The following management's discussion and analysis of the Company's financial condition and results of operations contain forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC and, including, without limitation, this Annual Report on Form 10-K filing for the fiscal year ended July 31, 2022, including the consolidated financial statements and related notes contained herein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to "Forward-looking Statements" and Item 1A. Risk Factors.





Introduction

The following discussion summarizes the results of operations for each of our fiscal years ended July 31, 2022 and 2021 and our financial condition as at July 31, 2022 and 2021, with a particular emphasis on fiscal 2022, our most recently completed fiscal year.





Overview

Our business is the production and cultivation of medical and recreational marijuana in Nevada pursuant to licenses held by NMG operating under the marquee brand name of Body & Mind and produces flower, oil, extracts and edibles and are available for sale in dispensaries in Nevada. In addition, we have retail / dispensary operations in Ohio, California, Michigan and Arkansas, and wholesale operations in Ohio and Arkansas that produce flower and/or concentrates from extraction.

Results of Operations for the years ended July 31, 2022 and 2021

The following table sets forth our results of operations for the fiscal years ended July 31, 2022 and 2021:





                                               July 31,          July 31,
                                                   2022              2021
                                                      $                 $
Sales                                        31,638,163        26,900,869
Cost of sales and other                     (20,694,217 )     (14,910,660 )

General and Administrative Expenses (14,463,446 ) (11,402,882 ) Other Items

                                 (22,115,439 )        (397,079 )
Net Loss                                    (28,228,104 )      (1,976,461 )
Foreign Currency Translation Adjustment          96,380           395,945
Comprehensive Loss                          (28,131,724 )      (1,580,516 )
Basic and Diluted Loss Per Share                  (0.25 )           (0.02 )




Revenues

For the year ended July 31, 2022, we had total sales of $31,638,163 and cost of sales of $20,694,217 for a gross margin of $10,943,946 compared to total sales of $26,900,869 and cost of sales of $14,910,660 for a gross margin of $11,990,209 in the year ended July 31, 2021. During the year ended July 31, 2022, the Company recorded product sales as follows:





                         Year ended July 31, 2022
Revenues - By Segment               $                   %

Wholesale                                5,324,803       17 %
Retail                                  26,313,360       83 %

Total                                   31,638,163





         45

  Table of Contents




Operating Expenses

For the year ended July 31, 2022, general and administrative expenses totaled $14,463,446 compared with $11,402,882 for the year ended July 31, 2021. A significant reason for the increase in general and administrative expenses between the years related to increased depreciation from $1,457,550 to $1,490,516, license, utilities and office administration from $2,938,525 to $4,627,009, business development expense from $282,865 to $669,471 and consulting fees from $537,760 to $967,860 as a result of various ongoing acquisitions and expansions. Lease expense increased from $431,427 to $856,697 as a result of additional leased premises in Michigan, California, and Nevada. Salaries and wages increased from $3,400,472 to $3,907,971 as a result of increased operations in all regions including the total number of employees under payroll.





Income Taxes

The (benefit) expense for income taxes consists of the following:





                                             2022           2021

Current:
Federal                                  $ 2,277,868       $ 2,281,497
State                                         85,867            99,322
                                           2,363,735         2,380,819

Deferred:
Federal                                        6,598          (214,352 )
State                                       222,832                242
                                             229,430          (214,110 )

Total (benefit) expense for income taxes $ 2,593,165 $ 2,166,709

Section 280E of the Internal Revenue Code ("IRC") prohibits businesses engaged in the trafficking of Schedule I or Schedule II controlled substances from deducting normal business expenses, such as payroll and rent, from gross income (revenue less cost of goods sold). Section 280E was originally intended to penalize criminal market operators, but because cannabis remains a Schedule I controlled substance for U.S. Federal purposes, the Internal Revenue Service (the "IRS") has subsequently applied Section 280E to state-legal cannabis businesses. Cannabis businesses operating in states that align their tax codes with the IRC are also unable to deduct normal business expenses from their state taxes. The nondeductible expenses shown in the effective rate reconciliation above is comprised primarily of the impact of applying Section 280E to the Company's businesses that are involved in selling cannabis, along with other typical non-deductible expenses such as lobbying expenses.





                                               2022             2021

Net loss for the year before income tax $ (25,634,939 ) $ (190,248 ) Federal and state income tax rates

                21.00 %         21.00 %

Expected income tax recovery                 (5,383,335 )        39,951
IRC 280E disallowance                         8,208,764       1,935,581
Stock options                                   118,816         243,829
Impairment of consolidated investment                 -         176,816
Other permanent differences                     (78,052 )       (82,301 )
Opening deferred tax adjustments               (602,555 )      (284,621 )
State taxes                                    (394,760 )         7,598
Change in benefit not recognized                724,287         129,856

Total income tax expense                  $   2,593,165     $ 2,166,709

The impact of the loss on impairment of goodwill, intangible assets, ROU assets, and loans receivable in the aggregate amount of $20,517,192 is included in the IRC 280E disallowance for 2022. Approximately $4.3 million was included in the IRC 280E disallowance for the year ended July 31, 2022 related to the impairment losses.






         46

  Table of Contents




Other Items

During the year ended July 31, 2022, our other items accounted for $22,115,439 in expenses as compared to $397,079 in expenses for the year ended July 31, 2021. The significant components in other items primarily relates to the Company's impairment loss on brand, licenses, goodwill and right-of-use assets in Manistee, Michigan for a combined total of $20,517,192. In 2021, the Company also recognized impairment loss of $592,547 related to its investments in NMG Ohio and GLDH. The Company also recorded a loss on settlement of $503,179 related to Canopy shares and a gain on settlement of $43,178 related to Michigan lease milestone shares, for a net loss of $460,001. Interest expense increased to $1,372,208 from $53,394 as a result of the loan obtained from FG Agency Lending LLC and Bomind Holdings LLC being outstanding for the entire year and an increase in interest rate on the loan from 13% to 15% pursuant to the amendment.





Net Loss

Net loss for the year ended July 31, 2022 totaled $28,228,104 compared with a net loss of $1,976,461 for the year ended July 31, 2021. The increase in net loss of $26,251,643 is largely due to the impairment loss on right-of-use assets, brand, licenses and goodwill totaling $20,517,192 as discussed above and the increase in interest expense.

Other Comprehensive Income (Loss)

We recorded translation adjustments gain of $96,380 and $395,945 for the year ended July 31, 2022 and 2021, respectively. The amounts are included in the statement of operations as other comprehensive income(loss) for the respective years.

Liquidity and Capital Resources





The following table sets out our cash and working capital as of July 31, 2022
and 2021:



                        As of           As of
                     July 31,        July 31,
                         2022            2021

Cash reserves     $ 1,854,277     $ 7,374,194
Working capital   $ 1,380,421     $ 8,819,840




Financings

There has been no equity financing during the year ended July 31, 2022. There was a loan repayment in the amount of $26,533, net, for the year ended July 31, 2022.

During the year ended July 31, 2021, the Company issued 700,000 common shares upon exercise of 700,000 stock option awards with an exercise price of CAD$0.57 per common share for proceeds of $313,415 (CAD$399,000) and obtained a loan for a net amount of $5,852,311.






         47

  Table of Contents




Statement of Cashflows

During the year ended July 31, 2022, our net cash decreased by $5,519,917 (2021: increase of $6,022,064), which included net cash used in operating activities of $3,444,278 (2021: provided $294,965), net cash used in investing activities of $2,145,486 (2021: $831,997), net cash used in financing activities of $26,533 (2021: provided $6,165,726) and effect of exchange rate changes on cash and cash equivalents of $96,380 (2021: 393,370).

Cash Flow used in Operating Activities

Cash flow used in operating activities totaled $3,444,278 during the year ended July 31, 2022 and cash provided by operating activities totaled $294,965 during the year ended July 31, 2021. Significant changes in cash used in operating activities are outlined as follows:





    ·   The Company incurred a net loss from operations of $28,228,104 during the
        year ended July 31, 2022 compared to $1,976,461 in 2021. The net loss in
        2022 included, among other things, non-cash depreciation of $969,157
        (2021: $765,857), accrued interest and accretion of $1,035,592 (2021:
        $15,474), amortization of right-of-use assets of $517,163 (2021:
        $431,427), amortization of licenses of $1,266,753 (2021: $1,122,415),
        equity-method investment change from earnings of $Nil (2021: $13,219),
        impairment loss on its assets of $20,517,192 (2021: $592,747), and
        stock-based compensation of $435,266 (2021: $975,555).

The following non-cash items further adjusted the loss for the year ended July 31, 2022 and 2021:





    ·   Decrease in amounts receivable and prepaid of $1,009,578 (2021: increase
        of $528,364), increase in inventory of $291,168 (2020: $809,491), increase
        in deposits of $113,828 (2021: $Nil), increase in trade payables and
        accrued liabilities of $653,068 (2021: decrease of $194,328), decrease in
        lease liabilities of $871,407 (2021: $536,985), decrease in income taxes
        payable of $843,329 (2021: increase of $1,798,668), increase in due to
        related parties of $111,788 (2021: decrease of $3,439), and net increase
        in loan due from NMG Ohio of $Nil (2021: $891,279).

Cash Flow used in Investing Activities

During the year ended July 31, 2022, investing activities used cash of $2,145,486 compared to $831,997 during the year ended July 31, 2021. The change in cash used in investing activities from the year ended July 31, 2022 relates primarily to investment in Canopy of $871,497, net of cash received (2021: $Nil), additional property and equipment of $828,406 (2021: $402,459), and a loan of $391,168 (2021: $358,553) to CCG in Arkansas.

Cash Flow provided by Financing Activities

During the year ended July 31, 2022, financing activities used cash of $26,533 compared to $6,165,726 during the year ended July 31, 2021. In 2022, the Company repaid $26,533 for its outstanding loans payable.

During the year ended July 31, 2021, the Company issued 700,000 common shares for proceeds of $313,415 related to the exercise of 700,000 options. During the year ended July 31, 2021, the Company received $6,666,666 initial loan ($5,852,311 after the 10% origination discount and other fees). See Loan Agreement section under Material Contracts.





Trends and Uncertainties

Potential Impact of the COVID-19 Pandemic

In December 2019, a strain of novel coronavirus (now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many countries, and, on March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. Although certain restrictions have been relaxed, COVID-19 may have a future material impact on our results of operation with respect to retail sales at our dispensary locations as well as wholesales of our products in Nevada to dispensaries in Nevada. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. We do not yet know the full extent of any impact on our business or our operations, however, we will continue to monitor the COVID-19 situation closely, and intend to follow health and safety guidelines as they evolve.






         48

  Table of Contents

There are no 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 expenditures or capital resources that is material to investors.





Outstanding share data

At January 13, 2023, we had 146,636,974 issued and outstanding common shares, 7,553,000 outstanding stock options and 21,415,284 outstanding warrants. The outstanding warrant figure does not include 3,200,000 warrants issued to the Agent pursuant to the Loan Agreement, which warrants are held in escrow by us and are to be released to the Agent if we draw on the Delayed Draw Term Loan by March 31, 2023, or cancelled if we do not draw on the Delayed Draw Term Loan. Each warrant, if released to the Agent, will entitle the holder to acquire one share of common stock at an exercise price of US$0.45 per share until July 19, 2025.





Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.





    ·   Income taxes

        The determination of deferred income tax assets or liabilities requires
        subjective assumptions regarding future income tax rates and the
        likelihood of utilizing tax carry-forwards. Changes in these assumptions
        could materially affect the recorded amounts, and therefore do not
        necessarily provide certainty as to their recorded values.




    ·   Foreign currency

        The Company determines the functional currency through an analysis of
        several indicators such as expenses and cash flows, financing activities,
        retention of operating cash flows, and frequency of transactions with the
        reporting entity.





         49

  Table of Contents




    ·   Fair value of financial instruments

        Management uses valuation techniques, in measuring the fair value of
        financial instruments, where active market quotes are not available.

        In applying the valuation techniques, management makes maximum use of
        market inputs wherever possible, and uses estimates and assumptions that
        are, as far as possible, consistent with observable data that market
        participants would use in pricing the instrument. Where applicable data is
        not observable, management uses its best estimate about the assumptions
        that market participants would make. Such estimates include liquidity
        risk, credit risk and volatility may vary from the actual results that
        would be achieved in an arm's length transaction at the reporting date.
        The assessment of the timing and extent of impairment of intangible assets
        involves both significant judgements by management about the current and
        future prospects for the intangible assets as well as estimates about the
        factors used to quantify the extent of any impairment that is recognized.




    ·   Long-lived assets and goodwill

        Long-lived assets and goodwill are reviewed for indicators of impairment
        at least annually. When there are indications of impairment, the Company
        calculates the fair value of reporting units for goodwill and the fair
        value of the asset groups for long-lived assets using various valuation
        techniques, which require the input of highly subjective assumptions that
        can materially affect the fair value estimate.




    ·   Intellectual property

        The recoverability of the carrying value of the intellectual property is
        dependent on numerous factors. The carrying value of these assets is
        reviewed by management when events or circumstances indicate that its
        carrying value may not be recovered. If impairment is determined to exist,
        an impairment loss is recognized to the extent that the carrying amount
        exceeds the recoverable amount.




    ·   Stock-based compensation

        The option pricing models require the input of highly subjective
        assumptions, particularly the expected stock price volatility. Changes in
        the subjective input assumptions can materially affect the fair value
        estimate, and therefore the existing models do not necessarily provide a
        reliable single measure of the fair value of the Company's stock options.




    ·   Business Combination

        The results of businesses acquired in a business combination are included
        in our consolidated financial statements from the date of the acquisition.
        Purchase accounting results in assets and liabilities of an acquired
        business being recorded at their estimated fair values on the acquisition
        date. Any excess consideration over the fair value of assets acquired and
        liabilities assumed is recognized as goodwill.

        We perform valuations of assets acquired and liabilities assumed on each
        acquisition accounted for as a business combination in order to record the
        tangible and intangible assets acquired and liabilities assumed based on
        our best estimate of fair value. Determining the fair value of assets
        acquired and liabilities assumed requires management to use significant
        judgment and estimates including the selection of valuation methodologies,
        estimates of future revenue and cash flows, discount rates and selection
        of comparable companies. Significant estimation is required in determining
        the fair value of the customer relationship intangible assets, deferred
        revenue and contingent consideration liabilities. The significant
        estimation is primarily due to the judgmental nature of the inputs to the
        valuation models used to measure the fair value of these intangible
        assets, deferred revenue and contingent consideration liabilities, as well
        as the sensitivity of the respective fair values to the underlying
        significant assumptions. We use the income approach to measure the fair
        value of these intangible assets. The significant assumptions used to
        estimate the fair value of the intangible assets included forecasted
        revenues from existing customers and existing customer attrition rates.
        When estimating the significant assumptions to be used in the valuation we
        include a consideration of current industry information, market and
        economic trends, historical results of the acquired business and other
        relevant factors. These significant assumptions are forward-looking and
        could be affected by future economic and market conditions. We engage the
        assistance of valuation specialists in concluding on fair value
        measurements in connection with determining fair values of assets acquired
        and liabilities assumed in a business combination.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2022. The Company does not anticipate this amendment to have a significant impact on the consolidated financial statements.






         50

  Table of Contents

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an interim period. The Company does not anticipate this amendment to have a significant impact on the consolidated financial statements.

© Edgar Online, source Glimpses