Flora Growth Corp. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended June 30, 2022 and 2021

(Expressed in United States Dollars)

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.

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

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

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

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

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 a manufacturer of global cannabis products and brands, building a connected, design-led collective of plant-based wellness and lifestyle brands. The Company's registered 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 26th Terrace, Suite C-1, 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 operation for 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 compliance

These 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 and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2021 included in our Annual Report on Form 20-F filed with the Securities and Exchange Commission (the "SEC"), which have been prepared in accordance with IFRS issued by the IASB and interpretations 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 August 11, 2022.

Basis of consolidation

These interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. As at June 30, 2022, the Company had the following subsidiaries:

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

Basis of measurement

The interim condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value and biological assets as explained in the accounting policies included in the audited consolidated financial statements of the Company for the 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 Uncertainties

The interim condensed consolidated financial statements were prepared using the same accounting policies, judgments, estimates and assumptions as those used in the Company's consolidated financial statements for the year ended December 31, 2021, except as noted below for the following new significant transactions that occurred in 2022.

Contingent Purchase Consideration

Contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured at subsequent reporting dates with the corresponding gain or loss recognized in profit or loss. Management exercises judgment to determine the classification of contingent consideration as equity or liability 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 determined using 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 June 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.

Changes in the trade accounts receivable allowance in the six months ended June 30, 2022 primarily relate to establishing an allowance for expected credit losses from the acquisition of JustCBD balances. There were no write-offs of trade receivables during the six months ended June 30, 2022. The Company has no amounts written-off that are still subject to collection enforcement activity as at June 30, 2022. There was an additional $0.3 million of expected credit losses recorded in other receivables as at June 30, 2022. The Company's aging of trade accounts receivable is as follows:

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

4. BIOLOGICAL ASSETS

The Company's biological assets consist of cannabis plants throughout the growth cycle including propagation, vegetative and flowering stages. Cannabis plants cease being biological assets upon harvest when the fair value at time of harvest is transferred to harvested cannabis inventory. The Company has no biological assets with title restricted or pledged as collateral, and no significant commitments for development or acquisition of biological assets as at June 30, 2022.

The changes in the carrying value of biological assets are as follows:

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 prices less the costs to sell. For in-process biological assets (growing plants), the fair value at the point of harvest is adjusted based on the stage of growth at period-end. 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 June 30, 2022:

Average selling price per gram of $0.10 - Represents estimated selling price of dried cannabis end products net of excise taxes, where applicable, for the period for all strains of cannabis, which is expected to approximate future selling prices. Increasing this amount results in an increase in fair value.

Weighted average yield of 21 gram per plant - 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.

Post-harvest cost per gram to complete production of $0.04 - 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 June 30, 2022.

As at June 30, 2022, the weighted average fair value less cost to complete and cost to sell a gram of dried cannabis was $0.06 per gram. The Company's biological assets produced 746 kilograms of dried cannabis in the six months ended June 30, 2022 and the Company expects the biological assets will yield 190 kilograms of cannabis when harvested. The weighted average stage of growth for the biological assets was 41%.

Inventory is comprised of the following as at June 30, 2022 and December 31, 2021:

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

6. PROPERTY, PLANT AND EQUIPMENT

7. LONG-TERM INVESTMENTS

As at June 30, 2022, the Company's long-term investments consist of common shares and warrants to purchase additional common shares in an early stage European cannabis company. In 2021, the Company purchased common shares from the investee for Euro 2.0 million ($2.4 million), purchased its first tranche of warrants from existing investors in exchange for 225,000 common shares of the Company, and obtained a second tranche of warrants from the investee as an inducement to exercise some of the first tranche of warrants. As at June 30, 2022, the Company owns approximately 9.6% of the investee, or approximately 8.6% 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 ($0.23) for the first tranche, and CAD 1.00 ($0.78) for the second tranche. 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 investee is not a publicly listed entity and has no active quoted prices for its common shares or warrants. Subsequent remeasurements are recorded as FVPL as indicated on the unrealized investments loss caption on the statement of loss and comprehensive loss. The Company estimated the fair value of the investments as at June 30, 2022 using Level 3 inputs of the fair value hierarchy with the fair value of the investee common shares at $0.32, the first tranche warrants at $0.13, and the second tranche warrants at $0.02.

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 as comparable guideline publicly traded companies at the time of initial investment. These initial investment multiples were compared to the guideline public company multiples observed as at June 30, 2022 (2.2 price to book value and 3.0 price to tangible value), with these updated valuation multiples applied to the investee's estimated book value. The Company also considered the status of the investee's milestones between the purchase date and year-end for indicators of change in value.

The fair value of the warrants was developed using a Black-Scholes model for each tranche with the following assumptions:

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

The share price is based on the calculated value of the investee's common shares as discussed above. The volatility considers actual volatility of comparable guideline public companies.

A schedule of the Company's long-term investments activity is as follows:

The loss on changes in fair value appear in the unrealized loss on fair value of investments 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% change in the fair value as at June 30, 2022 of $111,000. Applying a 10% change in share price to the warrants results in an approximately $44,000 change in fair value, and a 10% change in volatility of approximately $14,000.

8. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

Just Brands LLC and High Roller Private Label LLC (collectively "JustCBD") business combination

On February 24, 2022, Flora Growth U.S. Holdings Corp., a wholly-owned subsidiary of the Company, completed the acquisition of 100% of the outstanding equity interests in each of (i) Just Brands LLC and (ii) High Roller Private Label LLC for total purchase consideration of $34.6 million. JustCBD is a manufacturer and distributor of consumable cannabinoid products, including gummies, tinctures, vape cartridges, and creams. JustCBD is based in Florida in the United States and was formed in 2017. The Company acquired JustCBD to expand its product offerings, accelerate its revenue growth, expand its customer and distribution footprints in the United States and for the acquisition of human capital through JustCBD's management team.

The purchase consideration was comprised of $16.0 million of cash, 9.5 million common shares of the Company valued at $14.7 million, inclusive of a 15% fair value discount for the required six-month holding period of the shares, and $4.0 million of contingent purchase consideration. The contingent purchase consideration is based on a clause in the purchase agreement that provides that if at any time during the 24 months following the acquisition date, the five-day volume weighted average price ("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 issue a 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 of which 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 the closing. 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's shareholders 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 not have 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 purchase agreement. The contingent purchase consideration is classified as a financial liability within other long-term liabilities on the statement of financial position as the Company may be required to settle any amounts due in cash instead of common shares if the Company's common shareholders do not provide requisite shareholder approval to issue additional common shares.

The fair value of the contingent purchase consideration was determined using a Monte Carlo simulation incorporating Brownian motion with 100,000 trials through a binomial lattice model. The significant inputs to the valuation include the two year time period, the Company's closing share price at February 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.

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

The amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed are as follows:

The fair value of the trade receivables reflects a $291,000 discount to the gross contractual amounts as allowance for potentially uncollectible amounts. Since the acquisition date through June 30, 2022, JustCBD revenue was $10.0 million with net loss and comprehensive loss of $0.4 million.

The intangible assets of $4.8 million are comprised of the following categories and estimated useful lives: tradenames of $3.4 million for eight to nine years, customer relationships of $1.2 million for five to seven years, and know-how of $0.2 million for three years. The Company expects the goodwill and intangible asset 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 million and $1.6 million, respectively.

Acquisition of Minority interests

On January 18, 2022, the Company acquired the remaining 10% of the outstanding equity interests in Flora Beauty LLC from its minority shareholder in exchange for 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 share that 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 minority shareholders in exchange for 30,282 common shares of the Company.

Notes to the interim condensed consolidated financial statements (unaudited)

For the six months ended June 30, 2022 and June 30, 2021

9. INTANGIBLE ASSETS AND GOODWILL

A continuity of intangible assets for the six months ended June 30, 2022 is as follows:

The Company's intangible asset additions in 2022 primarily consist of assets acquired as part of the February 2022 purchase of JustCBD (Note 8). Information regarding the significant JustCBD intangible assets within the indicated categories of the table above is as follows as at June 30, 2022:

The Company's goodwill is assigned to the following cash generating units ("CGU's") as at June 30, 2022:

10. IMPAIRMENT OF ASSETS

The carrying amounts of the Company's non-financial assets are reviewed for impairment each reporting period or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. 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 prices which would negatively impact the implied valuation of Vessel. As such, the Company tested the Vessel CGU non-financial 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.

Vessel's June 30, 2022 carrying value of $28.0 million is comprised primarily of goodwill and identified intangible assets of $28.0 million and other long-lived assets of $1.4 million. The carrying value is reduced by inseparable market participant liabilities associated with the November 2021 acquisition of Vessel which includes $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 exceeds the recoverable amount. The impairment is recorded in goodwill impairment caption on the statement of loss and comprehensive loss.

The recoverable amount is based on fair value less costs of disposal. The fair value was determined based on guideline public companies similar to Vessel considering financial metrics such as historical revenue growth, gross margin and EBITDA profitability and with operations focused on consumer brands and similar sales channels. An enterprise value to latest twelve months revenue multiple of 1.75 was selected based on consideration of the enterprise value to latest twelve months multiples of the guideline companies. The multiple was applied to Vessel's revenue for the twelve months ended June 30, 2022. Estimated costs of disposal 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 value hierarchy.

After the impairment, Vessel's carrying value is equal to its recoverable amount. Any change in the significant assumptions could result in additional impairment of its goodwill and long-lived assets as at June 30, 2022. As a sensitivity assessment to the recoverable amount calculations, reducing the selected revenue multiple by 0.5 from 1.75 above down to 1.25 (approximately 29% decrease) would result in additional goodwill impairment of approximately $3.0 million.