as changes in our market capitalization. In particular, our PFIC status will depend, in part, on the amount of cash that we raise in this offering and how quickly we utilize the cash in our business. Based upon the foregoing, it is uncertain whether we will be a PFIC for our current taxable year or any future taxable year. We have not determined, if we (or any of our non-U.S. subsidiaries) were to be classified as a PFIC for a taxable year, whether we will provide information necessary for a U.S. Holder to make a “qualified electing fund” election which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs. Accordingly, U.S. Holders should assume that they will not be able to make a qualified electing fund election with respect to our Common Shares. The PFIC rules are complex, and each U.S. Holder should consult his, her or its own tax advisor regarding the PFIC rules, the elections which may be available, and how the PFIC rules may affect the U.S. federal income tax consequences relating to the ownership and disposition of our Common Shares.
Failure to develop our internal controls over financial reporting as we grow could have an adverse effect on our operations.
As we mature, we will need to continue to develop and improve our current internal control systems and procedures to manage our growth. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish appropriate controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors.
Risks Related to Our Common Shares and This Offering
Investing in an emerging market poses a greater degree of risk than investing in more mature market economies.
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments. All of our cannabis cultivation operations are based in the Kingdom of Lesotho in Southern Africa. See “Risks Related to our International Operations” above.
Even if this offering is successful, we will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product and business development efforts or other operations.
We expect the net proceeds from this offering to be $17.8 million (or $20.0 million if the underwriters exercise in full their option to purchase up to 600,000 additional Common Shares from us) before deducting
 
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offering expenses payable by us. We expect that the net proceeds from this offering will be sufficient to fund our current operations at least through the end of 2022. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances or a combination of these approaches. Raising funds in the current economic environment may present additional challenges. It is not certain that we have accounted for all costs and expenses of future development and regulatory compliance. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert the attention of our management team from their day-to-day activities, which may adversely affect our ability to launch our business and develop and commercialize our products. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any future financing may adversely affect the holdings or the rights of our shareholders, and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute our existing shareholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
We have a significant shareholder, which may limit your ability to influence corporate matters and may give rise to conflicts of interest.
We have a significant shareholder, Halo. Philip van den Berg, the Chief Financial Officer and a director of Halo, is currently serving as Halo’s appointee to our Board of Directors pursuant to the Investor Rights Agreement. See a discussion of the Investor Rights Agreement under “Prospectus Summary — Our History and Relationship with Halo.” As of November 12, 2021, following the closing of the Acquisition and the Halo Transfer, Halo owned approximately 49.6% of our outstanding Common Shares. Following this offering, assuming all of the Common Shares offered hereby are sold (assuming no exercise by the underwriters of their option to purchase additional Common Shares) and conversion of the Debenture at a conversion price of $4.00 per share (the initial public offering price), we anticipate that Halo will own approximately 43.8% of our outstanding Common Shares. Accordingly, Halo exerts and may continue to exert significant influence over us and any action requiring the approval of the holders of our Common Shares, such as election of directors, amendments to our organizational documents, and approval of significant corporate transactions. This concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our Common Shares that you may feel are in your best interest as one of our shareholders. Furthermore, the interests of Halo may not always coincide with your interests or the interests of other shareholders and Halo may act in a manner that advances its best interests and not necessarily those of other shareholders. Additionally, our directors, Mr. Kié and Ms. Mojela each served as a director of Halo from October 2020 to July 2021, and July 2020 to July 2021, respectively. While our board does not believe any inherent conflict of interest exists due to each of Mr. Kie and Ms. Mojela’s role as directors of Halo, there may still be an appearance of a conflict of interest due to their prior roles.
If you purchase our Common Shares in this offering, you will incur immediate and substantial dilution in the book value of your Common Shares.
The initial public offering price of our Common Shares will be substantially higher than the pro forma as adjusted net tangible book value per share of our Common Shares immediately after the completion of
 
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this offering. You will suffer immediate and substantial dilution in the net tangible book value of the Common Shares you purchase in this offering. Based on the initial public offering price of $4.00 per Common Share and the sale of 4,000,000 Common Shares (after deducting estimated offering expenses), purchasers of Common Shares in this offering will experience dilution of approximately $3.45 per Common Share (not including the over-allotment of up to an additional 600,000 Common Shares if the full over-allotment option is exercised by the underwriters) in net tangible book value of the Common Shares.
See “Dilution.” To the extent that new equity awards are issued under our share-based compensation plans or we issue additional Common Shares including upon any conversion of the Debenture as applicable after this offering, there will be further dilution to investors participating in this offering.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our Common Shares to decline.
We may issue additional securities following the closing of this offering. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing shareholders. We may sell Common Shares, convertible securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our Common Shares.
Listing our Common Shares on a securities exchange will likely increase our regulatory burden.
We have applied for the listing of our Common Shares under the symbol “AKAN” on the Nasdaq Capital Market. Our application has not yet been approved by Nasdaq, and there is no guarantee that our application will be approved in connection with this offering. Although to date we have not been subject to the continuous and timely disclosure requirements of exchange rules, regulations and policies of Nasdaq, we are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems to manage our obligations as a public company listed on Nasdaq. These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, we cannot assure holders of our shares that these and other measures that we might take will be sufficient to allow us to satisfy our obligations as a public company listed on Nasdaq on a timely basis and that we will be able to achieve and maintain compliance with applicable listing requirements. In addition, compliance with reporting and other requirements applicable to public companies listed on Nasdaq will create additional costs for us and will require the time and attention of management. We cannot predict the amount of the additional costs that we might incur, the timing of such costs or the effects that management’s attention to these matters will have on our business.
We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives.
As a public company, particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including requirements to file periodic and event-driven reports with respect to our business and financial condition and operations and establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel have limited experience operating a public company, which may result in operational inefficiencies or errors, or a failure to improve or maintain effective internal controls over financial reporting (“ICFR”) and disclosure controls and procedures necessary to ensure timely and accurate reporting of operational and financial results. Our existing management team will need to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with compliance. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly.
 
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Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our ICFR, which, after we are no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for ICFR. If our management and/or auditors determine that there are one or more material weaknesses in our ICFR, such a determination could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some public company required activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention from revenue generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect that being a public company and complying with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our Board.
If we fail to meet applicable listing requirements, Nasdaq may not approve our listing application, or may delist our Common Shares from trading, in which case the liquidity and market price of our Common Shares could decline.
We cannot assure you that we will be able to meet Nasdaq’s initial listing standards, or that we will be able to meet the continued listing standards of Nasdaq in the future. If we fail to comply with the applicable listing standards and Nasdaq delists our Common Shares, we and our shareholders could face significant material adverse consequences, including:

a limited availability of market quotations for our Common Shares;

reduced liquidity for our Common Shares;

a determination that our Common Shares are “penny stock”, which would require brokers trading in our Common Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Shares;

a limited amount of news about us and analyst coverage of us; and

a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.
Receiving financial benefit directly or indirectly as a result of ownership of Common Shares may be subject to anti-money laundering laws in the United Kingdom.
Cannabis-related financial transactions, including investment in the securities of cannabis companies and receipt of any associated benefits, such as dividends, could be subject to anti-money laundering laws in the U.K., specifically the Proceeds of Crime Act, however the application of these laws is still developing. In the U.K., financial benefit directly or indirectly arising from conduct that would be considered unlawful if it were to take place in the U.K. may be viewed to be within the purview of these laws, and persons receiving any such benefit, including investors may be subject to liability under such laws. Each prospective investor
 
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should therefore contact his, her or its own legal advisor regarding the ownership of our Common Shares and any related potential liability. The Proceeds of Crime Act is further discussed on pages 23 and 65.
Our executive officers, directors, significant shareholder and their respective affiliates may continue to exercise significant control over us after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
Our executive officers, directors and significant shareholder, Halo, represent beneficial ownership, in the aggregate, of approximately 68.1% of our outstanding Common Shares. Immediately following the completion of this offering, and disregarding any Common Shares that they purchase in this offering, if any, the existing holdings of our executive officers, directors, significant shareholder, Halo, and their affiliates will represent beneficial ownership, in the aggregate, of approximately 60.5% of our outstanding Common Shares. As a result, these shareholders may be able to influence our management and affairs and control the outcome of matters submitted to our shareholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These shareholders may have interests with respect to their Common Shares that are different from those of investors in this offering, and the concentration of voting power among one or more of these shareholders may have an adverse effect on the price of our Common Shares. In addition, this concentration of ownership might adversely affect the market price of our Common Shares by:

delaying, deferring or preventing a change of control in us;

impeding a merger, consolidation, takeover or other business combination involving us; or

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
Our directors and officers may have conflicts of interest in conducting their duties.
We may be subject to various potential conflicts of interest because of the fact that some of our officers and directors may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to us. In some cases, our executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect our operations. These business interests could require significant time and attention of our executive officers and directors.
We have broad discretion in how we use the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations and cause the price of our Common Shares to decline.
We will have considerable discretion in the application of the net proceeds of this offering. We intend to use the net proceeds from this offering for property, plant and equipment, operations, working capital, and general corporate purposes. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our shareholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
We are a foreign private issuer and intend to take advantage of the less frequent and detailed reporting obligations applicable to foreign private issuers.
We are a “foreign private issuer”, as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we will not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors, and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders
 
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may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell shares, as the reporting deadlines under the corresponding Canadian insider reporting requirements are longer.
As a foreign private issuer, we will be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. We will also be exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While we will comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, we will have more time than U.S. domestic companies after the end of each fiscal year to file our annual report with the SEC and will not be required under the Exchange Act to file quarterly reports with the SEC.
In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the Canadian practices we follow instead. We may in the future elect to follow home country practices in Canada with regard to certain corporate governance matters.
As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance requirements.
We may lose our status as a foreign private issuer in the United States, which would result in increased costs related to regulatory compliance under United States securities laws.
We will cease to qualify as a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4 under the Exchange Act, if, as of the last business day of our second fiscal quarter, more than 50% of our outstanding Common Shares are directly or indirectly owned by residents of the United States and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we determine that we fail to qualify as a foreign private issuer, we will cease to be eligible to avail ourselves of the forms and rules designated for foreign private issuers beginning on the first day of the fiscal year following such determination. Among other things, this will result in loss of the exemption from registration under the Exchange Act provided by Rule 12g3-2(b) thereunder, and, if we are required to register our Common Shares under section 12(g) of the Exchange Act, we will have to do so as a domestic issuer. Further, any securities that we issue in unregistered or unqualified offerings both within and outside the United States will be “restricted securities” (as defined in Rule 144(a)(3) under the Securities Act) and will continue to be subject to United States resale restrictions notwithstanding their resale in “offshore transactions” pursuant to Regulation S under the Securities Act. As a practical matter, this will likely require us to register more offerings of our securities under the Securities Act on either a primary offering or resale basis, even if they take place entirely outside the United States. The resulting legal and administrative costs of complying with the resulting regulatory requirements are anticipated to be substantial, and to subject us to additional exposure to liability for which we may not be able to obtain insurance coverage on favorable terms, or at all.
If our share price fluctuates after the offering, you could lose a significant part of your investment.
The market price of our Common Shares could be subject to wide fluctuations in response to, among other things, the risk factors described in this section of this prospectus, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us. Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our Common Shares. In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in
 
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the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
The public offering price of our Common Shares has been determined by negotiations between us and the Representative based upon many factors and may not be indicative of prices that will prevail following the closing of this offering. Volatility in the market price of our Common Shares may prevent investors from being able to sell their shares at or above the initial public offering price. As a result, you may suffer a loss on your investment.
Investors may be unable to enforce judgments against our directors and officers because our directors and officers reside outside of the United States.
We are incorporated under the laws of the Province of Ontario, Canada and most of our assets are located outside of the United States. Furthermore, most of our directors and officers reside outside of the United States in Canada, the Kingdom of Lesotho and the United Kingdom. As a result, investors may not be able to effect service of process within the United States upon our directors or officers or enforce against them in U.S. courts, judgments predicated on U.S. securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts, judgments obtained against these persons in courts located in jurisdictions outside of the United States.
As a result of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our Board of Directors or controlling shareholders than they would as public shareholders of a U.S. based company.
We do not intend to pay dividends on our Common Shares in the near future, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Shares.
We have never declared or paid any cash dividend on our Common Shares and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in our Common Shares will depend upon any future appreciation in their value. There is no guarantee that our Common Shares will appreciate in value or even maintain the price at which you purchased them.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us, our share price and trading volume could decline.
The trading market for our Common Shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our operations. We do not have any control over these analysts and their research and reports. Securities and industry analysts do not currently, and may never, publish research on our business. If no security or industry analysts commence coverage on us, the trading price for our Common Shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our shares could decrease, which might cause our share price and trading volume to decline.
After the completion of this offering, we may be at an increased risk of securities class action litigation.
Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we are listed on an exchange or quoted over-the-counter and our share price decreases and we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
 
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USE OF PROCEEDS
We estimate that we will receive approximately $14.2 million (based on an initial public offering price of $4.00 per Common Share) in net proceeds from the sale of 4,000,000 Common Shares offered by us in this offering, after deducting the underwriting discounts and commissions and estimated offering expenses of approximately $1.76 million payable by us.
The underwriters have an option to purchase up to 600,000 additional Common Shares at the public offering price less the underwriting discounts and commissions within 45 days after the date of this prospectus to cover-allotments, if any. Exercise by the underwriters of this option in full would result in additional net proceeds to us of approximately $2.208 million.
We intend to use the net proceeds from this offering for property, plant and equipment, operations, working capital, and general corporate purposes. Property, plant and equipment include the construction of greenhouses estimated at $3.5 million, an EU GMP post-harvest drying facility estimated at $1.5 million, and an EU GMP extraction facility estimated at $2 million.
Our management will have discretion in allocating the net proceeds in accordance with the above priorities and purposes. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our expansion and development efforts, whether or not we enter into strategic transactions, our general operating costs and expenditures, and the changing needs of our businesses.
Each $1.00 increase (decrease) in the initial public offering price of $4.00 per Common Share would increase (decrease) the net proceeds to us from this offering by approximately $3.7 million, assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions payable by us. We may also increase or decrease the number of Common Shares we are selling in this offering. An increase (decrease) of 1,000,000 in the number of Common Shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $3.7 million, assuming the initial public offering price of $4.00 per Common Share and after deducting the underwriting discounts and commissions payable by us.
We believe that our funds and the net proceeds from this offering will be sufficient to continue our businesses and operations as currently conducted through 2022; however, changing circumstances may cause us to consume capital significantly faster than we currently anticipate.
 
35

 
DIVIDEND POLICY
We have never paid dividends on our Common Shares. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. As such, we do not intend to declare or pay cash dividends on our Common Shares in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our Board of Directors subject to applicable laws and will depend upon, among other factors, our earnings, operating results, financial condition and current and anticipated cash needs. Our future ability to pay cash dividends on our Common Shares may be limited by the terms of any then-outstanding debt or preferred securities.
 
36

 
CAPITALIZATION
The following table sets forth our cash and cash equivalents, debt and capitalization as of September 30, 2021:

on an actual basis;

on a pro forma basis to give effect to (i) the conversion of the Debenture assuming a conversion price equal to an initial public offering price of $4.00 per Common Share in this offering; (ii) on a pro forma basis to give effect to the issuance of 2,288,400 Common Shares pursuant to the completion of the Private Placement at a price of $2.50 per Common Share, after deducting underwriting discounts and commissions and estimated related expenses payable by us; (iii) on a pro forma basis to give effect to the issuance of 880,000 shares at a price of $2.50 per Common Share to settle the Bridge Loan Facility; (iv) the issuance of 869,963 Common Shares to the ESG Trust, (v) the issuance of 13,129,212 Common Shares to Halo pursuant to the acquisition of Cannahealth Ltd, Bophelo Holdings Ltd, Canmart Ltd and Bophelo Bio Science and Wellness (Pty) Ltd.

on a pro forma, as adjusted, basis to give effect to the above and the issuance of 4,000,000 Common Shares in this offering at an initial public offering price of $4.00 per Common Share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as set forth in this prospectus.
You should read the following table in conjunction with the sections entitled “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our financial statements and the related notes thereto included elsewhere in this prospectus.
As of 30 September, 2021
(in [thousands/millions], except share amounts)
Actual(1)
Pro Forma(1)
Pro Forma,
as Adjusted(3)
Cash and cash equivalents
$ 959,832 $ 6,223,152 $ 20,466,601
Debt:
Total current liabilities
$ 11,313,959 $ 3,304,188 $ 3,304,188
Total non-current liabilities
$ 3,405,581 $ 3,405,581 $ 3,405,581
Total debt:
$ 14,719,540 $ 6,709,769 $ 6,709,769
Shareholders’ equity:
Common Shares (29,903,090 issued, unlimited
authorized)
$ 251,775 $ 29,578,469 $ 43,821,917
Underwriter fee arrangement warrants issued
Retained earnings (accumulated deficit)
$ (9,683,353) $ (12,607,730) $ (12,607,730)
Reserves
$ 21,053 $ 21,053 $ 21,053
Other comprehensive income
$ 196,568 $ (12,930,870) $ (12,930,870)
Total shareholders’ equity (deficiency)
$ (9,213,957) $ 4,060,922 $ 18,304,371
Total capitalization
$ 5,505,583 $ 10,770,691 $ 25,014,140
(1)
Based on the exchange rate of 15.33, which was the foreign exchange rate on September 30, 2021, as reported by the South African Revenue Service in its published historical rates for the South African Rand, and as used in our unaudited financial statements as of September 30, 2021.
(2)
Excludes 5,394,976 Common Shares reserved for future issuance under our Plan as well as any automatic evergreen increases in the number of Common Shares reserved for future issuance under our Plan.
(3)
The number of Common Shares on a pro forma as adjusted basis excludes Common Shares issuable upon exercise of warrants to be issued to the Representative of the underwriters as part of this offering at an exercise price of $5.25 (assuming an initial public offering price of $4.00 per share).
 
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DILUTION
Purchasers of the Common Shares in this offering will experience immediate and substantial dilution to the extent of the difference between the initial public offering price per Common Share paid by the purchasers of the Common Shares in this offering and the pro forma, as adjusted net tangible book value per Common Share immediately after, and giving effect to, this offering. Dilution results from the fact that the initial public offering price per Common Share in this offering is substantially in excess of the net tangible book value per Common Share attributable to our existing shareholders for our presently outstanding Common Shares.
Our historical net tangible book value per Common Share is determined by dividing our net tangible book value, which is the book value of our total tangible assets less the book value of our total liabilities, by the number of outstanding Common Shares. As of September 30, 2021, the historical net tangible book value of our Common Shares was ($11,530,241), or ($1.89) per Common Share.
After giving effect to the (i) conversion of the Debenture assuming a conversion price equal to an initial public offering price of $4.00 per Common Share in this offering, (ii) sale by us of 4,000,000 Common Shares in this offering at an initial public offering price of $4.00 per Common Share, (iii) the settlement of the bridge loan facility owing to Ms. Mojela by way of an issuance of 880,000 Common Shares, (iv) the sale by us of 2,288,400 Common Shares in a private placement at an offering price of $2.50 per share, after deducting underwriting discounts and commissions, and (v) the issuance of 869,963 Common Shares to the ESG Trust and (vi) receipt by us of the net proceeds of this offering, after deduction of the underwriting discounts and commissions and the estimated offering expenses payable by us, our pro forma, as adjusted net tangible book value as of September 30, 2021 would have been $15,986,299, or $0.55 per Common Share. The pro forma, as adjusted net tangible book value per Common Share immediately after the offering is calculated by dividing the pro forma, as adjusted net tangible book value of $15,986,299 by 28,903,090 Common Shares (which is the pro forma, as adjusted Common Shares outstanding as of September 30, 2021). The difference between the initial public offering price per Common Share and the pro forma, as adjusted net tangible book value per Common Share represents an immediate increase in net tangible book value of $3.45 per Common Share to our existing shareholders, and an immediate dilution in net tangible book value of $3.45 per Common Share to purchasers of Common Shares in this offering.
The following table illustrates this dilution to purchasers in this offering on a per Common Share basis (in thousands):
Initial public offering price per Common Share
$ 4.00
Net tangible book value per Common Share before this offering (as of September 30,
2021)
$ (1.89)
Increase in net tangible book value per Common Share attributable to existing shareholders due to the issuance of Common Shares after September 30, 2021
$ 1.68
Pro forma net tangible book value per Common Share before this offering (as of September 30, 2021)
$ (0.21)
Increase in net tangible book value per Common Share attributable to conversion of the Debenture offering
$ 0.28
Increase in net tangible book value per Common Share attributable to purchasers in this offering
$ 0.48
Pro forma, as adjusted net tangible book value per Common Share immediately after this offering
$ 0.55
Dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in
this offering
$ 3.45
Each $1.00 increase (decrease) in the initial public offering price of $4.00 per Common Share would increase (decrease) the pro forma, as adjusted net tangible book value per Common Share immediately after this offering by $3,700,000, and the dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in this offering by $0.87, assuming the number of Common Shares offered by us, as set
 
38

 
forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions payable by us.
We may also increase or decrease the number of Common Shares we are selling in this offering. An increase (decrease) of 1,000,000 in the number of Common Shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma, as adjusted net tangible book value per Common Share immediately after this offering by $3,700,000, and the dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in this offering by ($0.11), assuming the initial public offering price of $4.00 per Common Share remains the same, and after deducting the underwriting discounts and commissions payable by us.
The table and information above assume no exercise by the underwriters of their option to purchase additional Common Shares in this offering. If the underwriters exercise in full their option to purchase up to 600,000 additional Common Shares from us, the pro forma, as adjusted net tangible book value per Common Share immediately after this offering would be $0.62 per Common Share, and the dilution in pro forma, as adjusted net tangible book value per Common Share to purchasers in this offering would be $3.38 per Common Share, in each case assuming an initial public offering price of $4.00 per Common Share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of September 30, 2021, on an adjusted pro forma basis as described above, the number of Common Shares acquired or to be acquired, and the total consideration and the average price per Common Share (i) paid to us by existing shareholders and (ii) to be paid by new investors purchasing Common Shares in this offering at an initial public offering price of $4.00 per Common Share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Common Shares
Total Consideration
Number
Percent
Amount
Percent
Weighted
Average
Price Per
Share
Existing shareholders
24,903,090 86.16% $ 31,751,588 66.49% $ 1.28
Purchasers in this offering
4,000,000 13.84% $ 16,000,000 33.51% $ 4.00
Total
28,903,090 % $ 47,751,588 $ 1.65
Each $1.00 increase (decrease) in the initial public offering price of $4.00 per Common Share would increase (decrease) the total consideration paid by purchasers in this offering and the weighted average price per share paid by all shareholders by $3,700,000 and $0.13 per share, respectively, and in the case of an increase, would increase the percentage of total consideration paid by purchasers in this offering by 5.14%, and in the case of a decrease, would decrease the percentage of total consideration paid by purchasers in this offering by 5.14%, assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions payable by us.
Similarly, an increase (decrease) of 1,000,000 in the number of Common Shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by purchasers in this offering and the weighted average price per share paid by all shareholders by $3,700,000 and $0.08 per share, respectively, and in the case of an increase, would increase the percentage of total consideration paid by purchasers in this offering by 5.14%, and in the case of a decrease, would decrease the percentage of total consideration paid by purchasers in this offering by 6.08%, assuming the initial public offering price of $4.00 per Common Share remains the same, and after deducting the underwriting discounts and commissions payable by us.
The table and information above assume no exercise by the underwriters of their option to purchase additional Common Shares in this offering. If the underwriters exercise in full their option to purchase up to 600,000 additional Common Shares from us, the number of Common Shares underlying the Common Shares held by purchasers in this offering would be increased to 4,600,000 Common Shares, or 15.59% of the total number of Common Shares outstanding immediately after this offering, and the percentage of Common Shares held by our existing shareholders would be reduced to 84.41% of the total number of Common Shares outstanding immediately after this offering.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section of this prospectus entitled “Business”, and our financial statements, pro forma combined financial statements and related notes thereto, included elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a cannabis cultivation, manufacturing and distribution company whose mission is to provide premium quality medical cannabis products to patients worldwide. We are an early stage, emerging growth company headquartered in London, the United Kingdom. We have a limited operating history and minimal revenues to date.
Akanda was incorporated in July 2021 in connection with Halo’s plan to reorganize its medical cannabis market focused international business assets. On September 29, 2021, we entered into a share purchase agreement with Halo, pursuant to which we acquired such assets and as a result, Cannahealth, Bophelo Holdings, Canmart and Bophelo became our wholly-owned subsidiaries as of the closing of the transaction on November 3, 2021. Please see a discussion of the Acquisition and the diagram summarizes our legal entity structure following the closing of the Acquisition and the Halo Transfer under “Prospectus Summary — Our History and Relationship with Halo.”
Akanda, Cannahealth and Bophelo Holdings are holding companies which had no trading related operational activities to date, other than commercial activities which are solely related to their function as group and intermediate holding companies respectively.
Bophelo commenced operations including establishing sites and first phase construction and starting site preparation activities in 2018. Bophelo’s cultivation facility in the Kingdom of Lesotho is licensed to cultivate cannabis over an initial 5 hectare canopy area, with conditional approval from local authorities to extend its cultivation area up to 200 hectares in total. At present, the company is cultivating cannabis over a 0.3 hectare area and is in the process of expanding it by a further 1.5 to 2 hectares. During 2019 and 2020, Bophelo did not generate any revenue from a commercial harvest, although it completed a number of successful harvests for non-commercial purposes. Bophelo conducted its first sale of high-grade flower to a local buyer in March 2021 and has entered into distribution agreements with European based distributors. As we continue to build out and upgrade our facilities to meet EU standards, we aim to commence exporting medical cannabis biomass to Europe in 2022. From 2023 and beyond, we plan to expand our product offering to include cannabis oils and extracts, and ultimately, to produce consumer branded cannabis products for discerning patients.
Canmart commenced importing and distributing CBPMs in 2020 and has generated a small amount of revenue (less than $25,000) since its inception resulting from the sale of CBPMs to patients in the United Kingdom. Under the current controlled drugs regulatory regime, Canmart is only able to supply to dispensing pharmacists, clinics and other wholesale distributors. However, Canmart’s intention is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies.
As the closing of the Acquisition occurred in November 2021, set forth below is a discussion of the financial condition and operating results of each of Akanda, Cannahealth, Bophelo Holdings, Bophelo and Canmart for their respective historical reporting periods, on a stand-alone basis.
Akanda Corp.
Akanda was formed in Ontario, Canada on July 16, 2021 as a holding company. The discussion below regarding Akanda’s historical financial condition and operation results is limited to the reporting period since its inception to a recent practical date.
 
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Results of Operations
Reporting Period from July 16, 2021 (inception) through August 31, 2021
The following table sets forth key components of Akanda’s results of operations for the reporting period from July 16, 2021 (inception) through August 31, 2021.
July 16, 2021
(Inception) to
August 31,
2021
Operating expenses:
Legal fees
$ 31,898
Total operating expenses
31,898
Loss from operations
(31,898)
Net and comprehensive loss
$ (31,898)
As a holding company, Akanda had no operations to date. During the period ended August 31, 2021, it had incurred legal expenses of $31,898.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital and capital expenditures. Historically, we funded our liquidity requirements primarily through cash on hand which is from the issuance of shares. We did not have, during the reporting period, and we do not currently have any contractual obligations for ongoing capital expenditures.
The following table summarizes our cash flows from operating, investing and financing activities:
Period Ended
August 31,
2021
Change
Cash used in operating activities
$ 4,263
Not Applicable
Cash used in investing activities
$
Not Applicable
Cash provided by financing activities
$ 250,001
Not Applicable
Cash Flows from Financing Activities
Share Capital and Seed Financing
During the period from July 16, 2021 (inception) through August 31, 2021, Akanda issued a total of share capital of $250,001. Shortly after the formation of Akanda on July 16, 2021, Akanda issued a total of 5,626,805 Common Shares at a price of $0.0000001 each to Louisa Mojela (1,875,602 Common Shares), Tejinder Virk (1,875,602 Common Shares) and Raj Beri (includes 937,801 Common Shares held of record at August 31, 2021 by ERB Investment Holdings, LLC and 937,801 Common Shares held of record at August 31, 2021 by S&G Holdings, Ltd. Both ERB Investment Holdings, LLC and S&G Holdings, Ltd. are wholly owned and controlled by Raj Beri).
Short Term Loan
During the period from July 16, 2021 (inception) through August 31, 2021, Akanda received a loan from Halo in the amount of $4,263 to pay certain legal expenses. This loan is repayable on demand and bears no interest.
Subsequent Events
In November 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of
 
41

 
$2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
In November 2021, the Company completed the initial closing of a private placement to accredited investors of 2,126,400 Common Shares, at a purchase price of $2.50 per share, for approximately $5,316,000 in gross proceeds and on January 17, 2022, the Company completed an additional closing to accredited investors of 154,000 Common Shares at a purchase price of $2.50 per share, for approximately $385,000 (the “Private Placement”). A final closing of the offering took place on January 26, 2022 for a further subscription of 8,000 common shares at a purchase price of $2.50 per share, for $19,982 in gross proceeds.
Boustead Securities, LLC received under the Private Placement: (a) a commission equal to 7% of the gross proceeds and (b) a non-accountable expense allowance equal to 0.5% of the gross proceeds. The issuances of the above Common Shares were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. The sale and issuance of Common Shares to investors outside the United States under the Private Placement was also in reliance upon Regulation S promulgated under the Securities Act.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Akanda’s audited financial statements from July 16, 2021 (inception) through August 31, 2021 included in this prospectus.
Off-Balance Sheet Arrangements
We did not have, during the reporting period, and we do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Reporting Period from July 16, 2021 (inception) through September 30, 2021
The following table sets forth key components of Akanda’s results of operations for the reporting period from July 16, 2021 (inception) through September 30, 2021.
July 16, 2021 (Inception) to
September 30, 2021
Operating expenses:
Accounting and audit fees
$ 16,822
Consultant fees
32,904
Directors’ remuneration
12,275
Legal fees
39,474
Total operating expenses
101,475
Other income:
Foreign exchange gains
$ 5,296
Total other income
5,296
Net loss
(96,179)
Other comprehensive loss
(102)
Net and comprehensive loss
$ (96,281)
As a holding company, Akanda had not had any trading related operations to date, other than transactions incurred in relation to its function as a holding company for group entities. During the period ended September 30, 2021, it had incurred legal expenses of $39,474 as a result of corporate activity and transaction related legal fees in respect of the acquisition of Cannahealth Limited which was concluded on or around November 3, 2021.
 
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Akanda incurred consulting fees of $32,904 which related to advisory fees paid to our underwriters in connection with the private placement and the offering.
Directors remuneration costs of $12,275 was incurred in relation to non-executive director fee accruals which commenced with effect from September 1, 2021.
The Company also incurred accounting and audit fees of $16,822 during the period ending September 30, 2021 in relation to the preparation and of the Company’s audited financial statements.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital and capital expenditures. Historically, we funded our liquidity requirements primarily through cash on hand which is from the issuance of shares. We did not have, during the reporting period, and we do not currently have any contractual obligations for ongoing capital expenditures.
The following table summarizes our cash flows from operating, investing and financing activities for the period ended September 30, 2021:
Period Ended
September 30,
2021
Change
Cash used in operating activities
$ (9,420)
Not Applicable
Cash used in investing activities
$
Not Applicable
Cash provided by financing activities
$ 254,227
Not Applicable
Cash Flows from Operating Activities
Operating expenses
During the period from July 16, 2021 (inception) through September 30, 2021, Akanda’s working capital investment decreased by $92,055 as a result of an increase in accounts payable relating to accrued legal, consulting and audit fees. After taking this net working capital movement into consideration, the Company’s net use of cash to fund operating activities, after considering the effects of foreign exchange movements recorded in profit and loss, was $9,420.
Cash Flows from Financing Activities
Share Capital and Seed Financing
During the period from July 16, 2021 (inception) through September 30, 2021, Akanda issued a total of share capital of $250,001. Shortly after the formation of Akanda on July 16, 2021, Akanda issued a total of 5,626,805 Common Shares at a price of $0.0000001 each to Louisa Mojela (1,875,602 Common Shares), Tejinder Virk (1,875,602 Common Shares) and Raj Beri (includes 937,801 Common Shares held of record at September 30, 2021 by ERB Investment Holdings, LLC and 937,801 Common Shares held of record at September 30, 2021 by S&G Holdings, Ltd. Both ERB Investment Holdings, LLC and S&G Holdings, Ltd. are wholly owned and controlled by Raj Beri). On August 26, 2021, the Company sold 468,900 Common Shares to an accredited investor at a subscription price of $0.53 and received $250,000 in gross proceeds in a private placement in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder. Boustead Securities, LLC served as the placement agent for the Seed Financing and waived any commission for this transaction.
Short Term Loan
During the period from July 16, 2021 (inception) through September 30, 2021, Akanda received a loan from Halo in the amount of $4,226 to pay certain legal expenses. This loan is repayable on demand and bears no interest.
 
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Subsequent Events
In November 2021, the Company issued 880,000 Common Shares, at a price of $2.50 per share, to Louisa Mojela, our Executive Chairman, to settle Bophelo’s indebtedness to her in the aggregate amount of $2,200,000 under the Mojela Bridge Financing Facility. See “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
In November 2021, the Company completed an initial first closing of a private placement to accredited investors of 2,126,400 Common Shares, at a purchase price of $2.50 per share, for approximately $5,316,000 in gross proceeds and on January 17, 2022, the Company completed an additional closing to accredited investors of 154,000 Common Shares at a purchase price of $2.50 per share, for approximately $385,000 (the “Private Placement”). A final closing of the offering took place on January 26, 2022 for a further subscription of 8,000 Common Shares at a purchase price of $2.50 per share, for $19,982 in gross proceeds.
On September 28, 2021, Halo Collective Inc. (“Halo”), entered into a share purchase agreement (the “Purchase Agreement”) with Akanda Corp. in connection with the sale and purchase of its international assets (the “Transaction”). These international assets comprise Halo’s investments in Bophelo Bio Science & Wellness (Pty) Ltd, Canmart Ltd., Bophelo Holdings Ltd. and Cannahealth Ltd. The Purchase Agreement became unconditional on or around 3 November 2021 and the Transaction with Halo was successfully completed.
Prior to the completion of the Transaction, Halo completed an internal reorganization, pursuant to which Halo’s international assets in the UK & Lesotho namely Canmart Ltd, Bophelo Holdings Ltd and Bophelo Bio Science & Wellness (Pty) became, directly or indirectly, wholly owned subsidiaries of Cannahealth Ltd. In accordance with the terms of the Purchase Agreement, Halo sold 100% of the issued and outstanding shares of Cannahealth Ltd to the Company in exchange for 13,129,212 common shares in the capital of the Company (“Akanda Shares”), representing aggregate consideration of US$13,129,212.
In conjunction with the Transaction, Akanda entered into a secured convertible debenture agreement with Halo on or around November 3, 2021. The debenture agreement has a principal amount of US$6,559,294 and bears interest at a rate of 1% per annum. The amount due to Halo pursuant to the debenture agreement, comprising the principal amount and accrued interest payable respectively, ranks as a senior obligation of the Company in preference to other creditors. The debt is secured by way of a pledge of the Company’s shareholding in Cannahealth Ltd as well as by a general security interest granted to Halo in the assets of the Company, with the exception of any ownership interest or securities indirectly owned by the Company in Bophelo Bio Science & Wellness (Pty) Ltd. The debt is subject to automatic conversion into common shares of the Company upon the occurrence of a triggering event, which includes an initial public offering of the Company’s securities or an amalgamation, merger or takeover of the Company by a third party, and is repayable by November 2, 2022. In addition to automatic conversion in terms of the triggering event, the debenture is convertible into common shares of the Company at its own election. In the event of the debenture being converted to common shares of the Company as a result of a triggering event or at election of the Company, the conversion price shall be the current market price of the Company at the time of the occurrence of the triggering event, or in the case where no triggering event has taken place, then at the price of the last private placement of the Company where more than US$1,000,000 has been raised.
Cannahealth Limited
Cannahealth was formed on July 1, 2020 in Malta and was intended to be a holding company. The discussion below regarding Cannahealth’s historical financial condition and operation results is limited to the period since its inception to December 31, 2020, and the nine months ended September 30, 2021.
Results of Operations
Reporting Period from July 1, 2020 (inception) through December 31, 2020
The following table sets forth key components of Cannahealth’s results of operations for the reporting period from July 1, 2020 (inception) through December 31, 2020.
 
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Note
July 1, 2020
(Inception) to
December 31,
2020
Net sales
$  —
Net and Comprehensive loss
$  —
As a holding company, Cannahealth had no operations to date.
Liquidity and Capital Resources
Cannahealth’s principal liquidity requirements are for working capital. Historically, Cannahealth funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
July 1, 2020
(Inception) to
December 31,
2020
Change
Cash used in operating activities
$ Not Applicable
Cash used in investing activities
$ Not Applicable
Cash provided by financing activities
$ 1,477 Not Applicable
Cash Flows from Financing Activities
Share issuance
On July 1, 2020, Cannahealth issued 1,200 shares for $1,477.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Cannahealth’s audited financial statements from July 1, 2020 (inception) through December 31, 2020 included in this prospectus.
Off-Balance Sheet Arrangements
Cannahealth did not have, during the reporting period, and does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Reporting Period from July 1, 2020 (inception) through September 30, 2020 and the Nine Months ended September 30, 2021
The following table sets forth key components of Cannahealth’s results of operations for the reporting period from July 1, 2020 (inception) through September 30, 2020, and the nine months ended September 30, 2021.
January 1, 2021 to
September 30, 2021
July 1, 2020 (Inception) to
September 30, 2020
Net sales
$
Other comprehensive income:
Foreign exchange loss
(81)
Net and comprehensive loss
$ (81)
As an intermediate holding company, Cannahealth has not undertaken any trading related operating activities since its inception on July 1, 2020, other than activities related to its function as an intermediate holding company. For the nine months ended September 30, 2021, Cannahealth incurred foreign exchange translation losses of $81 on translation of its Euro denominated cash holding at September 30, 2021.
 
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Liquidity and Capital Resources
Cannahealth’s principal liquidity requirements are for working capital. Historically, Cannahealth funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
The following table summarizes our cash flows from operating, investing and financing activities:
January 1, 2021 to
September 30,
July 1, 2020
(Inception) to
September 30,
2021
2020
Change
Cash used in operating activities
$—
$ Nil
Cash used in investing activities
$—
$ Nil
Cash provided by financing activities
$ —
$ 1,477 $ (1,477)
Cash Flows from Financing Activities
Share issuance
On July 1, 2020, Cannahealth issued 1,200 shares for proceeds of $1,477. Cannahealth has not undertaken any other financing activities since July 1, 2020.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Cannahealth’s audited financial statements from July 1, 2020 (inception) through December 31, 2020 included in this prospectus.
Off-Balance Sheet Arrangements
Cannahealth did not have, during the reporting period, and does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Bophelo Holdings Ltd.
Bophelo Holdings was formed on August 4, 2021 in the United Kingdom as a holding company. The discussion below regarding Bophelo Holdings’ historical financial condition and operation results is limited to the period since its inception to August 31, 2020.
Results of Operations
Reporting Period from August 4, 2021 (inception) through August 31, 2021
The following table sets forth key components of our results of operations for the reporting period from August 4, 2021 (inception) through August 31, 2021.
Note
August 4, 2021
(Inception) to
August 31,
2021
Net sales
$    —
Comprehensive loss
$
As a holding company, Bophelo Holdings had no operations to date.
Liquidity and Capital Resources
Bophelo Holdings’ principal liquidity requirements are for working capital. Historically, Bophelo Holdings funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
 
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Period Ended
August 31,
2021
Change
Cash used in operating activities
$
Not Applicable
Cash used in investing activities
$
Not Applicable
Cash provided by financing activities
$ 138
Not Applicable
Cash Flows from Financing Activities
Share issuance
On August 4, 2021, Bophelo Holdings issued 100 shares for $138.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Bophelo Holdings’ audited financial statements from August 4, 2021 (inception) through August 31, 2021 and the unaudited condensed financial statements from August 4, 2021 (inception) through September 30, 2021 included in this prospectus.
Off-Balance Sheet Arrangements
Bophelo Holdings did not have, during the reporting period, and it does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Reporting Period from August 4, 2021 (inception) through September 30, 2021
The following table sets forth key components of our results of operations for the reporting period from August 4, 2021 (inception) through September 30, 2021.
August 4, 2021
(Inception) to
September 30, 2021
Net sales
$
Foreign exchange translation through other comprehensive loss
(3)
Net and Comprehensive loss
$ (3)
As a holding company, Bophelo Holdings had no operations to date. From inception (August 4, 2021) through to the period ending September 30, 2021, Bophelo Holdings incurred an exchange loss of $3 on translation of its cash balance of $135 from Great British Pounds to US Dollars at September 30, 2021.
The following table summarizes our cash flows from operating, investing and financing activities:
Liquidity and Capital Resources
Bophelo Holdings’ principal liquidity requirements are for working capital. Historically, Bophelo Holdings funded its liquidity requirements primarily through cash on hand which was from the issuance of shares.
Period Ended
September 30,
2021
Change
Cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  — NotApplicable
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ NotApplicable
Cash provided by financing activities
$ 138 NotApplicable
 
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Cash Flows from Financing Activities
Share issuance
On August 4, 2021, Bophelo Holdings issued 100 shares for $138. There have not been any further financing activities or cash transactions since that date through to the period ending September 30, 2021.
Critical Accounting Policies and Significant Judgments and Estimates
Please refer to Note 4 of Bophelo Holdings’ audited financial statements from August 4, 2021 (inception) through August 31, 2021 and the unaudited condensed financial statements from August 4, 2021 (inception) through September 30, 2021 included in this prospectus.
Off-Balance Sheet Arrangements
Bophelo Holdings did not have, during the reporting period, and it does not currently have any off- balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Bophelo Bio Science & Wellness Pty Ltd
Bophelo was formed in the Kingdom of Lesotho on July 5, 2018 and commenced operations in 2018.
Results of Operations
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019 and the Nine Months Ended September 30, 2021 and 30 September, 2020
The following table sets forth key components of Bophelo’s results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 and the nine months ended September 30, 2021 and September 30, 2020.
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Year Ended
December 31, 2020
Year ended
December 31, 2019
Sales
$ $ $ $
Cost of sales
Gross profit
Amortization and depreciation
231,427 173,971 248,743 198,824
Consulting and professional fees
504,866 454,721 701,985 365,641
Biological Assets costs
58,429
Short term accommodation expense
31,912 45,482 26,269
Office expenses
33,216 14,171 26,874 13,116
Personnel expenses
955,032 223,345 374,900 100,256
Travel expenses
57,063 4,789 5,154 30,582
General & Administration expenses
1,317,292 163,654 201,768 166,515
Loss from operations
(3,098,896) (1,066,563) (1,663,334) (901,203)
Interest income
25,782 9,529 10,187 399
Interest expenses
(393,186) (487,069) (645,162) (493,807)
Net loss before income tax
(3,466,300) (1,544,103) (2,298,310) (1,394,611)
Income tax expense
 
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Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Year Ended
December 31, 2020
Year ended
December 31, 2019
Net Loss for the year
(3,466,300) (1,544,103) (2,298,310) (1,394,611)
Other comprehensive income:
Foreign currency translation
83,016 604,902 150,742 (42,565)
Total comprehensive loss for the year
(3,383,284) (939,201) (2,147,568) (1,437,176)
Basic and diluted loss per ordinary share
(16) (6.95) (9.66) (33.26)
Weighted average number of ordinary shares outstanding
222,212 222,212 222,212 43,206
Revenue
During the years ended December 31, 2020 and 2019, and through to the nine months ended September 30, 2021, Bophelo has not generated any revenue from its operations as it has been in a start-up phase since its inception in 2018 and has focused on developing its cultivation site in the Kingdom of Lesotho and cultivating cannabis for the purpose of optimizing its strain selection and cultivation practices, rather than for commercial purposes. Additionally, Bophelo has not yet completed a full cannabis harvest cycle under GACP accredited conditions. At present, Bophelo expects its first completed harvest under GACP accredited conditions to take place in March/April 2022. GACP accreditation is an important requirement to improve the prospects of Bophelo having the ability to find a commercial buyer for its harvested product.
Net Loss and Total Comprehensive Loss
For the years ended December 31, 2020 and 2019, Bophelo incurred a net loss of $2,298,310 and $1,394,611, respectively, and a comprehensive loss of $2,147,568 and $1,437,176, respectively, which consisted primarily of consulting and professional fee expenses of $701,985 and $365,641, respectively, personnel expenses of $374,900 and $100,256, respectively, and general and administrative expenses of $201,768 and $166,515, respectively. The increase in net loss was due primarily to additional operating expenses being incurred to set up the business in Lesotho prior to the launch of commercial sales, which we expect to occur in 2022. For the nine months ended September 30 2021, Bophelo incurred a net loss of $3,666,300 and a comprehensive loss of $3,383,284 compared to a net loss and comprehensive loss of $1,544,103 and $939,201. The increase in losses compared to the years ended December 31, 2020 and 2019 is due to increased expenses relating to an uptake in operational and cultivating activities during the none months ended September 30, 2021, mainly as result of the build out of the shade cloth cultivation facility and other site ramp up and build out activities.
Amortization and Depreciation
Amortization and depreciation expenses increased from $198,824 for the year ended December 31, 2019 to $248,743 for the year ended December 31, 2020. The increase in the amortization and depreciation expenses recorded during the year was due to depreciation charges on additional items of property, plant and equipment that were acquired and brought into use during 2020. Additionally, a full 12 month’s depreciation on Bophelo’s right-of-use lease asset was recognized during 2020 compared to the prior year in which its right-of-use asset commenced in April 2019 upon the inception of the lease arrangement. For the nine months ended September 30, 2021, amortization and depreciation charges amounted to $231,427 ($173,971 in 2020) as a result of additional amortization and depreciation on intangible assets (the Company’s cannabis operating license) and property, plant and equipment that was in place at January 1, 2021 as well due to additional depreciation on new additions to property, plant and equipment that took place during the nine months ended September 30, 2021.
Consulting and Professional Fees
The consulting and professional fees incurred increased from $365,641 in the year ended December 31, 2019 to $701,985 for the year ended December 31, 2020. This increase in consulting and professional fees
 
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resulted from the increased operations relating to the set-up of the business in the Kingdom of Lesotho, as well as the corporate actions undertaken in connection with the sale of Bophelo to Halo pursuant to a purchase and sale agreement, which was closed in 2020 (the “Merger”). Furthermore, in 2020, Bophelo incurred professional fees in relation to the procurement of its GACP certification, which it obtained in August 2021. During the nine months ended September 30, 2021, Bophelo incurred a further $504,866 ($454,721 in 2020) in consulting and professional fees, primarily due to an increase in consulting fees related to the management and administration of Bophelo’s business and operations in the Kingdom of Lesotho as a result of increased operational activity during the nine month period ending September 30, 2021.
Biological Assets Costs
Biological assets costs of $58,429 were recorded for the year ended December 31, 2020 compared to an amount of $ nil in the prior year. These costs related to the write-down in the fair value of biological assets (cannabis plants that were still being cultivated and were yet to be harvested at December 31, 2020). The aforementioned fair value adjustment had the effect of writing the fair value of Bophelo’s biological assets to $ nil as these plants had been cultivated prior to Bophelo receiving its GACP certification, and in such circumstances, the fair value of these biological assets could not be measured reliably due to the lack of an observed active market for cannabis biomass produced outside of the GACP conditions. For the nine months ended September 30, 2021, Bophelo did not incur any expenses relating to biological assets. Due to the cyclical harvest season, Bophelo did not have any biological assets at September 30, 2021.
General and Administration Expenses
Bophelo incurred general and administration expenses of $201,768 and $166,515 for the years ended December 31, 2020 and December 31, 2019 respectively. These costs consisted mainly of a broad range of site related operational expenses such as utilities, fuel costs, import duties, security expenses, repairs and maintenance and consumables. These costs increased slightly compared to the prior period mainly due to increased activity on site as the ramp up of the facility continues. Bophelo incurred further general and administration expenses of $1,317,292 and $163,654 for the nine months ended September 30, 2021 and September 30, 2020 respectively. The year-on-year increase is mainly due to increased operational expenditure, most notably consumables costs (which increased from $59,860 in 2020 to $630,152 in 2021), resulting from the uplift in site activity and the increased planting and harvesting activity of noncommercial cannabis crops as well as due to increased infrastructure build out.
Personnel Expenses
Bophelo incurred personnel expenses of $374,900 for the year ended December 31, 2020 compared to $100,256 for the year ended December 31, 2019. The increase in personnel expenses was due to increased operational staff for Bophelo’s cultivation operations in the Kingdom of Lesotho. Additional staff were hired due to a ramp-up of cultivational activities as well as site build-out activities. Furthermore, Halo seconded several senior cultivation staff members to Bophelo in order to assist with the set-up of operations. For the nine months ended September 30, 2021. Bophelo experienced a significant increase in personnel expenses amounting to $955,032 for the nine month period, compared with $374,900 and $100,256 for the years ended December 31, 2020 and 2019 respectively. Personnel expenses significantly increased to $955,032 ($223,345 in 2020) during the past nine months primarily due to a large number of casual waged workers being hired to assist with the build out of Bophelo’s new shade cloth cultivation areas, as well to assist with other site build out activities relating to general infrastructure needed on the site.
Interest Expense
Bophelo incurred interest expense of $645,162 for the year ended December 31, 2020 compared to interest expense of $493,807 for the year ended December 31, 2019. The increase in interest expense was primarily due to the interest expense unwind relating to the lease liability that was recognized on inception of the lease of Bophelo’s premises in T’sakohlo in April 2019. Interest expense implicit in the lease were compounded by the fact that Bophelo did not make lease payments under the lease until after the year ended December 31, 2020. Additionally, interest expense increased due to the cumulative effect of increased borrowings, most notably as a result of the interest bearing loan received from Louisa Mojela in the latter
 
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half of 2019. Bophelo incurred a further $393,186 in interest expense during the nine months ended September 30, 2021 compared to $487,069 for the comparative period ending September 30, 2020. As was seen in the years ending December 31, 2020 and 2019, this interest expenses was incurred in relation to the interest bearing loan received from Louisa Mojela and interest expense relating to the unwind of the long term lease liability related to the lease of Bophelo’s premises in the Kingdom of Lesotho. The decrease compared to the prior period was due to the diminishing balance of the lease liability on a year-on-year basis.
Interest income
Interest income for the year ended December 31, 2020 was $10,187 compared to $399 for the year ended December 31, 2019. This increase was related to interest received during the 2020 year as a result of Bophelo experiencing increased average cash balances throughout the year. Similarly, interest income increased to $25,782 for the nine months ended September 30, 2021 compared to the none months ending September 30, 2020 which saw interest income of $9,529. Again, the increase was due to higher average cash balances being experienced throughout the current period compared to the prior year.
Foreign Currency Translation
The foreign exchange gain/(loss) is recognized on the translation of the financial statements from Lesotho Loti to United States Dollar. The Lesotho Loti is the functional currency of Bophelo while the United States Dollar is its reporting currency. The exchange gains and losses have not been incurred on any transactions or balances held by Bophelo in a different currency. Furthermore, due to foreign currency rates between the Loti and the US Dollar stabilizing during the nine months ended September 30, 2021, the effect of foreign currency translation movements decreased compared to the prior year
Liquidity and Capital Resources
Bophelo’ principal liquidity requirements are for working capital and capital expenditures. Historically, Bophelo funded its liquidity requirements primarily through cash on hand, and debt financing, including from officers and shareholders. As of December 31, 2020, Bophelo had $10,120 of cash and cash equivalents, with $818,447 as of December 31, 2019. As of September 30, 2021 and September 30, 2020, Bophelo had cash and cash equivalent balances of $480,444 and $69,379 respectively.
The following table summarizes our cash flows from operating, investing and financing activities:
Year Ended
December 31,
2020
Year Ended
December 31,
2019
Change
Cash used in operating activities
$ (1,353,959) $ (660,007) $ (693,952)
Cash used in investing activities
$ (432,203) $ (677,145) $ (244,942)
Cash provided by financing activities
$ 1,032,008 $ 2,116,312 $ (1,084,304)
Nine Months Ended
September 30,
2021
Nine Months Ended
September 30,
2021
Change
Cash used in operating activities
$ (2,774,139) $ (690,371) $ (2,083,768)
Cash used in investing activities
$ (554,858) $ (381,159) $ (173,699)
Cash provided by financing activities
$ 4,070,078 $ 239,864 $ 3,830,214
Cash Flow Used in Operating Activities
For the year ended December 31, 2020, net cash flows used in operating activities amounted to $1,353,959 compared to $660,007 used during the year ended December 31, 2019, respectively, primarily due to increased operating expenditure related to the establishment and running of the business. For the nine months ended September 30, 2021 and September 30, 2020, Bophelo used an additional $2,083,768 in cash to fund operating activities compared to the prior period. This was due to increased operation expenditure linked to increased site activity.
 
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Cash Flows Used in Investing Activities
During the year ended December 31, 2020, Bophelo used $432,203 in investing activities related to the leasing of a right of use asset and foreign exchange variances on Bophelo’s property, plant and equipment and intangible assets. During the year ended December 31, 2019, Bophelo used $677,145 in investing activities relating to the purchase of property, plant and equipment and foreign exchange variances on Bophelo’s property, plant and equipment and intangible assets. For the nine months ended September 30, 2021 and September 30, 2020, Bophelo used an additional $173,699 compared to the prior period in cash to fund investment activities compared to the prior period. This was due to increased investment in property, plant and equipment linked to increased site expansion and build out.
Cash Flows from Financing Activities
During the year ended December 31, 2020, Bophelo had cash flow provided by financing activities of $1,032,008 compared to cash flow provided by financing activities of $2,116,312 in 2019, representing a decrease of $1,084,304 in the amount of cash raised from financing activities on a year-on year basis. This decrease was primarily the result of Bophelo, during the year ended December 31, 2019, having taken out a long-term lease on land and buildings and an increase in loans and borrowings received by Bophelo. For the nine months ended September 30, 2021 and September 30, 2020, Bophelo received an additional $3,830,213 compared to the prior period in cash as a result of increased borrowings from its then parent company, Halo Collective Inc. The increase in borrowings was necessary to fund operating expenditure and site build out activities.
Outstanding Affiliate Loans
As of December 31, 2020, Bophelo had a total outstanding loan balance of $1,552,487 with Louis Mojela, Bophelo’s Executive Chairman and director. This included (1) an outstanding balance of $1,350,813 (L19,978,524) under the Mojela Bridge Financing Facility; (2) a loan of $190,444 (L2,816,667), which does not bear interest and has no fixed terms of repayment; and (3) a loan of $11,230 (L166,092) which related to unpaid interest accrued on a loan that had its capital amount (but not interest) repaid during the year ended December 31, 2020. The capital value of the aforementioned loan that was repaid was $135,226 (L1,999,993).
As of September 30, 2021, Bophelo had a total outstanding loan balance of $1,741,017 (L26,689,791) with Louis Mojela, Bophelo’s Executive Chairman and director. This included (1) an outstanding balance of $1,490,101 (L22,843,248) under the Mojela Bridge Financing Facility; (2) a loan of $183,736 (L2,816,673), which does not bear interest and has no fixed terms of repayment; and (3) a loan of $12,139 (L186,091) which related to unpaid interest accrued on a loan that had its capital amount (but not interest) repaid during the year ended December 31, 2020. The capital value of the aforementioned loan that was repaid was $135,226 (L2,073,015). See a discussion of the Mojela Bridge Financing Facility under “Certain Relationships and Related Party Transactions — Our Transactions with Our Executive Chairman.”
As of December 31, 2020, Bophelo had a total outstanding loan balance of $4,688,226 with Halo, which assumed certain former shareholders’ loans following the Merger. The loans from Halo do not have a fixed repayment date and are interest free. As of September 30, 2021, Bophelo had a total outstanding loan balance of $8,862,425 with Halo, which increased compared to the prior year due additional borrowings necessary to fund Bophelo’s operations and build out. The loans from Halo do not have a fixed repayment date and are interest free. As part of the Halo transaction and the internal reorganization, these loans were acquired from Halo by Akanda and its subsidiaries on or around November 3, 2021 and Akanda simultaneously entered into a debenture agreement with Halo. See a discussion of the secured convertible debenture issued by Akanda to Halo in exchange for setting off all Bophelo’s outstanding indebtedness to Halo under “Prospectus Summary — Our History and Relationship with Halo — Issuance of Secured Convertible Debenture to Halo” for additional information regarding the terms of the debenture including those relating to a conversion of the debenture into our Common Shares upon certain conditions.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with international financial reporting
 
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standards, or IFRS. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We believe our most critical accounting policies and estimates relate to the following:

Revenue Recognition

Foreign Currency Translation

Lease Accounting

Financial Instruments
Revenue Recognition
We recognize revenue in accordance with International Financial Reporting Standards (“IFRS”) 15 “Revenue from Contracts with Customers”.
In accordance with IFRS 15, revenue is recognized upon the satisfaction of performance obligations. Performance obligations are satisfied at the point at which control of the promised goods or services are transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive for those goods and services.
The Company has a single revenue stream which relates to the sale of medical cannabis flower and biomass. Revenue from the sale of medical cannabis flower and biomass is recognized once the performance obligation has been satisfied; which is upon delivery to the customer.
Foreign Currency Translation
The functional currency is determined using the currency of the primary economic environment in which that entity operates. The functional, as determined by our management, is the Lesotho Loti.
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
Our presentation currency is the US dollar. For presentation purposes, all amounts are translated from the Pound functional currency to the US dollar presentation currency for each period using the exchange rate at the end of each reporting period for the statement of financial position. Revenues and expenses are translated on the basis of average exchange rates during the year.
 
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Exchange gains and losses arising from translation to our presentation currency are recorded as exchange differences on translation to reporting currency, which is included in other comprehensive income (loss).
Lease Accounting
We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease, if the lease term reflects us exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
Financial Instruments
(a)   Classification
Bophelo classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. Bophelo determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by Bophelo’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition, Bophelo can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if Bophelo has opted to measure them at FVTPL.
(b)   Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and
 
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losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Off-Balance Sheet Arrangements
Bophelo did not have, during 2019 and 2020, and it currently does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Disclosure of Contractual Arrangements
On December 31, 2020, Bophelo was committed to minimum lease payments as follows:
Contractual Obligation
Less than
One Year
1 – 5 Years
Over 5 Years
Land and buildings
$ 283,976 $ 1,135,903 $ 3,762,677
On September 30, 2021, Bophelo was committed to minimum lease payments as follows:
Contractual Obligation
Less than
One Year
1 – 5 Years
Over 5 Years
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 45,662 $ 1,369,863 $ 3,150,685
The amounts above are undiscounted and include the total amounts due, including the interest component.
Canmart Ltd.
Canmart was formed in the United Kingdom on December 27, 2018 and commenced operations in 2020.
Results of Operations
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019 and the Nine Months Ended September 30, 2021and 30 September, 2020
The following table sets forth key components of our results of operations for the year ended December 31, 2020 as compared with the year ended December 31, 2019, and the nine months ended September 30, 2021 compared with the nine months ended December 31, 2020.
Presented in $
Note
Nine Months Ended
September 30,
2021
Nine Months Ended
September 30,
2020
Year Ended
December 31,
2020
Year Ended
December 31,
2019
Sales
17,359 1,788 2,062
Cost of Sales
(11,469) (1,531) (1,809)
 
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Presented in $
Note
Nine Months Ended
September 30,
2021
Nine Months Ended
September 30,
2020
Year Ended
December 31,
2020
Year Ended
December 31,
2019
Gross Profit
5,890 257 253
General & administrative expenses
(93,650) (514) (1,101) (32)
License costs
(1,267) (894) (1,491)
Salaries and wages
(339,556)
Consulting and professional fees
(565,614) (31)
Loss from operating activities
(994,197) (1,151) (2,623) (32)
Finance income
50 1 1 2
Finance expenses
Foreign exchange through profit and loss
35,911
Other income
54 136 108
Net Profit / (Loss)
(958,182) (1,014) (2,261) (30)
Exchange differences on foreign
currency translation
5,678 (22) (116) (1)
Comprehensive Profit / (Loss)
(952,504) (1,036) (2,377) (31)
Basic and dilutive loss per ordinary share
(476,252) (518.20) (1,189) (15.50)
Weighted average number of ordinary shares outstanding
2 2 2 2
Sales
Canmart has access to use a 30,000 square foot logistics warehouse in SE England. Canmart has obtained the necessary licenses to import CBPMs to supply the patients in the U.K. domestic market. Revenue for the year ended December 31, 2020 was $2,062 compared to $ nil for the year ended December 31, 2019. This increase was the result of the commencement of sales relating to the import and supply of CBPMs which occurred during the year ended December 31, 2020 compared to the prior comparative year ended December 31, 2019, during which no sales activity took place. During the nine months ended September 30, 2021, Canmart achieved sales of $17,359 compared to the comparative period for the nine months ending September 30, 2020 sales of $1,788. The year-on-year increase is a result of Canmart focusing on ramping up its operations by securing CBPM products from international suppliers in Canada, importing these products and applying additional efforts on expanding sales of these imported products to patients, through dispensing clinics and physicians. Canmart sold, during the current period, a variety of different CBPM product types, including cannabis oil and cannabis flower for medical use.
Cost of Sales
Cost of sales for the year ended December 31, 2020 was $1,809 as compared to $nil for the year ended December 31, 2019. The increase in cost of sales was directly attributable to the commencement of sales activity during the year ended December 31, 2020, and the increase represents the associated cost of the CBPMs imported by Canmart and supplied to patients. Cost of sales for the nine months ended September 30, 2021 increased to $11,469 from $1,531 in the prior period. The increase is essentially commensurate with increased purchases and sales of CBPMs in the current period due to the fact that Canmart only commenced meaningful sales activity in the nine months ended September 30, 2021 compared to the low level of sales in the previous period.
 
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Gross profit
Gross profit increased to $253 from $nil, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was due to Canmart commencing trading and having relevant sales and cost of sales during 2020 opposed to 2019 where no trading occurred.
For the nine months ended September 30, 2021, gross profit increased to $5,890 from $257 in the prior period ending September 30, 2021. This increase was due to Canmart upscaling its trading activities, purchasing products from Canadian suppliers that carry higher margin potential (such as cannabis flower) and increasing the volume of units sold compared to the prior period.
Operating Expenses
Operating expenses for the year ended December 31, 2020 were $2,623 compared to $32 for the year ended December 31, 2019. The increase in operating expenses in 2020 was primarily due to an increase related to trading in 2020 resulting in increases in general operating expenses, namely accounting fees, advertising, bank charges, license fees and sundry expenses.
Operating expenses for the nine months ended September 30, 2021 and September 30, 2020 were $1,000,087 compared to $1,408 for the nine months ended September 31, 2020 . The increase in operating expenses in the current period was primarily due to the hiring of executives and management in June and July 2021, including Akanda’s executive team who are employed by Canmart (comprising $339,556 for the nine months ended 30 September 2021). Additionally, Canmart experienced a significant increase in professional fees ($565,614 for the nine months ended September 30, 2021 compared to $nil for the nine months ended September 30, 2020) as a result of increased corporate activity around completion of the internal reorganization undertaken by Halo as a precursor to the Akanda / Halo transaction, as well as due to the engagement of various professional advisors in relation to Akanda group’s plans for an initial public offering and listing. Furthermore, general and administrative expenses increased from $514 to $93,650 year-on-year for the periods ending September 30, 2021 and September 30, 2020 respectively. This increase was due to travel expenses and sundry office expenses.
Other income
Total other income for the year ended December 31, 2020 was $109 compared to $2 for the year ended December 31, 2019. This increase was primarily due to related to carriage invoicing and credit turnover receipt from Santander Bank pursuant to the commencement of trading activities in the year ended December 31, 2020. No such activities took place in the year ended December 31, 2019. Total other income for the nine months ended September 30, 2021 was $36,015 compared to $137 for the nine months ended September 30, 2020. This increase was primarily due to the effect of foreign exchange translation gains of $35,911 ($nil for the nine months ended September 30, 2021) which were booked through profit and loss.
Liquidity and Capital Resources
Canmart’s principal liquidity requirements are for working capital and capital expenditures. Historically, Canmart funded its liquidity requirements primarily through cash on hand and debt financing, including from officers and shareholders. As of December 31, 2020, Canmart had $1,907 of cash and cash equivalents, with $1,116 as of December 31, 2019. As of September 30, 2021, Canmart had $227,856 of cash and cash equivalents, with a balance of $1,907 as of December 31, 2020.
The following table summarizes our cash flows from operating, investing and financing activities:
Year Ended
December 31,
Change
2020
2019
Cash provided by operating activities
$ 1,491 $ 17,677 $ (16,186)
Cash used in investing activities
$ $ (15,625) $ (15,625)
Cash provided by financing activities
$ $ 2 $ (2)
 
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Nine Months Ended
September 30,
2021
2020
Change
Cash used by operating activities
$ (785,048) $ (2,862) $ (782,186)
Cash used in investing activities
$ $ (14,779) $ (14,799)
Cash provided by financing activities
$ 969,282 $ 18,140 $ 951,142
Cash Flow Used by Operating Activities
For the year ended December 31, 2020, net cash flows provided by operating activities was $1,491 compared to $17,677 net cash flows provided by operating activities during the year ended December 31, 2019, respectively, primarily due to a year-on-year reduction in the movement of related party payables, as well as a general improvement in the Company’s working capital position.
For the nine months ended September 30, 2021, net cash flows used by operating activities was $785,048 compared to $2,862 in the comparative period, representing an increase of $782,186 on a year-on-year basis. Cash used by operating activities increased as a result of cash payments to fund operating costs such as salary expenses, professional fees, travel costs and office expenses, all of which were not incurred in the prior year due to the significant ramp up in administrative and corporate activity in the current year.
Cash Flows Used in Investing Activities
During the year ended December 31, 2020, Canmart used $nil of cash in investing activities compared to the prior period which saw Canmart use $15,625 of cash for the acquisition of a suite of cannabis licenses.
During the nine months ended September 30, 2021, Canmart did not utilize any cash to fund investing activities compared to the prior period which saw Canmart use $14,779 of cash for the acquisition of a suite of cannabis licenses.
Cash Flows from Financing Activities
During the year ended December 31, 2020 cash flow provided by financing activities was $nil compared to cash flow provided by financing activities of $2 in 2019. The year-on-year decrease in cash provided by financing activities is due to the fact that Canmart issued $2 worth of share capital in the prior period and no issuances of share capital took place during the current period.
During the nine months ended September 30, 2021, Canmart increased its cash flow provided by financing activities from $18,140 in the comparative period to $969,282 by September 30, 2021. The increase in cash provided by funding activities year-on-year was due to increased borrowings from Canmart’s shareholder (via intercompany loan account) in order to fund the significant increase in operating expenses that took place during the current year.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with international financial reporting standards, or IFRS. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
 
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We believe our most critical accounting policies and estimates relate to the following:

Revenue Recognition

Foreign Currency Translation

Lease Accounting

Financial Instruments
Revenue Recognition
Our revenue is primarily derived through the sale of cannabis based products for medical use to customers. We recognize revenue in accordance with International Financial Reporting Standards (“IFRS”) 15 “Revenue from Contracts with Customers”.
In accordance with IFRS 15, revenue is recognized upon the satisfaction of performance obligations. Performance obligations are satisfied at the point at which control of the promised goods or services are transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive for those goods and services. The Company has a single revenue stream which relates to the sale of medical cannabis products. Revenue from the sale of medical cannabis products is recognized once the performance obligation has been satisfied; which is upon delivery to the customer.
Foreign Currency Translation
The functional currency is determined using the currency of the primary economic environment in which that entity operates. The functional, as determined by our management, is the British Pound (GBP).
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
Our presentation currency is the US dollar. For presentation purposes, all amounts are translated from the Pound functional currency to the US dollar presentation currency for each period using the exchange rate at the end of each reporting period for the statement of financial position. Revenues and expenses are translated on the basis of average exchange rates during the year.
Exchange gains and losses arising from translation to our presentation currency are recorded as exchange differences on translation to reporting currency, which is included in other comprehensive income (loss).
Lease Accounting
We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
 
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At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease, if the lease term reflects us exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
Financial Instruments
(a)   Classification
Canmart classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. Canmart determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by Canmart’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition Canmart can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if Canmart has opted to measure them at FVTPL.
(b)   Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
 
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Off-Balance Sheet Arrangements
Canmart did not have, during the years ended December 31, 2019 and 2020, as well as the nine months ended September 31, 2021 and 2020 respectively, and does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Plan of Operations
The continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of Common Shares offered for sale in this offering, we believe that we will have sufficient cash resources to fund its plan of operations for the next 24 months. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use proceeds from the offering to carry out our near term and longer-term goals.
For the next 12 to 24 months, we plan to:

Expand our hoop-house and shade cloth cultivation operations in the Kingdom of Lesotho by a further 1.5 to 2 hectares (estimated cost of $200,000);

Construct a 1 hectare forced air greenhouse and a post-harvest drying facility (total combined estimated cost of $5.0 million);

Obtain EU GMP certification for the post-harvest drying facility (estimated cost of $100,000);

Rapidly expand our CBPM distribution capabilities in the United Kingdom (estimated cost of $13 million);

Successfully cultivate and harvest cannabis biomass at Bophelo;

Conclude Bophelo’s first exports of cannabis biomass to Germany or other markets.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
Trend Information
Because we are still in the startup phase and have only recently commenced operations, we are unable to identify any recent trends in revenue or expenses. Thus, we are unable to identify any known trends, uncertainties, demands, commitments or events involving our business that are reasonably likely to have a material effect on our revenues, income from operations, profitability, liquidity or capital resources, or that would cause the reported financial information in this prospectus to not be indicative of future operating results or financial condition.
Novel Coronavirus (“COVID-19”)
Our operations could be materially and adversely affected by the effects of the widespread global outbreak of contagious disease and other unforeseen events, including the recent outbreak of respiratory illness caused by COVID-19 and the related economic repercussions. We cannot accurately predict the impact COVID-19 will have on our operations and the ability of others to meet their obligations with us, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect our operations and ability to finance its operations.
 
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The impact of COVID-19 on Canmart has largely been experienced in terms of temporary local lockdowns which has affected employees’ ability to travel, especially between Canmart’s operations in the United Kingdom and the operations of its fellow subsidiary, Bophelo Bio Science and Wellness (Pty) Ltd in the Kingdom of Lesotho.
We have implemented a number of measures in response to the risks posed by COVID-19, including implementing temperature screening protocols, limiting access to site, ensuring that all staff wear masks, implement social distancing and make use of sanitizers.
Going Concern
The Company is in the preliminary stages of its planned operations and has not yet determined whether its processes and business plans are economically viable. The continued operations of the Company are dependent upon the ability of the Company to obtain sufficient financing to carry out its business plans, the existence of future profitable production, or alternatively, upon the Company’s ability to dispose of its assets on an advantageous basis, all of which are uncertain.
The Company’s financial statements have been prepared on a going concern basis, which assumes that the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company will need to raise additional capital in the near term to fund its ongoing operations and business activities. There can be no assurance that this offering will conclude or that other financings will be available on terms acceptable to the Company or at all. As a result of these circumstances, there are material uncertainties that cast significant doubt as to the appropriateness of the going concern presumption.
The business of cannabis growth and distribution and development of cannabis-derived products involves a high degree of risk, and there can be no assurance that current business development programs will result in profitable operations. The Company’s continued existence is dependent upon the acquisition of assets, preservation of its interest in the underlying assets, acquisition of various licenses, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company’s ability to dispose of its assets and operations on an advantageous basis.
The Company’s financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and classifications in the statement of financial position that may be necessary if the Company were unable to continue as a going concern, and these adjustments could be material.
Emerging Growth Company Status
We are an “emerging growth company”, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to SEC reporting companies that are not emerging growth companies. For so long as we remain an emerging growth company, we will not be required to, among other things:

present more than two years of audited financial statements and two years of related management’s discussion and analysis of financial condition and results of operations disclosure in our registration statement of which this prospectus forms a part;

have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and

disclose certain executive compensation related items.
We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year during which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which means the market value of our common shares that are held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
 
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In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
 
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BUSINESS
Our History
Akanda was incorporated in the Province of Ontario, Canada on July 16, 2021 in connection with the plan of Halo to reorganize its medical cannabis market focused international business assets. In September 2021, we entered into a share purchase agreement with Halo, a publicly-traded, vertically integrated multinational cannabis company (NEO: HALO) (OTCQX: HCANF) (Germany: A9KN). Pursuant to this agreement, we acquired all the issued and outstanding equity interests of Cannahealth from Halo. At the closing of the Acquisition on November 3, 2021, Cannahealth owned all the issued and outstanding equity interests of Canmart and Bophelo Holdings, which owned all the issued and outstanding equity interests of Bophelo. As a result of the Acquisition, both Bophelo and Canmart became our indirect wholly-owned subsidiaries. As consideration for this Acquisition, we issued 13,129,212 Common Shares to Halo at a price of $1.00 per share, resulting in Halo owning approximately 68.3% of all our outstanding Common Shares at the closing of the Acquisition.
On November 12, 2021, Halo transferred 2,100,000 Common Shares to an unaffiliated party, 1306077B.C. LTD. (the “Halo Transferee”), which resulted in Halo owning 49.6% of our issued and outstanding Common Shares (the “Halo Transfer”). The following diagram summarizes our legal entity structure following the closing of the Acquisition and the Halo Transfer. Assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus is sold in this offering, Halo will own approximately 43.8% of our issued and outstanding Common Shares at the closing of this offering.
[MISSING IMAGE: tm2129724d6-fc_postipobw.jpg]
*
includes 880,000 Common Shares issued to our Executive Chairman to settle the Bridge Loan Facility
 
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Our Business
We are a cannabis cultivation, manufacturing and distribution company whose mission is to provide premium quality medical cannabis products to patients worldwide. We are an early stage, emerging growth company headquartered in London, the United Kingdom. We have a limited operating history and minimal revenues to date. Following the completion of the Acquisition, Canmart and Bophelo became our indirect wholly-owned subsidiaries. We expect to expand their local operations and develop sales channels of our medicinal-grade cannabis products and cannabis based medical and wellness products in international markets and in particular, in Africa and Europe.
Bophelo Bio Science and Wellness (Pty) Ltd
Our indirect wholly-owned subsidiary Bophelo, a Lesotho company, is focused on the cultivation of cannabis, the production of medical cannabis products including dried flower, oils, and other concentrates and the supply of such medical cannabis products to wholesalers in international markets. Its operations are based in the Kingdom of Lesotho in the Mafeteng Region of Southern Africa. Bophelo holds an operational license issued in the Kingdom of Lesotho for the production and export of medicinal cannabis products. On July 27, 2018, the Ministry of Health in the Kingdom of Lesotho issued a prohibited drug operator license to Bophelo. This license allows for activities including cultivating, manufacturing, supplying, holding, importing, exporting and transporting cannabis and cannabis resin. This license will remain effective for 8 years, with an option for further renewal.
Bophelo commenced operations including establishing sites and first phase construction and starting site preparation activities in 2018. Bophelo’s cultivation facility in the Kingdom of Lesotho is licensed to cultivate cannabis over an initial 5 hectare canopy area, with conditional approval from local authorities to extend its cultivation area up to 200 hectares in total. At present, the company is cultivating cannabis in hoop houses over a 0.3 hectare area and is in the process of expanding it by a further 1.5 to 2 hectares by constructing a separate shade cloth cultivation area. We obtained a GACP certification for our cultivation facility in 2021. During 2019 and 2020, Bophelo did not generate any revenue from a commercial harvest, although it completed a number of successful harvests for non-commercial purposes. These non-commercial harvests were conducted with the objective of optimizing strain selection and understanding local growing conditions so that further harvests can be optimized. Bophelo conducted its first sale of high-grade flower in a small amount to a local buyer in March 2021. It has entered into distribution agreements with European based distributors. See a discussion of these agreements under “— Business Partnerships” below.
Bophelo currently only produces and sells cannabis biomass. We aim to commence exporting medical cannabis biomass to Europe in 2022. From 2023 and beyond, we plan to expand our product offering to include cannabis oils and extracts, and ultimately, to produce consumer branded cannabis products for discerning patients.
Seasonality of Bophelo’s Cannabis Harvest
Through its operators’ license in the Kingdom of Lesotho, Bophelo is able to cultivate cannabis on or up to 50,000 square meters (5 hectares) of greenhouses (indoor). Since obtaining its license, Bophelo has undertaken several cultivation cycles at the company’s premises in the Kingdom of Lesotho with a view to optimizing strain selection and cultivation methodologies. All expenditures incurred to date in relation to this undertaking have been expensed in the company’s financial statements. Depending on the manner of cultivation undertaken by the company (outdoor, greenhouse or indoor methods), Bophelo may experience seasonality in its cannabis harvests. Typically, the cannabis cultivation season in the Kingdom of Lesotho would begin (subject to weather conditions which may be unpredictable) in September of each year and end in May of the following year.
Canmart Ltd
Our indirect wholly-owned subsidiary Canmart, a company incorporated under the laws of England and Wales, is a licensed importer and distributor of CBPMs in the United Kingdom. Canmart holds a Controlled Drug License issued by the Home Office to possess and supply CBPMs in the United Kingdom.
 
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This license is due to expire on February 3, 2022 and needs to be reapplied for on a yearly basis. Canmart is required to apply for an import license issued by the Home Office for every specific shipment of CBPMs and Canmart has thus far successfully been granted such import licenses. Canmart holds both a Manufacturer’s Specials License for importation of CBPMs and a Wholesale Distribution Authorization from the Medicines and Healthcare Products Regulatory Agency.
Canmart commenced importing and distributing CBPMs in 2020. Under the current controlled drugs regulatory regime, Canmart is only able to supply to dispensing pharmacists, clinics and other wholesale distributors. However, Canmart’s intention is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies. Canmart’s strategy is to grow the medical cannabis market by identifying patients with specific conditions and needs and providing easy to access education and consultations to patients about medical benefits of CBPMs based on observational clinical studies from international studies. We believe this direct sales model can enable Canmart to expand its market share effectively and efficiently.
Cannahealth Limited
Our direct wholly-owned subsidiary Cannahealth, a Republic of Malta company, is a holding company of all the ownership interests in Canmart and Bophelo Holdings. Cannahealth does not engage in any operations.
Bophelo Holdings Ltd.
Our indirect wholly-owned subsidiary Bophelo Holdings, a company incorporated under the laws of England and Wales, is a holding company of all the ownership interests in Bophelo. Bophelo Holdings does not engage in any operations.
Growth Plans and Strategic Focus
We are targeting what we believe to be the lucrative international medical cannabis market, which is estimated to be worth approximately $47 billion by 2027, according to Emergen Research. We believe there has been a growing demand for medical cannabis around the world as a result of the increased legalization of cannabis for medical purposes as well as the rise in cannabis-related medical research activities.
Our goal is to become a market leader in the cultivation, processing and supply of medicinal-grade cannabis products and cannabis based medical and wellness products for international markets. Our primary strategies to achieve our goals include:

Expanding our production capacity.   In the near term, our primary strategy is to expand our production capacity as quickly as possible at Bophelo. We plan to take advantage of favorable cultivation conditions in the Kingdom of Lesotho to achieve economies of scale in our production of premium quality cannabis products, within the confines of market forces such as customer demand and pricing, as well as regulatory hurdles that may impede our ability to access foreign markets or which may slow overall market growth.

Expanding our geographic footprint.   While we currently import and sell cannabis-based products for medicinal use (“CBPMs”) sourced from third parties to dispensing pharmacists, clinics and other wholesale distributors in the United Kingdom, our plan is to establish direct sales channels to patients through Canmart owned and operated clinics and pharmacies in the United Kingdom. Medical cannabis is currently scheduled as a “Schedule 2” unlicensed medicine and, as such, can only be prescribed by or under the care of a specialist medical practitioner. Furthermore, regulatory authorities in the United Kingdom require cannabis dispensing clinics to obtain a license from the Care Quality Commission (“CQC”). The CQC regulates clinics and conducts frequent audits and inspections to ensure compliance with license terms. Given the regulatory environment in the United Kingdom, we intend to achieve our plan to establish direct sales channels to patients by acquiring established clinics and pharmacies that are dispensing medical cannabis products in the United Kingdom, however, this strategy is dependent on identifying potential targets, negotiating acceptable purchase price and other conditions based on revenues, number of patients and size of the local market, and complying with any regulatory and licensing requirements. To that end, we recently
 
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entered into a non-binding letter of intent to acquire 100% of the issued and outstanding ordinary shares of Cellen Limited, a United Kingdom based provider of pain-focused clinical services for GBP £10 million (US$13.361 million) in common shares of the Company. We are also working towards expanding sales of cannabis products produced by Bophelo to international markets, subject to regulatory conditions in such countries.

Pursuing accretive acquisitions.   We believe that our deal-making capabilities and experience will allow us to successfully identify, consummate and integrate acquisitions.

Strong Partnership with Local Communities.   We are committed to empowering women and vulnerable persons in local communities where Bophelo operates. We believe our efforts will enable us to build strong partnerships with the communities in which we operate, enhance the reputation of our brands and benefit our long-term growth.
We anticipate undertaking the following activities in the next 12 to 36 months in an effort to further grow Bophelo and Canmart’s business:
Operations of Bophelo

Building out an additional 1.5 to 2 hectare shade cloth cultivation area and constructing a 1 hectare forced air greenhouses which are expected to be completed by 2022.

Planning and constructing an EU GMP certified post harvest drying facility with a view to commence operating this facility in 2022.

Planning and constructing an EU GMP certified extraction facility with a view to commence operating this facility in 2023 or 2024.
Operations of Canmart

Continuing to develop our business plan to secure sales to patients while establishing or even acquiring distribution channels in the U.K. domestic market.
Agreements with Cellen Limited
On October 1, 2021, we entered into a memorandum of understanding with Cellen Limited (“Cellen”). Cellen is a medical cannabis supplier to Project Twenty21, a large-scale medical cannabis observational study in the United Kingdom. In addition, Cellen also owns and operates a digital pain clinic: Leva Clinic, which is licensed and regulated by the Care Quality Commission (‘CQC’) in the United Kingdom. The purposes of the memorandum of understanding is to establish a formal working relationship to optimize medical cannabis supply chain activities across Cellen and the Company’s business interests, to consistently increase supply and choice for patients in the United Kingdom.
On October 5, 2021, we entered into a non-binding letter of intent to acquire 100% of the issued and outstanding ordinary shares of Cellen for GBP £10 million (US$13.361 million) through the issuance of our common shares. The transaction is subject to completion of due diligence, negotiation of definitive agreements, completion of financial audits by Cellen, approval of the board and shareholders of Cellen and any necessary regulatory and third party approvals.
On December 1, 2021, we entered into a bridge loan facility with Cellen whereby we agreed to extend a line of credit of US$500,000 to Cellen , secured by all of the assets of Cellen. Amounts drawn down will be subject to interest of five percent per annum compounded monthly. To date, Cellen has borrowed approximately $136,600 under the facility. All amounts borrowed under the facility shall be due no later than December 31, 2022. The Company shall have the option to convert any amounts borrowed under the facility into ordinary shares or preference shares of Cellen at a valuation of Cellen as determined by an independent firm of chartered accountants as may be selected by the Company.
Our Competitive Strengths
We believe that the following competitive strengths can contribute to our success and differentiate us from our competitors:
 
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Lesotho Cultivation Advantage.   Through the cultivation operations of our indirect wholly-owned subsidiary Bophelo, our past harvests have shown that we have the ability to cultivate high yielding strains of cannabis for medical purposes, with certain strains historically cultivated reflecting cannabinoid concentrations in excess of 20%. Conditions at Bophelo’s site of operations near T’sakholo in the Mafeteng District of the Kingdom of Lesotho are conducive for the cultivation of medical-grade cannabis including suitable environmental conditions, abundant supply of semi-skilled and unskilled labor, quality road and air infrastructure network and favorable tax treatments.

Significant Potential to Scale Up Production.   Bophelo is one of the largest licensed landholders engaging in cannabis cultivation in the Kingdom of Lesotho. Bophelo is licensed to cultivate cannabis over an initial 5 hectare area under greenhouse or indoor conditions, with conditional government approval to expand our cultivation footprint up to 200 hectares. Such approval for expansion may be granted by the Ministry of Health on the main condition that Bophelo has fully utilized all of the first 5 hectares of its licensed cultivation area. This gives us the potential ability to significantly scale up production once the company has met this requirement of the Ministry of Health. Bophelo has leased a 200-hectare land package in an emerging Special Economic Zone in the Kingdom of Lesotho which is intended to be dedicated to the cannabis cultivation and related operations.

Strong Partnership with Local Communities.   Bophelo has worked and expects to continue to work with Mophuthi Matsoso Development Trust, a Lesotho non-profit organization (the “MMD Trust”), to provide for the construction of a learning center, a place of worship, feeding programs and other public good initiatives for the local community of T’sakholo. We believe a commitment to such initiatives and building a strong working relationship with the local African communities can promote goodwill towards our local operations and brands and benefit our long-term business growth. The MMD Trust is controlled by our Executive Chairman and Bophelo leases its premises on which it operates from the MMD Trust pursuant to a long-term lease agreement between the MMD Trust and Bophelo. As such, a potential conflict of interest may arise regarding the ongoing administration of the lease and any future negotiations around the lease terms.

Experienced Management Team.   Our management is experienced and has an extensive knowledge of the international cannabis industry as well as local conditions in Europe, the United Kingdom, and the Kingdom of Lesotho.
Competition
Southern Africa
Our main competitors in Southern Africa are other preeminent entities that have been granted licenses from countries in Southern Africa (including Lesotho, South Africa, Zimbabwe and others) such as Medigrow, Spectrum Cannabis, Bedrocan and Verve Dynamics. While an increasing number of companies are entering the cultivation area resulting in an increased supply of similar cannabis products to ours, we expect that growth in the global demand for medicinal-grade cannabis products is so strong that the total demand is likely to exceed the total supply for the foreseeable future. Furthermore, Bophelo has a number of competitive advantages including ability for scalability of production, low-cost input environment, its strong relationship with technical partners and local community and experienced management team, which we believe enable Bophelo to compete effectively with other international producers.
United Kingdom
The United Kingdom’s CBPM market is a highly regulated and restricted operational environment. CBPMs is supplied as a “special’s medication” with no marketing authorization for medical claims. Canmart has identified an opportunity to grow its business in the expanding CBPM sector by establishing direct sales channels to patients. Our primary competition is from three established suppliers including The Lyphe Group, the pioneer in this sector which operates The Medical Cannabis Clinics, Grow Pharma and IPS Pharma which are established specials formulators and have moved to supplying medical cannabis through their associated clinics. Canmart is establishing sales channels to communicate and market directly to patients as an innovative and disruptive sales model in this field. Canmart’s strategy is to expand its customer base and market size by identifying patients with specific conditions and needs and providing easy-to-access
 
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education and consultations to patients about medical benefits of CBPMs based on observational clinical studies from international studies.
Business Partnerships
In December 2019, Bophelo entered into a seed supply relationship with OG DNA Genetics Inc. (“DNA Genetics”), a recognized creator of high-quality cannabis seeds. Bophelo has since then purchased seeds of strains of medical cannabis from DNA Genetics on a purchase order basis. In addition to this arrangement with DNA Genetics, Bophelo sources seeds from other top suppliers of cannabis genetics based in Europe. These seeds are shipped directly from European seed banks to Bophelo’s operations in the Kingdom of Lesotho. Although DNA Genetics has been a primary seed supplier of the Company, the Company does not depend exclusively on any seeds sourced from DNA Genetics.
In August 2020, Bophelo entered into an off-take agreement with Medcan Ltd. (“Medcan”), which received preliminary approval from Malta Enterprise, a Maltese government agency, to carry out the importation and production of cannabis for medicinal purposes primarily into the European market. The term of the agreement is for a period commencing on August 3, 2020 and ends on the earlier of (i) the date on which Medcan has purchased 10,000 kilograms of biomass from Bophelo or (ii) August 3, 2027. The agreement specifies initial deliveries of up to 10,000 kilograms of cannabis biomass. Bophelo will procure the transport of the biomass by a licensed cannabis transport operator and deliver the biomass to Medcan in containers, comply with the applicable Agricultural Practice Standards, or as otherwise agreed to by the parties. All the biomass is subject to Medcan’s inspection and acceptance or rejection at Bophelo’s facility in Lesotho. Pursuant to the agreement, Medcan will pay Bophelo prevailing market rates, calculated on the basis of a price per gram, based on the delivery weight. The price will be determined on the basis that Medcan shall seek to sell the batch at the highest value achievable in the market. Biomass has not yet been supplied to Medcan pursuant to the off-take agreement as Medcan has not yet secured the all of the necessary licenses and/or permits required from Maltese and/or European Union regulators to enable it to import biomass from Bophelo. It is not, at the present time, known when these licenses and/or permits may be secured by Medcan.
In September 2021, Bophelo also entered into a service, refinement and distribution agreement with Cantourage GmbH (“Cantourage”), a German based processor and distributor of cannabis biomass. The term of the agreement is from September 15, 2021 to September 15, 2026 and may be extended for additional periods of one year unless terminated earlier by the parties. Under the agreement, Bophelo shall deliver to Cantourage cannabis products which shall be further refined for distribution by Cantourage. The specific amount to be delivered shall be determined from time to time by the parties. Bophelo has not sold any products under these distribution agreements and expects to commence marketing and exporting its products to the German and broader EU market in 2022. Bophelo is currently cultivating its first pilot harvest of cannabis biomass for Cantourage in terms of the aforementioned agreement. Bophelo currently expects this harvest to be completed by February or March 2022. It is not, at this time, known if the forthcoming harvest will, in part or in full, meet the specifications prescribed by Cantourage in terms of the aforementioned agreement.
Description of Property
Bophelo has entered into a sublease agreement dated 2018 with the MMD Trust, which is controlled by our Executive Chairman, Louisa Mojela, for the lease of its facilities at T’sakholo in the Kingdom of Lesotho. The sublease is for a land area of 68,834 square meters. The term of the lease is for a 20 year period, with an option to renew for two 30-year terms. Pursuant to the sublease agreement, Bophelo will pay LSL 350,000 (approximately $25,000) per month, with an annual rate increase of 10% on a compound basis. This sublease agreement may only be terminated by: (i) the expiration of its term; (ii) the surrender of the sublease; or (iii) its termination pursuant to the provisions of the Land Act 2010. Additionally, in the case that either party commits a breach of this agreement and fails to remedy such breach within 14 days after receiving written notice from the other party requiring the breaching party to remedy such breach, then the non-breaching party may terminate this agreement, or to claim specific performance of all of the breaching party’s obligations then due for performance. Bophelo has a right of first refusal to purchase any of the properties
 
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and/or any portion thereof on the same terms offered to any third party. The MMD Trust is controlled by Louisa Mojela, our Executive Chairman and director, and Granny Seape, a non-executive director of Bophelo.
Canmart currently has access to use 30,000 square foot warehouse in Somerset, United Kingdom, which is owned by D&D Investments Limited which is owned by certain directors of Canmart. Canmart does not pay any rent for the use of the warehouse and the owner may demand the vacation of the warehouse by Canmart at any time. Canmart expects to enter into a lease agreement with the owner with specified lease terms and to pay rent under the lease.
Human Capital Resources
As of September 30, 2021, we had a total of 107 employees. Approximately 102 of our employees work at our site in the Kingdom of Lesotho and approximately 5 of our employees work in the United Kingdom.
 
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REGULATION
Regulatory Framework in the United Kingdom
CBD Regulation — Overview
Cannabis, cannabis resin, cannabinol and other cannabinol derivatives (among others) are listed as Class B controlled drugs under Schedule 2, of the Misuse of Drugs Act 1971, or the MDA, based on a harms assessment. They are also listed under Schedule 1 to the Misuse of Drugs Regulations 2001, or the MDR, together with other chemical constituents such as the cannabinoid THC (defined below). As such, it is unlawful to cultivate, possess, supply, produce, import or export these controlled drugs except under license. The Hemp (Third Country Imports) Regulations 2002 also require, except in specified circumstances, that hemp from non-EU countries be imported under a license and, in the case of hemp seeds other than for sowing, under an authorization.
CBD is one of the main chemical compounds found in the cannabis plant, together with THC. CBD, as an isolated substance (i.e. containing no THC) is not a controlled drug under the MDA/MDR. Unlike CBD, THC is the main “psychoactive” component of cannabis and is a controlled drug.
A CBD product containing THC (in any amount), or any other controlled cannabinoid under the regulations cannot be practically prescribed, administered or supplied to the public unless it is an ‘exempt product’ or a cannabis based product for medicinal use in humans, or CBPM. CBPMs are subject to further regulation and licensing given the medicinal purpose for which they are marketed and prescribed.
The U.K. Home Office (specifically, the Drugs & Firearms Licensing Unit, or DFLU) prescribes two separate licensing regimes relating to cannabis cultivation, according to whether the varieties are high THC (above 0.2% THC content) or low THC (below 0.2% THC content). A license is required to cover both cultivation and possession.
The sale of CBD products (i.e. the “finished products” following extraction and processing of CBD into products) is subject to additional regulations and licensing regimes — see below CBD Extraction for General Commercial Purposes and CBD Extraction for Medicinal Purposes for a more detailed discussion.
Controlled Drugs License
Companies wishing to possess, supply, produce/manufacture, import or export ‘controlled drugs’ can only lawfully do so under Controlled Drugs Licenses issued by the Home Office. Licenses are issued for specific drugs, entities and locations and cannot be transferred to other drugs, entities or locations.
Applications for a controlled drug license are submitted online and prospective licensees are advised that it can take up to 16 weeks for the Home Office to review and ensure that various security and record- keeping requirements have been met. Where an enhanced DBS check has been obtained within the last three years for all persons named on the application, such checks do not need to be repeated. The DFLU may also conduct site visits, where needed. The term of the license is one year from the date of issuance and further applications are required to be submitted for each license to be renewed.
Companies wishing to import ‘controlled drugs’ will need to apply to the Home Office for a separate import license for each shipment.
Canmart holds a Controlled Drug Licenses issued by the Home Office to possess and supply CBPMs in the United Kingdom. This license expires on February 3, 2022. Canmart is required to apply for import licenses from the Home Office for each individual shipment and has, as of 2021 when shipping of CBPMs to Canmart commenced, been successful in applying for those import licenses as required.
CBD Extraction for General Commercial (Retail) Purposes
CBD products such as CBD oil are becoming increasingly prevalent in the U.K. retail market. Where a CBD product contains a controlled drug (in any quantity) such as THC, the product needs to satisfy the requirements for an ‘exempt product’ under the MDR to be lawfully available to the public.
 
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In general, an exempt product is a product containing a controlled drug that is: (a) not designed to be administered to a human being or animal, (b) not packaged in such a way that it can be recovered by readily applicable means, and (c) does not contain more than 1 mg (per container) of the controlled drug. All three prongs are required to be established, including significant testing by an independent and licensing U.K. company and the provision of comprehensive and independently verifiable research and information. Notably, the 0.2% THC threshold for the cultivation of industrial hemp does not apply to CBD finished products, Rather, only 1 mg of THC (per container) is permissible in any given product that is placed on the U.K. market.
CBD Extraction for Medicinal Purposes (Medical Cannabis)
CBPMs are preparations or products that: (a) contain cannabis or other cannabinol derivatives, (b) are produced for medicinal use in humans, and (c) are a medicinal product, substance or preparation for use as an ingredient in a medicinal product. A CBD preparation or product containing controlled cannabinoids (e.g., THC) which meets the three prongs of this definition may be classed as a CBPM.
Companies wishing to possess, supply and or import/export CBPMs will require a controlled drug license in addition to a high-THC cannabis cultivation license if they are involved in production/manufacturing, which are both issued by the Home Office, unless an exemption applies to that licensing requirement.
In addition, the regulation of CBPMs in the United Kingdom is undertaken by the Medicines and Healthcare Products Regulatory Agency, or MHRA. The MHRA is responsible for ensuring all medicines and medical devices in the United Kingdom are safe and appropriate in accordance with the Human Medicines Regulations 2012 (SI 2012/1916), or HMR. Under the HMR, CBPMs can only be manufactured and assembled in accordance with the specifications of a doctor listed on the General Medical Council Specialist Register and must meet a ‘special’ clinical need of the individual patient.
The manufacturer, assembler or importer/exporter of a CBPM must also hold a Manufacturer’s “Specials” License, which is granted by the Licensing Authority (specifically, the U.K. Ministers designated under the HMR) for all medicinal products for human use. The manufacturing, storage and/or assembly site and its operations will be inspected for compliance with the European Union’s “good manufacturing practice” and the conditions of the license. These require that the manufacture, storage and/or assembly is carried out under the supervision of appropriately qualified staff, including a named quality controller and production manager, who are acceptable to the Licensing Authority. License applications are submitted online to the MHRA and take approximately 90 business days to process.
The distributer of a CBPM must also hold a Distribution Authorization issued by the Licensing Authority. All distributers of medicinal products for human use must have a similar license.
Canmart holds both a Manufacturer’s Specials License for importation of CBPMs and a Wholesale Distribution Authorization.
CBD Sales and “Novel Food” Status
In the United Kingdom, the sale of CBD products falls under the regulatory purview of the U.K. Food Standards Agency, or the FSA. The FSA, in turn, follows the guidance and regulations set by the European Union, specifically the European Food Standards Agency, the EFSA, and the European Commission, or the EC, respectively.
In November 2015, the European Parliament and the Council of the European Union adopted a new regulation on novel food, Regulation (EU) 2015/2283, or the Novel Food Regulation, with the intent of making the novel food authorization process more efficient while ensuring high standards of food safety for consumers. The Novel Food Regulation came into force on January 1, 2018.
The Novel Food Regulation provides that a food is “novel” if it has not been used for human consumption to a significant degree within the European Union before May 15, 1997. The regulations further provide that a food stuff will be authorized only if it can be demonstrated that the product is safe, properly labeled so as to not mislead consumers and is not nutritionally disadvantageous.
 
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On January 15, 2019, the EC updated the European Union’s Novel Foods Catalogue, specifically, the entries relating to cannabis sativa and cannabinoids, to include other cannabinoids extracts used in food and food supplements and hemp-derived products in food.
While the Novel Foods Catalogue is non-exhaustive and carries no legal effect, it is frequently updated and amended with input from Member States and is used as reference by authorities in EU countries to aid enforcement of the Novel Food Regulation.
A novel food can only be sold in the European Union once it has successfully gone through the authorization process (involving a safety risk assessment) and an implementing act is published authorizing the addition of the novel food to the Novel Foods Catalogue. This process can take up to 18 months from receipt of the initial application. The United Kingdom has adopted the EU Novel Foods regime as retained EU law and the FSA has confirmed it will follow the EFSA. Therefore products new to market will require novel food authorization from the FSA prior to being made available and marketing. There is also a currently a regime in place to allow for products that were already on the market prior to early 2020 to apply for retroactive novel food authorization.
Proceeds of Crime Act or POCA
POCA addresses money-laundering offences in the United Kingdom. Under POCA, a person or entity commits a principal money laundering offence if they:
(a)
conceal, disguise, convert or transfer criminal property;
(b)
enter into or become concerned in an arrangement which he knows or suspects facilitates the acquisition, retention use of control of criminal property by or on behalf of another person; or
(c)
acquire criminal property.
Property is criminal property if it constitutes a person’s benefit from criminal conduct and the alleged offender knows or suspects that it constitutes such a benefit.
Criminal conduct is conduct that constitutes an offence in any part of the United Kingdom or in the case of overseas conduct would constitute an offence in any part of the United Kingdom if it occurred there. This is relevant for U.K. companies that operate in the medicinal cannabis industry as they may have relationships with medicinal or recreational cannabis companies that operate legally in non-U.K. jurisdictions, however whose activities would be caught by POCA, and for U.K based investors who are investing in cannabis-related investments.
There are defenses available to the money laundering offences, principally making an authorized disclosure prior to the offence being committed and gaining appropriate consent from the National Crime Agency (“NCA”) to receive the criminal property in question, and receiving the property for adequate consideration, as in the case of a contract.
Canmart will take into consideration any potential POCA applications when dealing with non-U.K. companies and will act accordingly to ensure compliance with POCA.
Regulatory Framework in the Kingdom of Lesotho
The Drugs of Abuse Act, 2008 (the “Drugs of Abuse Act”) is the principal legislation which regulates the pharmaceutical sector in the Kingdom of Lesotho. The Drugs of Abuse Act aims to ensure that certain drugs are available in the Kingdom of Lesotho which would be used for medical, scientific and related purposes. The Drugs of Abuse Act also aims to prevent the abuse of drugs, to prevent diversion from lawful trade of controlled chemicals, equipment and materials for the use in unlawful manufacture of such drugs. Furthermore, the Drugs of Abuse Act also establishes the Lesotho Narcotics Bureau.
Cannabis, cannabis plants and cannabis resin are specifically defined in the Drugs of Abuse Act and as such, the cultivation, manufacturing, preparation, supply, and transit thereof is restricted. As such, the Drugs of Abuse Act, pursuant to section 9 thereof, allows the cultivation, manufacturing, acquisition, administration if the person is an operator as defined in the Drugs of Abuse Act. Therefore, an operator, is
 
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defined as any person who carries on a business of manufacture acquisition or supply of a drug of abuse. Cannabis is defined as a drug of abuse.
Operators are therefore allowed to apply for a license that permits operators to cultivate, manufacture, import, export, transport and process cannabis for medicinal purposes. The recreational use of cannabis is still illegal, and it carries criminal sanctions.
These operators’ licenses are, generally valid for 12 months, renewable every year.
In order for an operator to import, export or transport cannabis, the operator must apply for a permit for such imports, exports and transport of cannabis. These permits apply to cannabis plants, cannabis seed, cannabis and cannabis resin.
The current legislative framework does not differentiate between cannabis containing THC or CBC, as the current definition deals with the collective description of cannabis.
During 2018 and 2019, the Government of Lesotho published regulations, The Drugs of Abuse (Cannabis) Regulations (“the Drugs of Abuse Regulations”). The 2019 Drugs of Abuse Regulations repealed and replaced the 2018 Drugs of Abuse Regulations.
The purpose of the Drugs of Abuse Regulations is to track, control, manage and regulate the cannabis industry. It is also the purpose of the Drugs of Abuse Regulations to set the criteria for the license application process, qualifications for operators and to set up structures and methods for the tracking of cannabis, from seed to sale.
The Lesotho Narcotics Bureau is tasked with assessing license applications, renewals and providing the operators with advice and assistance as regards the laws and regulations governing the conduct of a drugs of abuse business as well as the role of the International Narcotics Control Board.
The Drugs of Abuse Regulations also deals with the requirements for and set the standard for qualifications to be engaged in a cannabis business. It contains provisions dealing with the standards for security, premises, manufacturing practices, cultivation practices, record keeping, seed-to-sale requirements and testing of cannabis.
Labelling and packaging as well as waste management is provided for in the Drugs of Abuse Regulations as it also deals with the transportation, importation and exportation of cannabis.
Operators can apply for licenses which allows indoor or outdoor cultivation; however, outdoor cultivation is restricted to cannabis strains that have a THC content below 1% and that it is used for produce CBD isolate, only feminized seeds are used, the male plants must be destroyed and cannabis seed is obtained from a registered seed supplier.
Failure to comply with the Drugs of Abuse Act and the Drugs of Abuse Regulations constitute a criminal offence and when convicted, it can lead to 5 years of imprisonment of a fine of not less than R20 000.00 (ZAR) (approximately, U.S.$1,333) or both, or in the case of a company, a fine of not less than R100 000.00 (ZAR) (approximately, U.S.$6,667).
Bophelo is currently the holder of an operators’ license (“the Operators’ License”) as issued in terms of the Drugs of Abuse Act, 2008 pursuant to section 12 thereof.
The Operators’ License is issued under number 18/8/18/18 and is granted for a ten-year period, renewable every 12 months. The Operator’s License is valid until September 26, 2028 and in terms of the Operators’ License, Bophelo is licensed to cultivate, manufacture, supply for distribution, store, export, import and transit into and out of Lesotho cannabis for medicinal purposes and for scientific and any other lawful use.
Furthermore, the Operators’ License also allow Bophelo to cultivate cannabis on or up to 50,000 square meters (5 hectares) of greenhouses (indoor).
 
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MANAGEMENT
Our Executive Officers and Directors
The following table sets forth the names, ages and positions of the individuals who we anticipate will serve as our executive officers and members of our Board of Directors at the time of the offering.
Name
Position
Age
Louisa Mojela
Executive Chairman and Director
65
Tejinder Virk
Chief Executive Officer and Director
40
Aslihan Akkar-Schenkl
President
43
Trevor Scott
Chief Financial Officer
43
Philip van den Berg(1)
Director
63
Charles Kié(2)
Director
58
Gila Jones(2)
Director
40