Enhanced Investments - Financial Portal

Published: 2022-12-28

Flora Growth Corp.
	INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	For the three and nine months ended September 30, 2022 and 2021
(Unaudited)
		(Expressed in United States Dollars)

Flora Growth Corp.Interim Condensed Consolidated Statements of Financial Position(Unaudited Prepared by Management)(in thousands of United States dollars)
	September 30,	December 31,
As at:	2022	2021
ASSETSCurrent
Cash	$		5,900	$		37,614
Restricted cash		1		2
Trade and amounts receivable (Note 3)			4,392	5,324
Loans receivable and advances			255	273
Prepaid expenses			1,990	1,700
Biological assets (Note 4)		91		37
Inventory (Note 5)			10,280	2,993
Total current assets			22,909	47,943
Noncurrent
Property, plant and equipment (Note 6)			4,349	3,750
Right of use assets (Note 6 and 11)			3,258	1,229
Intangible assets (Note 9)			12,652	9,736
Goodwill (Note 9)			28,856	20,054
Investments (Note 7)			839	2,670
Other Assets			271	97
Total assets	$		73,134	$		85,479
LIABILITIESCurrent
Trade payables and accrued liabilities	$		7,559	$		5,628
Current portion of long term debt		5		18
Current portion of lease liability (Note 11)			1,102	412
Other accrued liabilities		18		61
Total current liabilities			8,684	6,119
Noncurrent
Noncurrent debt		79
Noncurrent lease liability (Note 11)			2,137	908
Deferred tax (Note 16)			1,531	1,511
Other long term liabilities (Note 8)			6,537
Total liabilities			18,968	8,538
SHAREHOLDERS' EQUITY
Share capital (Note 12)	120,160			102,428
Options (Note 13)			6,242	3,712
Warrants (Note 14)			9,276	10,670
Accumulated other comprehensive loss			(2,723)	(1,108)
Deficit			(78,457)	(38,536)
Noncontrolling interest			(332)	(225)
Total shareholders' equity			54,166	76,941
Total liabilities and shareholders' equity	$		73,134	$		85,479
Nature of operations (Note 1); Provisions, commitments and contingencies (Note 15); Subsequent events (Note 22)
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
					Page 2

Flora Growth Corp.

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss
(Unaudited Prepared by Management)
(in thousands of United States dollars, except per share amounts which are in thousands of shares)
	For the three	For the three			For the nine	For the nine
	months ended	months ended			months ended	months ended

	September 30,	September 30,			September 30,	September 30,
			2022	2021		2022	2021
Revenue (Note 21)	$	10,765 $		2,093 $	25,682 $	4,211
Cost of sales		5,936		1,474	14,351	2,580
Gross profit before fair value adjustments		4,829			619	11,331	1,631
Unrealized gain on changes in fair value of biological assets (Note 4)		152				198
Realized fair value amounts included in inventory sold (Note 4)		(10)				(12)
Gross Profit		4,971			619	11,517	1,631
Operating Expenses
Consulting and management fees		3,237		1,905	8,480	4,167
Professional fees		802			904	2,898	1,670
General and administrative		1,186			610	3,615	2,091
Promotion and communication		2,195			34	6,914	1,214
Travel expenses		288			140	889	283
Share based compensation (Note 13)		139			393	2,994	488
Research and development		170			(20)	592	65
Depreciation and amortization (Notes 6 and 9)		985			67	2,697	186
Bad debt expense (Note 3)		631				1,036	100
Goodwill impairment (Notes 9 and 10)						16,000
Other expenses (income), net		346			198	1,524	131
Total operating expenses		9,979		4,231	47,639	10,395
Operating Loss		(5,008)		(3,612)	(36,122)	(8,764)
Interest expense		75			57	144	121
Foreign exchange loss (gain)		128			(38)	328	(116)
Unrealized loss from changes in fair value (Note 7 and Note 8)		2,177				3,510
Net loss before income taxes		(7,388)		(3,631)	(40,104)	(8,769)
Income tax benefit (Note 16)
Net loss for the period	$	(7,388) $		(3,631) $	(40,104) $	(8,769)
Other comprehensive loss
Exchange differences on foreign operations		1,048			463	1,615	663
Total comprehensive loss for the period	$	(8,436) $		(4,094) $	(41,719) $	(9,432)
Net loss attributable to:
Flora Growth Corp.	$	(7,358) $		(3,608) $	(39,969) $	(8,705)
Noncontrolling interests		(30)			(23)	(135)	(64)
Comprehensive loss attributable to:
Flora Growth Corp.	$	(8,406) $		(4,071) $	(41,584) $	(9,368)
Noncontrolling interests		(30)			(23)	(135)	(64)
Basic and diluted loss per share attributable to Flora Growth Corp.	$	(0.10) $		(0.08) $	(0.54) $	(0.21)
Weighted average number of common shares outstanding basic and diluted (Note17)

		76,611		44,199	74,335	41,152
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
								Page 3

Flora Growth Corp.Interim Condensed Consolidated Statement of Shareholders' Equity (Deficiency)(Unaudited Prepared by Management)(in thousands of United States dollars, except for share amounts which are in thousands of shares)
				Accumulated				Non
					other		Controlling		Shareholders'

				comprehensive		Accumulated	interest			Equity
	Common Shares	Options	Warrants	(loss) income		Deficit	(Deficiency)		(Deficiency)
		#											$		$		$		$						$	$
Balance, December 31, 2020		38,355	27,254	2,396	3,961		39						(17,287)	(113)		16,250
Initial public offering											3,333	16,667								16,667
Initial public offering issuancecosts

												(3,145)		1,320						(1,825)
Regulation A and Other Offerings(Note 16)

											55	267									267
Common shares issued forinvestments

											225	1,125								1,125
Share issuance costs												(2,264)								(2,264)
Warrants exercised											3,769	11,114		(757)						10,357
Warrants cancelled												9		(9)
Options issued													488								488
Other comprehensive loss –exchange differences on foreignoperations

															(663)					(663)
Current year net loss attributable toFlora

																	(8,705)	(64)		(8,769)
Balance, September 30, 2021		45,737	51,027	2,884	4,515	(624)							(25,992)	(177)		31,633
Balance, December 31, 2021		65,517										102,428	3,712	10,670	(1,108)							(38,536)	(225)	76,941
Share repurchase (Note 12)											(368)	(255)								(255)
Common shares issued for businesscombinations (Notes 8 and 12)

											9,500	14,697								14,697
Common shares issued for otheragreements (Note 12)

											811	1,470	84							1,554
Acquisition of noncontrollinginterest (Note 8)

											131	220	63				(365)	28			(54)
Options issued (Note 13)													3,567							3,567
Options exercised (Note 13)											545	102	(20)								82
Options expired/cancelled (Note 13)													(1,164)				413			(751)
Restricted stock granted (Note 13)											770	95									95
Warrants exercised (Note 14)											473	138		(41)							97
Warrants expired/cancelled (Note14)

												1,353		(1,353)
Share issuance costs												(88)									(88)
Other comprehensive loss –exchange differences on foreignoperations

															(1,615)					(1,615)
Current year net loss attributable toFlora

																						(39,969)	(135)	(40,104)
Balance, September 30, 2022		77,379										120,160	6,242	9,276	(2,723)							(78,457)	(332)	54,166
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
			Page 4

Flora Growth Corp.Consolidated Statement of Cash Flows(Unaudited Prepared by Management)(in thousands of United States dollars)
	For the			For the
	nine months		nine months
		ended			ended
	September 30,		September 30,
		2022		2021
Cash flows from operating activities:
Net loss	$	(40,104) $		(8,769)
Adjustments to net loss:
Depreciation and amortization		2,697			186
Stockbased compensation		3,184			488
Impairments		16,000
Changes in fair value of investments, biological assets and liabilities		3,312
Bad debt expense		1,036			100
Interest expense			123		18
Income tax benefit
Income tax (paid) received
		(13,752)		(7,977)
Net change in noncash working capital:
Trade and other receivables			909	(9,692)
Inventory		(884)		(1,025)
Prepaid expenses and other assets			353	(1,596)
Trade payables and accrued liabilities		(458)		1,005
Net cash used in operating activities		(13,832)		(19,285)

Cash flows from financing activities:
Common shares issued				18,067
Equity issue costs			(88)	(2,431)
Exercise of warrants and options			179	10,357
Repayments of lease liability		(707)			(97)
Common shares repurchased		(255)
Interest paid		(126)
Loan borrowing (repayments)			66		(247)
Net cash (used) provided by financing activities		(931)		25,649

Cash flows from investing activities:
Loans provided					(268)
Loan repayments received					224
Purchases of property, plant and equipment and other assets		(948)		(1,472)
Purchase of investments				(3,653)
Business and asset acquisitions, net of cash acquired		(15,388)		(1,284)
Net cash used in investing activities		(16,336)		(6,453)

Effect of exchange rate on changes on cash		(615)			(613)

Change in cash during the period		(31,714)			(702)
Cash and cash equivalents at beginning of period		37,614		15,523
Cash and cash equivalents at end of period	$	5,900 $		14,821
Supplemental disclosure of noncash activities
Right of use assets and lease liabilities acquired (Note 11)	$	2,042 $
Common shares issued for business combinations (Notes 8)		14,917
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
						Page 5

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) 1. NATURE OF OPERATIONS Flora Growth Corp. (the “Company” or “Flora”) was incorporated under the laws of the Province of Ontario, Canada on March 13, 2019. The Company is amanufacturer of global cannabis products and brands, building a connected, designled collective of plantbased wellness and lifestyle brands. The Company’sregistered office is located at 365 Bay Street, Suite 800, Toronto, Ontario, M5H 2V1, Canada and our principal place of business in the United States is located at

3406 SW 26t h Terrace, Suite C1, Fort Lauderdale, Florida 33312. These interim condensed consolidated financial statements have been prepared on a going concern basis, meaning that the Company will continue in operationfor the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. 2. BASIS OF PRESENTATION Statement of complianceThese interim condensed consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards(“IFRS”) and International Accounting Standards 34, Interim Financial Reporting (“IAS 34”), issued by the International Accounting Standards Board (“IASB”).These interim condensed consolidated financial statements do not include all notes of the type normally included within the annual financial statements andshould be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2021 included in our AnnualReport on Form 20F filed with the Securities and Exchange Commission (the “SEC”), which have been prepared in accordance with IFRS issued by the IASB andinterpretations issued by the IFRS Interpretations Committee (“IFRIC”). These consolidated financial statements were approved and authorized for issuance by the Board of Directors of the Company on November 22, 2022. Basis of consolidationThese interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances andtransactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from itsinvolvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidatedfinancial results of the Company from the date of acquisition up to the date of disposition or loss of control. As at September 30, 2022, the Company had thefollowing subsidiaries:

Subsidiaries

Country of incorporation

Ownership

Functional currency

Cosechemos YA S.A.S.

Colombia

90%

Colombia Peso (COP)

Flora Growth Corp. Sucursal Colombia

Colombia

100%

Colombia Peso (COP)

Hemp Textiles & Co. LLC

United States

100%

United States Dollar (USD)

Hemp Textiles & Co. S.A.S.

Colombia

100%

Colombia Peso (COP)

Flora Beauty LLC

United States

100%

United States Dollar (USD)

Flora Beauty LLC Sucursal Colombia

Colombia

100%

Colombia Peso (COP)

Kasa Wholefoods Company S.A.S.

Colombia

90%

Colombia Peso (COP)

Kasa Wholefoods Company LLC

United States

100%

United States Dollar (USD)

Grupo Farmaceutico Cronomed S.A.S.

Colombia

100%

Colombia Peso (COP)

Labcofarm Laboratorios S.A.S.

Colombia

100%

Colombia Peso (COP)

Breeze Laboratory S.A.S.

Colombia

100%

Colombia Peso (COP)

Vessel Brand Inc.

United States

100%

United States Dollar (USD)

Just Brands LLC

United States

100%

United States Dollar (USD)

Just Brands International LTD

United Kingdom

100%

British Pound (GBP)

High Roller Private Label LLC

United States

100%

United States Dollar (USD)

Flora Growth US Holdings Corp.

United States

100%

United States Dollar (USD)

Flora Growth Management Corp.

United States

100%

United States Dollar (USD)

Cardiff Brand Corp.

United States

100%

United States Dollar (USD)

Keel Brand Corp.

United States

100%

United States Dollar (USD)

Flora Growth F&B Corp.

United States

100%

United States Dollar (USD)

Masaya Holding Corp

United States

100%

United States Dollar (USD)

Page 6

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) Basis of measurementThe interim condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that aremeasured at fair value and biological assets as explained in the accounting policies included in the audited consolidated financial statements of the Company forthe year ended December 31, 2021. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The unaudited interim condensed consolidated financial statements are presented in United States dollars (“$”) unless otherwise noted. Significant Accounting Policies and Critical Judgments and Estimation UncertaintiesThe interim condensed consolidated financial statements were prepared using the same accounting policies, judgments, estimates and assumptions as those usedin the Company’s consolidated financial statements for the year ended December 31, 2021, except as noted below for the following new significant transactionsthat occurred in 2022. Contingent Purchase ConsiderationContingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subjectto the applicable terms and conditions. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequentsettlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured at subsequent reporting dates with thecorresponding gain or loss recognized in profit or loss. Management exercises judgment to determine the classification of contingent consideration as equity orliability based on the terms of the agreement and potential for the consideration to result in a cash outflow by the Company. Fair value estimates are determinedusing appropriate valuation techniques based on the nature of the terms in the purchase agreement. 3. TRADE AND AMOUNTS RECEIVABLE The Company’s trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at September 30, 2022 and December 31,2021 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes (“HST”) and other receivables.
		September	December
			30,		31,
		2022		2021
	Thousands of United States dollars
	Trade accounts receivable	$	5,311 $	5,565
	Allowance for expected credit losses		(2,219)	(1,252)
	HST receivable		468	259
	Other receivables		832	752
	Total	$	4,392 $	5,324
Changes in the trade accounts receivable allowance in the nine months ended September 30, 2022 primarily relate to establishing allowances for expected creditlosses. There were no writeoffs of trade receivables during the nine months ended September 30, 2022. The Company has no amounts writtenoff that are stillsubject to collection enforcement activity as at September 30, 2022. There was an additional $0.3 million of expected credit losses recorded in other receivables asat September 30, 2022. The Company’s aging of trade accounts receivable is as follows:
			September
				30,
			2022
	Thousands of United States dollars
	Current		$	1,409
	130 Days			643
	3160 Days			499
	6190 Days			336
	91180 Days			404
	180+ Days			2,020
	Total trade receivables		$	5,311

						Page 7

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) 4. BIOLOGICAL ASSETS The Company’s biological assets consist of cannabis plants throughout the growth cycle including propagation, vegetative and flowering stages. Cannabisplants cease being biological assets upon harvest when the fair value at time of harvest is transferred to harvested cannabis inventory. The Company has nobiological assets with title restricted or pledged as collateral, and no significant commitments for development or acquisition of biological assets as at September30, 2022. The changes in the carrying value of biological assets are as follows:
	Thousands of United States Dollars
						CBD

		THC Cannabis	Cannabis	Total
					Opening balance at December 31, 2021	$	$	37 $	37
					Changes in fair value less cost to sell due to biological transformation		74	124	198
					Transferred to harvested cannabis inventory upon harvest			(144)	(144)
					Ending balance at September 30, 2022	$	74 $	17 $	91
The valuation of biological assets is based on an income approach (Level 3) in which the fair value at the point of harvesting is estimated based on selling pricesless the costs to sell. For inprocess biological assets (growing plants), the fair value at the point of harvest is adjusted based on the stage of growth at periodend. Harvested cannabis is transferred from biological assets at their fair value at harvest to harvested cannabis within inventory. Significant inputs and assumptions used in determining the fair value of cannabis plants are as follows as at September 30, 2022:
			THC	CBD

			Cannabis	Cannabis
					Average selling price per gram (1)	$	0.21 $	0.07
					Weighted average yield (grams per plant) (2)		27.38	27.38
					Standard cost per gram to complete production (3)	$	0.06 $	0.04
_______ (1)
Average selling price per gram represents estimated selling price of dried cannabis end products net of excise taxes, where applicable, for the period for allstrains of cannabis, which is expected to approximate future selling prices. Increasing this amount results in an increase in fair value.

(2)	Weighted average yield represents the weighted average number of grams of dried cannabis inventory expected to be harvested from each cannabis plant.Increasing this amount results in an increase in fair value.

(3)	Standard cost per gram to complete production is based on estimated future production costs incurred divided by estimated grams produced in the period.Increasing this amount results in a decrease in fair value.
Changes in the assumptions above of 10% would not have a significant impact on the fair value of biological assets as at September 30, 2022. As at September 30, 2022:
			THC	CBD

			Cannabis	Cannabis
					Weighted average fair value less cost to complete and cost to sell a gram of dried cannabis	$	0.15 $	0.04
					Expected yield from biological assets (total grams)					248,863	357,159
					Weighted average stage of growth		29.2%	59.7%
For the nine months ended September 30, 2022, the Company’s biological assets produced the following when harvested:
				CBD

			THC Cannabis	Cannabis
					Kilograms of dried cannabis			1,241

								Page 8

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) 5. INVENTORY Inventory is comprised of the following as at September 30, 2022 and December 31, 2021:
		September
			30,	December 31,
	Thousands of United States dollars	2022		2021
	Raw materials and supplies	$	2,672 $	899
	Harvested cannabis		146		35
	Work in progress		447		97
	Finished goods		7,015	1,962
	Total	$				10,280 $	2,993
6. PROPERTY, PLANT AND EQUIPMENT
								Machinery
							Construction		and Officeequipment						Right of
In Thousands of United States dollars							in progress		Buildings	Vehicles	Land	Subtotal	use assets		Total
Cost at December 31, 2021							$	905 $	1,991 $	928 $	37 $	112 $	3,973 $	1,532 $			5,505
Additions								317	261	31	17	295	921	2,042			2,963
Business combinations (Note 8)									506		30		536	772			1,308
Foreign exchange translation								(141)	(220)	(115)	(6)	(45)	(527)	(119)			(646)
Cost as at September 30, 2022								1,081	2,538	844	78	362	4,903	4,227			9,130

Accumulated depreciation
As at December 31, 2021									(169)	(44)	(10)		(223)	(303)			(526)
Depreciation									(340)	(66)	(4)		(410)	(716)	(1,126)
Disposals									28				28				28
Foreign exchange translation									37	12	2		51	50			101
Accumulated depreciation as at September30, 2022

									(444)	(98)	(12)	$		(554)	(969)	(1,523)

Carrying value
As at December 31, 2021								905	1,822	884	27	112	3,750	1,229			4,979
As at September 30, 2022							$	1,081 $	2,094 $	746 $	66 $	362 $	4,349 $	3,258 $	7,607
7. LONGTERM INVESTMENTS As at September 30, 2022, the Company’s longterm investments consist of common shares and warrants to purchase additional common shares in an early stageEuropean cannabis company. In 2021, the Company purchased common shares from the investee for Euro 2.0 million ($2.4 million), purchased its first tranche ofwarrants from existing investors in exchange for 225,000 common shares of the Company, and obtained a second tranche of warrants from the investee as aninducement to exercise some of the first tranche of warrants. As at September 30, 2022, the Company owns approximately 9.6% of the investee, or approximately8.6% on a diluted basis including exercisable warrants of the Company and other investors. The warrants allow the holder to purchase one common share of the investee for CAD 0.30 ($0.22) for the first tranche, and CAD 1.00 ($0.73) for the secondtranche. The warrants were immediately exercisable and expire February 1, 2023. The Company’s cost of the investments was recorded based on the fair value of the consideration exchanged as at the respective transaction dates. The investeeis not a publicly listed entity and has no active quoted prices for its common shares or warrants. Subsequent remeasurements are recorded as FVPL as indicatedon the unrealized loss from changes in fair value caption on the statement of loss and comprehensive loss. The Company estimated the fair value of theinvestments as at September 30, 2022 using Level 3 inputs of the fair value hierarchy with the fair value of the investee common shares at $0.22, the first tranchewarrants at $0.05, and the second tranche warrants at less than $0.01.
									Page 9

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) The investee common shares were valued considering price to book value and price to tangible book value of the investee (3.6 and 4.8, respectively) as well ascomparable guideline publicly traded companies at the time of initial investment. These initial investment multiples were compared to the guideline publiccompany multiples observed as at September 30, 2022 (1.6 price to book value and 2.2 price to tangible value), with these updated valuation multiples applied tothe investee’s estimated book value. The Company also considered the status of the investee’s milestones between the purchase date and yearend for indicatorsof change in value. The fair value of the warrants was developed using a BlackScholes model for each tranche with the following assumptions:
		WarrantsCAD 0.30	WarrantsCAD 1.00

		exercise	exercise
		price		price
	Share price	$	0.22 $	0.22
	Exercise price	$	0.22 $	0.73
	Volatility		100%	100%
	Riskfree interest rate		3.8%	3.8%
	Dividend yield		0.0%	0.0%
	Expected term in years		0.3	0.3
	Fair value	$	0.05 $	0.00
	Quantity owned		1,666,667		333,333
	Fair value	$	83,000 $	1,000
The share price is based on the calculated value of the investee’s common shares as discussed above. The volatility considers actual volatility of comparableguideline public companies. A schedule of the Company’s longterm investments activity is as follows:
							WarrantsCAD 0.30	WarrantsCAD 1.00
						Investeecommon

							exercise	exercise
						shares	price	price
	Financial asset hierarchy level						Level 3		Level 3		Level 3	Total
	Thousands of United States dollars								$			$	$	$
	Balance at December 31, 2021						1,987	625	58	2,670
	Loss on changes in fair value						(1,232)	(542)	(57)	(1,831)
	Balance at September 30, 2022						755	83	1	839
The loss on changes in fair value appear in the unrealized loss from changes in fair value caption in the statement of loss and comprehensive loss. As a sensitivity assessment to the fair value calculations, a 10% change in the valuation multiples applied to the investee common shares results in a 10% changein the fair value as at September 30, 2022 of $76,000. Applying a 10% change in share price to the warrants results in an approximately $22,000 change in fair value,and a 10% change in volatility of approximately $8,000. 8. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS Just Brands LLC and High Roller Private Label LLC (collectively "JustCBD") business combinationOn February 24, 2022, Flora Growth U.S. Holdings Corp., a whollyowned subsidiary of the Company, completed the acquisition of 100% of the outstandingequity interests in each of (i) Just Brands LLC and (ii) High Roller Private Label LLC for total purchase consideration of $34.4 million. JustCBD is a manufacturerand distributor of consumable cannabinoid products, including gummies, tinctures, vape cartridges, and creams. JustCBD is based in Florida in the United Statesand was formed in 2017. The Company acquired JustCBD to expand its product offerings, accelerate its revenue growth, expand its customer and distributionfootprints in the United States and for the acquisition of human capital through JustCBD's management team.
											Page 10

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) The purchase consideration was comprised of $16.0 million of cash, less $0.2 million returned to the Company in August 2022 due to final calculated closingworking capital falling short of the target working capital, 9.5 million common shares of the Company valued at $14.7 million, inclusive of a 15% fair value discountfor the required sixmonth holding period of the shares, and $4.0 million of contingent purchase consideration. The contingent purchase consideration is basedon a clause in the purchase agreement that provides that if at any time during the 24 months following the acquisition date, the fiveday volume weighted averageprice (“VWAP”) per share of the Company's common shares as quoted on the Nasdaq Capital Market fails to equal or exceed $5.00, then the Company shall issuea number of additional common shares to the sellers equal to the difference between (x) a fraction, the numerator of which is $47.5 million and the denominator ofwhich is the highest five day VWAP at any point during the 24 months following the closing and (y) the 9.5 million common shares delivered to the sellers at theclosing. In no event shall the Company be required to issue more than 3.65 million common shares unless it shall have obtained the consent of the Company’sshareholders to do so. In the event the Company is required to deliver in excess of 3.65 million shares to the sellers (”Excess Shares”) and the Company shall nothave obtained shareholder consent, the Company may deliver cash to the sellers in lieu of such Excess Shares determined by a formula set forth in the purchaseagreement. The contingent purchase consideration is classified as a financial liability within other longterm liabilities on the statement of financial position as theCompany may be required to settle any amounts due in cash instead of common shares if the Company's common shareholders do not provide requisiteshareholder approval to issue additional common shares. The fair value of the contingent purchase consideration at February 24, 2022 was determined using a Monte Carlo simulation incorporating Brownian motion with100,000 trials through a binomial lattice model. The significant inputs to the valuation included the twoyear time period, the Company's closing share price atFebruary 24, 2022 ($1.82), estimated Company common share volatility (100%), and risk free rate of 1.5% to discount the ending result to present value. The fair value of the contingent purchase consideration at September 30, 2022 was determined using a Monte Carlo simulation incorporating Brownian motionwith 100,000 trials through a binomial lattice model. The significant inputs to the valuation include the remaining time period, the Company's closing share price atSeptember 30, 2022 ($0.71), estimated Company common share volatility (100%), and risk free rate of 4.1% to discount the ending result to present value. TheCompany determined that the balance of this contingent consideration at September 30, 2022 was $5.6 million, with the $1.6 million increase over the balance atFebruary 24, 2022 recorded in the unrealized loss from changes in fair value caption in the statement of loss and comprehensive loss. The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilitiesassumed are as follows:
	(Thousands of United States dollars)
	Current assets
	Cash	$	535
	Trade receivables		975
	Inventory		5,534
	Other current assets		540

	Noncurrent assets
	Property, plant, and equipment		536
	Right of use assets		772
	Other noncurrent assets		127
	Intangible asset		4,533
	Goodwill		24,898
	Total assets	$	38,450

	Current liabilities
	Trade payables and accrued liabilities	$	(2,273)
	Current lease liabilities		(644)
	Provision for sales tax		(982)
	Deferred tax		(24)
	Other current liabilities		(99)
	Total liabilities	$	(4,022)
	Total net assets acquired	$	34,428
The fair value of the trade receivables reflects a $0.3 million discount to the gross contractual amounts as allowance for potentially uncollectible amounts. Sincethe acquisition date through September 30, 2022, JustCBD revenue was $17.8 million with net loss and comprehensive loss of $0.6 million.
				Page 11

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) The intangible assets of $4.5 million are comprised of the following categories and estimated useful lives: tradenames of $3.1 million for eight to nine years,customer relationships of $1.2 million for five to seven years, and knowhow of $0.2 million for three years. The Company expects the goodwill and intangibleasset values to be deductible for Unites States income tax purposes. If JustCBD was acquired at January 1, 2022, the combined revenue and net loss of JustCBD and the Company would have increased approximately $5.2 millionand $1.6 million, respectively. No Cap Hemp Co. business combinationOn July 20, 2022, Just Brands LLC., a wholly owned subsidiary of the Company, acquired certain assets, assumed liabilities, employees and processes (togetherthe “purchased assets”) of No Cap Hemp Co. (“No Cap”) for total purchase consideration of $0.9 million. No Cap is a manufacturer and distributor of high qualityand affordable CBD products. No Cap is based in Florida in the United States and was formed in 2017. Just Brands LLC acquired No Cap to expand its productofferings and accelerate its revenue growth. As consideration for the purchased assets of No Cap, Just Brands LLC will pay an amount equal to 10% of the sales of No Cap until such a time that Just BrandsLLC will have paid a total of $2.0 million. Also on July 20, 2022, Just Brands LLC advanced $0.2 million to the former owners of No Cap. This $0.2 million will besettled prior to and in the same manner as the consideration for the purchased assets. As these entire amounts are considered contingent consideration, it wasvalued using discounted cash flow models utilizing two different rates, high and low. The significant inputs to the valuation include the estimated nineyear timeperiod to accumulate the $2.0 million maximum payment and discount rates of 23.5%, high, and 14.3%, low, to estimate the present value of the future cashoutflows. The resulting acquisition date fair value of $0.9 million contingent purchase consideration is classified within other long term liabilities on the statementof financial position. At September 30, 2022, the remaining balance outstanding was $0.9 million. The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilitiesassumed are as follows:
	(Thousands of United States dollars)
	Current assets
	Cash	$	(150)
	Trade receivables		31
	Inventory		725
	Other current assets		150

	Noncurrent assets
	Intangible asset
	Goodwill		417
	Total assets	$	1,173

	Current liabilities
	Trade payables and accrued liabilities	$	(272)
	Total liabilities	$	(272)
	Total net assets acquired	$	901
The fair value of the trade receivables reflects a $0.2 million discount to the gross contractual amounts as allowance for potentially uncollectible amounts. Sincethe acquisition date through September 30, 2022, No Cap revenue was $0.4 million with net income and comprehensive income of $0.1 million. The Company expects the goodwill to be deductible for Unites States income tax purposes. If No Cap was acquired at January 1, 2022, the combined revenue of No Cap and the Company would have increased approximately $1.9 million, and the combinednet loss would have decreased by $1.0 million. Acquisition of Minority interestsOn January 18, 2022, the Company acquired the remaining 10% of the outstanding equity interests in Flora Beauty LLC from its minority shareholder in exchangefor 100,000 common shares of the Company and a stock option exercisable for up to 50,000 common shares of the Company at an exercise price of $1.70 per sharethat expire five years from the date of the grant. On January 31, 2022, the Company completed its acquisition of Breeze by acquiring the remaining 10% of the equity interests in Breeze from its minorityshareholders in exchange for 30,282 common shares of the Company.
				Page 12

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) 9. INTANGIBLE ASSETS AND GOODWILL A continuity of intangible assets for the nine months ended September 30, 2022 is as follows:
						Non
				Customer	Trademarks			Compete
	In Thousands of United States dollars	License	Relationships	and Brands	Patents	Agreements	Goodwill	Total
	Cost
	At December 31, 2021	$	610 $	1,759 $	2,211 $	4,300 $	1,190 $ 20,054 $ 30,124
	Acquired through businesscombinations (Note 8)

				1,240	3,063	230		25,315	29,848
	Impairment (Note 10)						(16,000) (16,000)
	At September 30, 2022	$	610 $	2,999 $	5,274 $	4,530 $	1,190 $ 29,369 $ 43,972

	Accumulated Amortization
	At December 31, 2021	$	129 $	26 $	35 $	48 $	66 $	$	304
	Additions		113	266	459	435	298		1,571
	At September 30, 2022	$	242 $	292 $	494 $	483 $	364 $	$	1,875

	Foreign Currency translation		(38)	(6)	(32)			(513)	(589)
	Net book value at September 30, 2022	$	330 $	2,701 $	4,748 $	4,047 $		826 $ 28,856 $ 41,508
The Company’s intangible asset additions in 2022 primarily consist of assets acquired as part of the February 2022 purchase of JustCBD (Note 8). Informationregarding the significant JustCBD intangible assets within the indicated categories of the table above is as follows as at September 30, 2022:
·	Tradenames: carrying amount $2.8 million with 89 to 101 months of remaining amortization periods

	·	Customer relationships: carrying amount $1.1 million with 53 to 77 months of remaining amortization periods

	·	Knowhow: carrying amount $0.2 million with 29 months of remaining amortization period
The Company’s goodwill is assigned to the following cash generating units (“CGU’s”) as at September 30, 2022:
				Pharmaceuticals
										and
	In Thousands of United States dollars			nutraceuticals		Vessel	JustCBD	Total
	As at December 31, 2021			$	379 $	19,675 $		$	20,054
	Acquired through business combinations (Note 8)						24,802	24,802
	Impairment					(16,000)			(16,000)
	As at September 30, 2022			$	379 $	3,675 $	24,802 $	28,856
10. IMPAIRMENT OF ASSETS The carrying amounts of the Company’s nonfinancial assets are reviewed for impairment each reporting period or whenever events or changes in circumstancesindicate that the carrying amount of an asset exceeds its recoverable amount. The Company determined that there were no events or changes in circumstancesthat would indicate that the carrying amount of its cash generating units (“CGU”) would exceed their recoverable amount as at September 30, 2022. At June 30, 2022, the Company’s Vessel CGU had external indicators of impairment primarily due to a 2022 decline in comparable public company share priceswhich would negatively impact the implied valuation of Vessel. As such, the Company tested the Vessel CGU nonfinancial assets for impairment as at June 30,2022. The Vessel CGU was acquired in November 2021 and is part of the Company’s consumer products reportable segment.
				Page 13

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) Vessel’s June 30, 2022 carrying value of $28.0 million was comprised primarily of goodwill and identified intangible assets of $28.0 million and other longlivedassets of $1.4 million. The carrying value was reduced by inseparable market participant liabilities associated with the November 2021 acquisition of Vessel whichincluded $1.4 million of deferred tax liability and $1.2 million of lease liability. The estimated recoverable amount of Vessel at June 30, 2022 was $11.9 million,resulting in impairment of $16.0 million as the carrying value of the CGU’s assets exceeded the recoverable amount. The impairment was recorded in goodwillimpairment caption on the statement of loss and comprehensive loss. The recoverable amount was based on fair value less costs of disposal. The fair value was determined based on guideline public companies similar to Vesselconsidering financial metrics such as historical revenue growth, gross margin and EBITDA profitability and with operations focused on consumer brands andsimilar sales channels. An enterprise value to latest twelve months revenue multiple of 1.75 was selected based on consideration of the enterprise value to latesttwelve months multiples of the guideline companies. The multiple was applied to Vessel’s revenue for the twelve months ended June 30, 2022. Estimated costs ofdisposal of 3% were subtracted to arrive at the recoverable amount. The impairment test valuation is considered a Level 3 method within the IFRS 13 fair valuehierarchy. After the impairment, Vessel’s carrying value is equal to its recoverable amount. Any change in the significant assumptions could result in additional impairmentof its goodwill and longlived assets as at June 30, 2022. As a sensitivity assessment to the recoverable amount calculations, reducing the selected revenuemultiple by 0.5 from 1.75 above down to 1.25 (approximately 29% decrease) would have resulted in additional goodwill impairment of approximately $3.0 million. 11. LEASES The Company’s leases primarily consist of administrative real estate leases in Colombia and the United States, and the Company’s cultivation property inSantander, Colombia. Information regarding the Company’s leases is as follows:
		Nine months	Nine months
		ended		ended

		September	September 30,
	Thousands of United States dollars	30, 2022		2021
	Lease expense
	Amortization expense by class of underlying asset
	Office Space	$	554 $		76
	Building		123		5
	Land		39
	Total amortization expense		716		81
	Interest on lease liabilities		123		20
	Shortterm and low value assets lease expense		391
	Total lease expense	$	1,230 $		101

	Other Information
	Additions to right of use assets	$	2,042 $

	Cash paid for amounts included in the measurement of lease liabilities
	Financing cash flows from leases (interest)		126		19
	Financing cash flows from leases (principal)		707		103
	Operating cash flows for short term and low value asset leases		391
	Total cash outflows from leases	$	1,224 $		122

	Carrying amount of right of use asset by class of underlying asset
	Office Space	$	2,264 $		195
	Building		904		16
	Land		90
	Total carrying amount of right of use assets	$	3,258 $		211

						Page 14

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) The maturity analysis of the undiscounted contractual balances of the lease liability is as follows:
		As at
		September

		30,
	Thousands of United States dollars	2022
	2023	$	1,327
	2024		1,039
	2025		433
	2026		436
	2027		320
	Thereafter		210
	Total undiscounted cash flows	$	3,765
	Less: present value discount		(526)
	Total lease liabilities	$	3,239
Most of the Company’s leases contain renewal options to continue the leases for another term equivalent to the original term, which are generally up to twoyears. The lease liabilities above include renewal terms that management has executed or is reasonably certain of renewing, which only included leases that wouldhave expired in 2022. The Company’s land lease for 361 hectares of property in Santander, Colombia expires August 31, 2024 and is recorded as a right of useasset in property, plant and equipment. There is an option to extend the lease for an additional five years, unless either the Company or lessor provide notice toterminate the lease at the end of the original term with six months’ notice. 12. CAPITAL STOCK Authorized and issued The Company has an unlimited number of common shares, no par value, authorized. The Company had the following significant common share transactions: Nine months ended September 30, 2022 FEBRUARY 2022 PAYMENT TO JUSTCBD OWNERSAs discussed in Note 8, the Company issued 9,500,000 common shares of the Company valued at $14.7 million, inclusive of a 15% fair value discount for therequired sixmonth holding period of the shares, to the prior owners of JustCBD as part of the Company’s acquisition of JustCBD in February 2022. ACQUISITION OF NONCONTROLLING INTERESTSOn January 18, 2022, the Company issued 100,000 common shares of the Company valued at $0.2 million to acquire the remaining 10% of the outstanding equityinterests in Flora Beauty LLC from its minority shareholders. In addition to the common shares, the Company granted a stock option, exercisable for up to 50,000common shares of the Company at an exercise price of $1.70 per share that expire five years from the date of the grant. On January 31, 2022, the Company issued 30,282 common shares of the Company valued at $0.1 million to complete its acquisition of Breeze by acquiring theremaining 10% of the equity interests in Breeze from its minority shareholders. OTHER ISSUANCESIn January 2022, the Company amended an agreement with a consultant pursuant to which the Company issued 111,112 common shares of the Company valued at$0.2 million and a stock option, exercisable for up to 83,333 common shares of the Company at an exercise price of $2.25 per share that expire five years from thedate of the grant. On April 5, 2022, the Company issued 700,000 common shares of the Company valued at $1.3 million as part of a settlement agreement with Boustead Securities,LLC (“Boustead”) to resolve certain disputes arising under a prior underwriting agreement and engagement letter. In addition to the common shares, theCompany paid Boustead $0.4 million.
				Page 15

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) SHARE REPURCHASEThe Company repurchased 368,244 common shares for $0.3 million during the nine months ended September 30, 2022. Any future repurchases will depend on factors such as market conditions, share price and other opportunities to invest capital for growth. From time to time whenmanagement does not possess material nonpublic information about the Company or its securities, the Company may enter a predefined plan with a broker toallow for the repurchase of shares at times when the Company ordinarily would not be active in the market due to internal trading blackout periods, insider tradingrules or otherwise. Any such plans entered with our broker will be adopted in accordance with applicable securities laws such as the requirements of Rule 10b51under the U.S. Securities Exchange Act of 1934, as amended. 13. SHARE BASED COMPENSATION The Company adopted the Flora Growth Corp. 2022 Incentive Compensation Plan (the “2022 Plan”) to attract, retain and motivate independent directors,executives, key employees and consultants. The 2022 Plan was approved by the Company’s shareholders on July 5, 2022, and reserves an aggregate of 6,000,000of the Company’s common shares for issuance in connection with Awards (as defined in the 2022 Plan) granted under the 2022 Plan. Previously, the Company’sshareholders had adopted a “rolling” stock option plan (the “Prior Plan”) which authorized the Company to grant stock options constituting up to 10% of theCompany’s issued and outstanding common shares at the time of each option grant. Since the adoption of the 2022 Plan, no further grants have been made or willbe made under the Prior Plan; however, any currently outstanding stock options granted prior to July 5, 2022 will remain in effect until they have been exercised orterminated or have expired in accordance with the terms of the Prior Plan. Under the 2022 Plan, the Compensation Committee of our Board of Directors (the“Committee”) may grant a variety of awards including stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents andother stockbased awards. OPTIONSStock options granted under the Prior Plan are nontransferable and nonassignable and may be granted for a term not exceeding five years. Under the 2022 Plan,stock options may be granted with a term of up to ten years and in the case of all stock options, the exercise price may not be less than 100% of the fair marketvalue of a Common Share on the date the award is granted. Stock option vesting terms are subject to the discretion of the Committee. Information relating to share options outstanding and exercisable as at September 30, 2022 and December 31, 2021:
			Weighted
			average

		Number of	exercise
		options	price
		Thousands			$
	Balance, December 31, 2021		5,448	1.96
	Granted		746	1.37
	Exercised		(545)	0.15
	Cancelled/Expired		(601)	2.98
	Balance, September 30, 2022		5,048	1.95

		Grant date	Remaining
								Options		Options		Exercise		fair value			life
						Date of expiry	outstanding	exercisable		price	vested	in years
		Thousands of

							Thousands	Thousands		$	$
											June 28, 2024	915	915 $	0.15 $	34	1.7
											April 23, 2025	33	33	2.25	138	2.6
											July 6, 2025	167	167	2.25	138	2.8
											July 15, 2025	84	84	2.25	84	2.8
											July 31, 2025			2.25		2.8
											September 8, 2025	17	17	2.25	23	2.9
											November 4, 2025	666	666	2.25	918	3.1
											December 23, 2025	500	500	2.25	689	3.2
											June 3, 2026	233	233	3.87	669	3.7
											June 10, 2026	167	167	3.68	455	3.7
											September 21, 2026	16	16	5.20	64	4.0
											September 25, 2026	135	135	6.90	692	4.0
											December 16, 2026	1,493	243	2.04	1,956	4.2
											January 17, 2027	50	50	1.70	63	4.3
											January 26, 2027	247	217	1.48	282	4.3
											May 16, 2027	50		1.30	16	4.6
											August 18, 2032	275		0.93	21	9.9
								5,048	3,443	1.95	6,242	3.7

								Page 16

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) The fair value of stock options issued during the nine months ended September 30, 2022 was determined at the time of issuance using the BlackScholes optionpricing model with the following weighted average inputs, assumptions and results:
	Riskfree annual interest rate		2.15%
	Current stock price	$	1.34
	Expected annualized volatility		100%
	Expected life (years)		6.62
	Expected annual dividend yield		0%
	Exercise price	$	1.37
The total expense related to the options granted in the nine months ended September 30, 2022 was $2.9 million (2021 $0.5 million). This expense is included in theshare based compensation line on the statement of comprehensive loss. Generally, the options granted in 2022 vest one year following the date of grant providedthat the recipient is still employed or engaged by the Company. A total of 600,830 stock options expired or were forfeited in the nine months ended September 30, 2022. RESTRICTED STOCK AWARDSRestricted stock is a grant of common shares which may not be sold or disposed of, and which is subject to such risks of forfeiture and other restrictions as theCommittee, in its discretion, may impose. A participant granted restricted stock generally has all of the rights of a shareholder of the Corporation, unlessotherwise determined by the Committee. Subject to certain exceptions, the vesting of restricted stock awards is subject to the holder’s continued employment orengagement through the applicable vesting date. Unvested restricted stock awards will be forfeited if the holder’s employment or engagement ceases during thevesting period and may, in certain circumstances, be accelerated. The Company values restricted stock awards based on the closing share price of the Company’scommon shares as of the date of grant. The fair value of the restricted stock award is recorded as expense over the vesting period. Information relating to restricted stock awards outstanding as at September 30, 2022 and December 31, 2021:
		Weighted
				Number of	average

				restricted	grant date
				stock awards	fair value
				Thousands	$
	Balance, December 31, 2021
	Granted				770	1.06
	Vested				(20)	0.73
	Balance, September 30, 2022				750	1.07
The total expense related to the restricted stock awards in the period ended September 30, 2022 was $0.1 million (2021 nil). This expense is included in the sharebased compensation line on the statement of comprehensive loss. The Company issued 20,000 restricted stock awards that vested immediately on September 28,2022. The remaining restricted stock awards issued in 2022 vest on July 5, 2023 provided if the award holder is still employed or engaged by the Company. No restricted stock awards expired or were forfeited in the nine months ended September 30, 2022.
					Page 17

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) 14. WARRANTS The following tables show warrants outstanding as at September 30, 2022:
			Weighted
			average

		Number of	exercise
		warrants		price
		Thousands
	Balance, December 31, 2021		8,746 $	3.37
	Exercised		(473)	0.49
	Cancelled/Expired		(2,058)	3.00
	Balance, September 30, 2022		6,215 $	3.72

			Remaining
							Warrants		Exercise	Grant date	life
					Date of expiry	outstanding	price	fair value	in years
		Thousands of

						Thousands		$	$
	October 20, 2022						5	3.00	3	0.05
	November 18, 2026						5,750	3.75	8,706	4.14
	November 18, 2027						460	3.30	1,055	5.14
							6,215	3.72	9,764	4.21
15. PROVISIONS, COMMITMENTS AND CONTINGENCIES ProvisionsThe Company’s current known provisions and contingent liabilities consist of termination benefits and legal disputes.
							Termination	Legal		Sales

	Thousands of United States dollars						benefits	disputes		tax
	Balance as at December 31, 2021						$	352 $	1,681 $
	Acquired through business combinations									982
	Payments/Settlements							(352)	(1,681)
	Additional provisions									616
	Balance as at September 30, 2022						$	$	$	1,598
The Sales tax provision relates to estimated amounts owed to certain jurisdictions in the Unites States for sales from the Company's JustCBD operations. Theopening balance was acquired during the February 24, 2022 acquisition of JustCBD, with additional provision for estimated amounts due on sales subsequent tothe acquisition. The ending balance is recorded within trade payables and accrued liabilities with current liabilities on the consolidated statement of financialposition, and as a reduction of revenue on the statement of loss and comprehensive loss. The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and where liability is probable.The Company is engaged from timetotime in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all theproceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to theCompany and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims,individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole as at September 30, 2022. On June 21, 2022, an action was brought against the Company in the Ontario Superior Court of Justice by Gerardo Andres Garcia Mendez claiming that theCompany is obligated to issue 3.0 million (preonefor three reverse stock split) common shares to him for a purchase price of $0.05 per share. Mr. Mendez claimshe is entitled to such shares as a result of alleged consulting services he performed in 2019. The Company disputes his claims and intends to vigorously defendagainst this action. The Company believes that an unfavorable settlement in this matter is remote, and, as such, has not accrued a liability as of September 30,2022.
									Page 18

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) In connection with the Company’s acquisition of JustCBD, the former owners of JustCBD agreed to fully indemnify the Company against any losses which mayarise out of certain preexisting litigation against JustCBD (including all matters disclosed below) as well as litigation which may be brought in the future againstJustCBD and pertaining to the period prior to the acquisition. Since these matters are fully indemnified, the Company has not accrued any liability with respect tothese claims. As of the date hereof, the following actions are pending against JustCBD: In October, a full and complete settlement was reached in the matter of: Erin Gilbert et al. vs. Just CBD LLC, et al., Case No. 062019CA020275AXXXCE. The matterinvolved allegations that JustCBD and other named defendants sold a defective vape cartridge which was alleged to have caused Plaintiff, Erin Gilbert, to sufferpersonal injuries. The terms of the settlement are confidential, but the Company is not required to contribute financially or otherwise, to the settlement. Noprovision amount was previously recorded related to this matter. William Braley vs. Just Brands USA, Inc., Just Brands FL, LLC, and SSGI Financial Services, Inc., Case No. 21cv06812, Northern District of Illinois. This matterinvolves allegations that the Defendants falsely and deceptively marketed cannabidiol infused gummies as not containing Tetrahydrocannabinol (“THC”).Plaintiff asserts he has suffered damages because after ingesting the gummies he failed an employment related drug test. JustCBD disputes these claims. At thistime, JustCBD has filed a motion to dismiss the RICO portion of the complaint and answered and asserted affirmative defenses to the Consumer Protection claims. Management contractsThe Company is party to certain management contracts. As at September 30, 2022, these contracts require payments totaling approximately $2.7 million to be madeupon the occurrence of a change in control to the officers of the Company. The Company is also committed to payments to certain individuals upon terminationof approximately $1.9 million pursuant to the terms of these contracts. As a triggering event has not taken place, these amounts have not been recorded in theseconsolidated financial statements. 16. INCOME TAXES Income tax expense is recognized at an amount determined by multiplying the income (loss) before income taxes for the interim period for each significantjurisdiction by management’s best estimate of the annual income tax rate expected for the full fiscal year for each significant jurisdiction. There was no current or deferred income tax expense recorded for the nine months ended September 30, 2022. The Company’s effective income tax rate of nil% forthe nine months ended September 30, 2022 is different than the statutory rate primarily due to the nonrecognition of deferred tax assets related to net operatinglosses. 17. LOSS PER SHARE The following securities were not included in the computation of diluted shares outstanding because the effect would be antidilutive as the Company has a netloss for each period presented:
		September	September
			30,		30,
	Thousands of securities	2022	2021
	Stock options (Note 13)		5,048	4,459
	Warrants (Note 14)		6,215	5,862
	Restricted stock awards (Note 13)		750
	JustCBD potential additional shares to settle contingent consideration (Note 8)		13,141
	Total antidilutive		25,154	10,321
Subsequent to September 30, 2022, the Company granted a total of 966,414 Restricted Stock Awards and 1,060,203 Options under the 2022 Plan (Note 22).
						Page 19

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) 18. RELATED PARTY DISCLOSURES Key management personnel compensation In addition to their contracted fees, directors and officers also participate in the Company’s stock option program. Certain executive officers are subject totermination notices of 6 to 24 months and change of control payments (Note 15). Key management personnel compensation is comprised of the following:
		Nine months	Nine months
		ended	ended

		September	September
	Thousands of United States dollars	30, 2022	30, 2021
	Directors’ and officers’ compensation	$	1,124 $	1,039
	Sharebased payments		365	2,238
		$	1,489 $	3,277
The Company defines key management personnel as those persons having authority and responsibility for planning, directing, and controlling the activities ofthe Company directly or indirectly, and was determined to be executive officers and directors (executive and nonexecutive) of the Company. The remuneration ofdirectors and key executives is determined by the Board of Directors of the Company having regard to the performance of individuals and market trends. As at September 30, 2022, less than $0.1 million of the above directors’ and officers’ compensation was included in the trade payables and accrued liabilities(December 31, 2021 – $0.1 million). These amounts are unsecured, noninterest bearing and due on demand. 19. FINANCIAL INSTRUMENTS AND RISK MANAGMENT EnvironmentalThe Company’s growth and development activities are subject to laws and regulations governing the protection of the environment. These laws and regulationsare continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws andregulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. Fair valueThe Company’s financial instruments measured at amortized cost as at September 30, 2022 and December 31, 2021 consist of cash, restricted cash, trade andamounts receivable, loans receivable, trade payables and accrued liabilities, amounts payable to vendors on business combinations, contingent purchaseconsideration liabilities, lease liabilities, and debt and loans payable. The amounts reflected in the consolidated statements of financial position approximate fairvalue due to the shortterm maturity of these instruments. Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorizedbased on inputs used to derive fair value based on: Level 1 quoted prices that are unadjusted in active markets for identical assets or liabilitiesLevel 2 inputs other than quoted prices included in level 1 that are observable for the asset/liability either directly or indirectly; andLevel 3 inputs for the instruments are not based on any observable market data. The Company’s longterm investments require significant unobservable inputs and as discussed at Note 7, are measured at FVPL and as a Level 3 fair valuefinancial instrument within the fair value hierarchy as at September 30, 2022. As discussed in Note 8, the Company’s other longterm liabilities consist of theestimated fair value of contingent purchase consideration from the acquisition of JustCBD in February 2022. The amount is measured at FVPL as a Level 2 fairvalue financial instrument within the fair value hierarchy as at September 30, 2022. As valuations of investments for which market quotations are not readilyavailable are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from thevalues that would have resulted if a ready market existed for the investments. Such changes may have a significant impact on the Company’s financial conditionor operating results. Risk management overviewThe Company has exposure to credit, liquidity and market risks from its use of financial instruments. This note provides information about the Company’sexposure to each of these risks, the Company’s objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are includedthroughout these condensed interim consolidated financial statements. Credit riskCredit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally fromthe Company’s trade and other receivables, loans receivable and cash held with banks and other financial intermediaries.
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Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) The carrying amount of the cash, restricted cash, trade and amounts receivables and loan receivable represents the maximum credit exposure as presented in thestatement of financial position. The Company has assessed that there has been no significant increase in credit risk of the loans receivable from initial recognition based on the financial positionof the borrowers, and the regulatory and economic environment of the borrowers. As a result, the loss allowance recognized during the period was limited totwelve months expected credit losses. Based on historical information, and adjusted for forwardlooking expectations, the Company has assessed an insignificantloss allowance on the loans’ receivable and advances as at September 30, 2022 and December 31, 2021. The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigatecredit risk. Credit risk for customers is assessed on a casebycase basis and an allowance for specific expected credit losses is recorded where required, inaddition to an estimate of lifetime expected credit losses for the portfolio of accounts receivable. See credit risk analysis for trade receivables at Note 3. The Company held cash and restricted cash of $5.9 million and $37.6 million as at September 30, 2022 and December 31, 2021, respectively, of which, $5.7 millionand $37.4 million, respectively, was held with large financial institutions and national central banks. The remaining $0.2 million cash amounts for both periods areheld with financial intermediaries in Colombia and the United States. The Company has assessed no significant increase in credit risk from initial recognitionbased on the availability of funds, and the regulatory and economic environment of the financial intermediary. As a result, the loss allowance recognized duringthe period was limited to twelve months of expected credit losses. Based on historical information, and adjusted for forwardlooking expectations, the Companyhas assessed an insignificant loss allowance on these cash and restricted cash balances as at September 30, 2022 and December 31, 2021. Market riskMarket risk is the risk that changes in market conditions, such as commodity prices, foreign exchange rates, and interest rates, will affect the Company’s netincome or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits,while maximizing the Company’s returns. Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate due to changes in foreign exchange rates. The Company doesnot currently use foreign exchange contracts to hedge its exposure to currency rate risk as management has determined that this risk is not significant. As such,the Company's financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange rates. As at September 30, 2022, the Company had the following monetary assets and liabilities denominated in foreign currencies:
		CAD		COP		GBP	EUR	CHF
	Thousands of foreign currencies
	Cash	607	1,946,446		41	98
	Amounts receivable	4	11,605,203			253
	Loans receivable						250
	Trade payables	(216)	(5,526,589)			(23)
	Accrued liabilities	(174)	(1,566,035)			(22)
	Lease liability		(1,981,753)			(22)
	Long term debt		(24,743)
	Net carrying value	221	4,452,529		227	98	250

		Page 21

Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) As at December 31, 2021, the Company had the following monetary assets and liabilities denominated in foreign currencies:
		CAD		COP		EUR		CHF
	Thousands of foreign currencies
	Cash	1,393						4,451,775	896
	Amounts receivable	72	15,775,755
	Loans receivable					250
	Trade payables	(40)	(5,398,068)
	Accrued liabilities	(589)	(2,120,869)
	Lease liability		(1,690,797)
	Long term debt							(72,963)
	Net carrying value	836	10,944,833		896		250
Monetary assets and liabilities denominated in Canadian dollars, Colombian pesos, British pounds, Euros and Swiss Francs are subject to foreign currency risk.The Company has estimated that as at September 30, 2022, the effect of a 10% increase or decrease in Canadian dollars, Colombian pesos, British pounds, Eurosand Swiss Francs (“CHF”) against the Unites States dollar on financial assets and liabilities would result in an increase or decrease of approximately $0.2 million(December 31, 2021 – $0.5 million) to net loss and comprehensive loss. The Company calculates this sensitivity analysis based on the net financial assets denominated in each currency using the September 30, 2022 exchange rate,then changing the rate by 10%. Management determined 10% is a ‘reasonably possible’ change in foreign currency rates by considering the approximate changein rates in the prior twelve months. It is management’s opinion that the Company is not subject to significant commodity or interest rate risk. Management considers concentration risk with counterparties considering the level of purchases and sales of its business segments (Note 21). Several of theCompany’s business units purchase substantially all their inventory or materials from a single supplier. Liquidity riskLiquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities. The Company’s financialliabilities consist of trade payables and accrued liabilities, loans payable and debt, and lease liabilities as presented on the statement of financial position. TheCompany had cash and restricted cash as presented on the statement of financial position. The Company has no available credit lines of facilities to drawborrowings from should additional liquidity be needed. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available tomeet financial obligations as they become due. Further, the Company's management is responsible for ensuring funds exist and are readily accessible to supportbusiness opportunities as they arise. Trade payables and accrued liabilities consist of invoices payable to trade suppliers for administration and professional expenditures. The Company processesinvoices within a normal payment period. Trade payables have contractual maturities of less than 90 days. Some suppliers of materials and inventory require fullprepayment from the Company prior to providing such goods to the Company. See schedule of future lease commitments at Note 11. The Company’s longterm investments in equity of other entities are not publicly traded and there is not an active market to sell the investments for cash. Novel Coronavirus (“COVID19”)The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recentoutbreak of respiratory illness caused by COVID19. The Company cannot accurately predict the impact COVID19 will have on its operations and the ability ofothers to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, theduration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak ofcontagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of manycountries, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations. 20. CAPITAL MANAGEMENT The Company considers the aggregate of its common shares, options, warrants and borrowings as capital. The Company’s capital management objective is toensure sufficient resources are available to meet day to day operating requirements and to safeguard its ability to continue as a going concern to provide returnsfor shareholders and benefits for other shareholders.
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Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts) For the nine months ended September 30, 2022, the Company had negative cash from operations and the main source of cash flow was generated from 2021 andprior financing activities. Potential business activities are appropriately evaluated by senior management and a formal review and approval process has beenestablished by the Board of Directors. The Company may enter new financing arrangements to meet its objectives for managing capital until the Company’soperating cash flows are sufficient to cover its operational requirements. The Company’s capital management objectives were being met in 2022 primarily from theuse of existing cash balances from 2021 and prior issuances of common shares and warrants and generating increasing revenue in 2022 from the Company’sreportable segments as presented in Note 21. The Company’s officers and senior management take full responsibility for managing the Company’s capital and do so through quarterly meetings and regularreview of financial information. The Company’s Board of Directors is responsible for overseeing this process. The Company is not subject to any external capital requirements. 21. SEGMENTED INFORMATION The Company is engaged in the growth, cultivation, and development of medicinal cannabis and medicinal cannabis derivative products through its ColombiaCosechemos subsidiary. The Company’s other businesses are run through its other Colombia and United States subsidiaries. Management has defined thereportable segments of the Company based on this internal business unit reporting, which is by major product line, and aggregates similar businesses into theConsumer Products segment below. The Corporate segment reflects balances and expenses that do not directly influence business unit operations and includesthe Company’s longterm investments. The Corporate segment revenue includes the license of intellectual property. The following tables show information regarding the Company’s segments for the three and nine months ended September 30, 2022 and September 30, 2021. The2022 segments were updated to reflect the acquisitions of JustCBD and No Cap (Note 8) with High Roller Private Label LLC operations assigned to thePharmaceuticals and nutraceuticals segment, and Just Brands LLC and No Cap assigned to the Consumer products segment.
	Cannabis
	growth and		Pharmaceuticals			Corporate

	derivative	Consumer		and	Beverage		and
Thousands of United States dollars	production	products	nutraceuticals		and food	Eliminations		Total
For the three months ended September 30, 2022
Revenue	$	21 $	9,934 $	2,310 $		339 $	(1,839) $		10,765
Gross profit		163	4,028		800	(20)			4,971
Net (loss) income		(161)	(1,391)		(51)	(154)	(5,631)		(7,388)

For the nine months ended September 30, 2022
Revenue	$	24 $	23,537 $	6,018 $		591 $	(4,488) $		25,682
Gross profit		210	8,332	2,896		79			11,517
Net (loss) income		(876)								(20,811)	266	(616)	(18,067)	(40,104)

For the three months ended September 30, 2021
Revenue	$	$	203 $		669 $	1,241 $	(20) $		2,093
Gross profit			160		202	257			619
Net (loss) income		(264)	462	(208)		89	(3,710)		(3,631)

For the nine months ended September 30, 2021
Revenue	$	$	489 $	2,298 $		1,551 $	(127) $		4,211
Gross profit			333		954	344			1,631
Net (loss) income		(692)	(395)	(158)		25	(7,549)		(8,769)

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Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30, 2021(United States dollars, except shares and per share amounts) Geographical information:
						United

Thousands of United States dollars	Colombia	United States		Canada	Kingdom			Total
Noncurrent assets at September 30, 2022	$	4,840 $								41,962 $	983 $	2,440 $		50,225
Total liabilities at September 30, 2022		2,132	9,982	6,761			93	18,968

Noncurrent assets at December 31, 2021	$	4,042 $	29,650 $	3,844 $			$	37,536
Total liabilities at December 31, 2021		2,359	3,106	3,073				8,538

Three months ended September 30, 2022
Net revenue	$	1,039 $	9,388 $		$		338 $	10,765
Gross profit		287	4,491				193	4,971

Nine months ended September 30, 2022
Net revenue	$	2,670 $								22,275 $	$		737 $	25,682
Gross profit		1,286	9,962				269	11,517

Three Months Ended September 30, 2021
Net revenue	$	2,041 $	52 $		$		$	2,093
Gross profit		538	81						619

Nine Months Ended September 30, 2021
Net revenue	$	4,110 $	101 $		$		$	4,211
Gross profit		1,547	84					1,631
In 2022, the Company did not have sales to a single customer exceeding 10% of its consolidated revenue.
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Flora Growth Corp.Notes to the interim condensed consolidated financial statements (unaudited)For the nine months ended September 30, 2022 and September 30,2021(United States dollars, except shares and per share amounts)
22. SUBSEQUENT EVENTS
ENTRY INTO AGREEMENT TO ACQUIRE FRANCHISE GLOBAL HEALTHOn October 21, 2022, the Company and Franchise Global Health Inc. (“FGH”) entered into an Arrangement Agreement (the “Arrangement Agreement”) pursuantto which the Company intends to acquire all the issued and outstanding common shares of FGH by way of a statutory plan of arrangement (the “Arrangement”)under the Business Corporations Act (British Columbia). As consideration for the acquisition of 100% of the issued and outstanding FGH common shares, at thecompletion of the Arrangement, the Company will issue between 36,515,060 and 43,525,951 of its common shares, based upon a formula set forth in theArrangement Agreement. In accordance with the terms set forth in the Arrangement Agreement, upon the completion of the Arrangement, all of the Company’scommon shares to be delivered to the former shareholders of FGH shall be restricted from being sold for a period of ninety (90) days following the completion ofthe Arrangement. In addition, Clifford Starke, the Chairman and Chief Executive Officer of FGH, shall have the right to name two designees to serve on theCompany’s board of directors immediately following the closing of the Arrangement and Mr. Starke is currently expected to be one of such designees.
Completion of the Arrangement is subject to certain closing conditions customary for transactions of this nature including, among other things, approval of theArrangement by the Supreme Court of British Columbia and the approval of at least 66 2/3% of the votes cast by shareholders of FGH at a meeting of FGHshareholders.
The Arrangement Agreement also provides for a termination fee of CAD $1.0 million to be paid by FGH to the Company if the Arrangement Agreement isterminated in certain specified circumstances. FGH and the Company have also agreed to a reciprocal expense reimbursement of CAD $0.3 million payable if theArrangement Agreement is terminated in certain circumstances.
In addition, the Chairman and Chief Executive Officer of FGH, along with certain of his affiliated entities, have entered into a voting, support and indemnityagreement, pursuant to which, in addition to agreeing to vote their FGH Common Shares in favor of the Arrangement, they have agreed to indemnify theCompany for certain potential liabilities of FGH and its subsidiaries for up to US $5.0 million.
OTHERSubsequent to September 30, 2022, the Company granted a total of 966,414 Restricted Stock Awards and 1,060,203 Options under the 2022 Plan. Also, a total of4,928 warrants expired.
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