Share-Based Compensation | 19. SHARE-BASED COMPENSATION CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN Canopy Growth's eligible employees participate in a share-based compensation plan as noted below. On September 15, 2017, shareholders approved an Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives. On July 30, 2018, shareholders of the Company approved certain amendments to the Omnibus Plan in order to increase the maximum number of shares issuable under the Omnibus Plan. All directors, officers, employees and independent contractors of the Company are eligible to receive awards of common share purchase options (“Options”), restricted share units (“RSUs”), performance share units (“PSUs”), deferred share units, stock appreciation rights (“Stock Appreciation Rights”), performance awards (“Performance Awards”) or other stock based awards (collectively, the “Awards”) under the Omnibus Plan. In addition, shareholders also approved the 2017 Employee Stock Purchase Plan of the Company (the “Purchase Plan”). Under the Omnibus Plan, the maximum number of shares issuable from treasury pursuant to Awards shall not exceed 15% of the total outstanding shares from time to time less the number of shares issuable pursuant to all other security-based compensation arrangements of the Company. The maximum number of common shares reserved for Awards is 55,629,846 at June 30, 2020. As of June 30, 2020, the only Awards issued have been Options, RSUs and PSUs under the Omnibus Plan. The Omnibus Plan is administered by the Board of Directors of the Company who establishes exercise prices, at not less than the market price at the date of grant, and expiry dates. Options under the Omnibus Plan generally become exercisable in increments with 1/3 Under the Purchase Plan, the aggregate number of common shares that may be issued is 400,000, and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 200,000. As of June 30, 2020, no common shares have been issued under the Purchase Plan. The following is a summary of the changes in the Options outstanding under the Omnibus Plan during the three months ended June 30, 2020: Options issued Weighted average exercise price Balance outstanding at March 31, 2020 32,508,395 $ 34.89 Options granted 155,800 22.20 Options exercised (711,472 ) 6.64 Options forfeited/cancelled (3,060,675 ) 39.37 Balance outstanding at June 30, 2020 28,892,048 $ 35.04 The following is a summary of the Options as at June 30, 2020: Options Outstanding Options Exercisable Range of Exercise Prices Outstanding at June 30, 2020 Weighted Average Remaining Contractual Life (years) Exercisable at June 30, 2020 Weighted Average Remaining Contractual Life (years) $0.06 - $24.62 5,494,833 3.37 3,415,917 2.74 $24.63 - $35.00 5,944,019 4.65 1,618,363 3.65 $35.01 - $36.80 5,941,004 4.33 2,589,127 4.12 $36.81 - $42.84 5,224,455 4.22 2,424,909 4.00 $42.85 - $67.64 6,287,737 4.65 1,511,022 4.44 28,892,048 4.26 11,559,338 3.67 At June 30, 2020, the weighted average exercise price of Options outstanding and Options exercisable was $35.04 and $31.60, respectively (March 31, 2020 – $34.89 and $31.84, respectively). The Company recorded $22,328 in share-based compensation expense related to Options issued to employees and contractors for the three months ended June 30, 2020 (three months ended June 30, 2019 – $73,093). The share-based compensation expense for the three months ended June 30, 2020 includes an amount related to 2,060,068 Options being provided in exchange for services which are subject to performance conditions (for the three months ended June 30, 2019 – The Company uses the Black-Scholes option pricing model to establish the fair value of Options granted during the three months ended June 30, 2020 and 2019, on their measurement date by applying the following assumptions: June 30, June 30, 2020 2019 Risk-free interest rate 0.33% 1.41% Expected life of options (years) 3 - 5 3 - 5 Expected volatility 76% 73% Expected forfeiture rate 16% 11% Expected dividend yield nil nil Black-Scholes value of each option $12.31 $28.58 Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that Options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the Options. During the three months ended June 30, 2020, 711,472 Options were exercised ranging in price from $1.32 to $27.99 for gross proceeds of $4,722 (for the three months ended June 30, 2019 – For the three months ended June 30, 2020, the Company recorded $3,842 in share-based compensation expense related to these RSUs (for the three months ended June 30, 2019 – $1,394). The following is a summary of the changes in the Company’s RSUs during the three months ended June 30, 2020: Number of RSUs Balance outstanding at March 31, 2020 883,009 RSUs cancelled and forfeited (50,871 ) Balance outstanding at June 30, 2020 832,138 Share-based compensation expense related to acquisition milestones is comprised of: Three months ended June 30, June 30, 2020 2019 Canindica $ 598 $ 4,010 Spectrum Colombia - 2,259 Other 2,372 4,012 $ 2,970 $ 10,281 During the three months ended June 30, 2020, 751,922 common shares (during the three months ended June 30, 2019 – 482,321) were released on completion of acquisition milestones. At June 30, 2020, there were up to 4,090,709 common shares to be issued on the completion of acquisition and asset purchase milestones. In certain cases, the number of common shares to be issued is based on the volume weighted average share price at the time the milestones are met. The number of common shares has been estimated assuming the milestones were met at June 30, 2020. The number of common shares excludes common shares that are to be issued on July 4, 2023 to the previous shareholders of Spectrum Colombia S.A.S. (“Spectrum Colombia”) and Canindica Capital Ltd. (“Canindica”) based on the fair market value of the Company’s Latin American business on that date. BioSteel share-based payments On October 1, 2019, the Company purchased 72% of the outstanding shares of BioSteel Sports Nutrition Inc. (“BioSteel”). BioSteel has a stock option plan under which non-transferable options to purchase common shares of BioSteel may be granted to directors, officers, employees, or independent contractors of the BioSteel. As at June 30, 2020, BioSteel had 1,014,000 (March 31, 2020 – 1,008,000) options outstanding which vest in equal tranches over a 5-year period. In determining the amount of share-based compensation related to these options, BioSteel used the Black-Scholes option pricing model to establish the fair value of options on their measurement date. The Company recorded $244 (three months ended June 30, 2019 – $nil) of share-based compensation expense related to the BioSteel options during the three months ended June 30, 2020 with a corresponding increase in noncontrolling interest. CANOPY RIVERS SHARE-BASED COMPENSATION PLAN Seed Capital Options On May 12, 2017, seed capital options were issued. These seed capital options consisted of 10,066,668 shares that were issued by way of share purchase loans. Since they were issued through loans, they are not considered issued for accounting purposes until the loan is repaid. The seed capital options were measured at fair value on May 12, 2017, using a Black-Scholes option pricing model and will be expensed over their vesting period. Where there are performance conditions in addition to service requirements Canopy Rivers has estimated the number of shares it expects to vest and is amortizing the expense over the expected vesting period. Seed capital options issued Seed capital loan balance Balance outstanding at March 31, 2020 2,805,560 $ 140 Options exercised (638,891 ) $ (32 ) Balance outstanding at June 30, 2020 2,166,669 $ 108 Canopy Rivers has a stock option plan (the “Option Plan”) under which non-transferable options to purchase Subordinated Voting Shares of the Company may be granted to directors, officers, employees, or independent contractors of Canopy Rivers. Pursuant to the Option Plan, the maximum number of Subordinated Voting Shares issuable from treasury pursuant to outstanding options shall not exceed 10% of the issued and outstanding Subordinated Voting Shares and Multiple Voting Shares, on an aggregate basis. The Option Plan is administered by the Board of Directors of Canopy Rivers who establishes exercise prices, at not less than the market price at the date of the grant, and expiry dates. Options under the Option Plan generally become exercisable in increments, with one-third being exercisable on each of the first, second, and third anniversaries from the date of grant, and have expiry dates five years from the date of grant. The Board of Directors of Canopy Rivers has the discretion to amend general vesting provisions and the term of any option grant, subject to limits contained in the Option Plan. The seed capital options are not within the scope of the Option Plan. The following is a summary of the changes in Canopy Rivers’ stock options, excluding the seed capital options presented separately, during the three months ended June 30, 2020: Options issued Weighted average exercise price Balance outstanding at March 31, 2020 13,066,004 $ 2.31 Options granted - - Options exercised (100,000 ) 0.60 Options expired (30,000 ) 3.50 Options forfeited/cancelled (218,334 ) 2.26 Balance outstanding at June 30, 2020 12,717,670 $ 2.32 In determining the amount of share-based compensation related to options issued during the year, Canopy Rivers used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended June 30, 2020 and 2019, on their measurement date by applying the following assumptions: June 30, June 30, 2020 2019 Risk-free interest rate - 1.35% Expected life of options (years) - 3 - 4 Expected volatility - 70% Expected forfeiture rate - nil Expected dividend yield - nil Black-Scholes value of each option - $1.93 Volatility was estimated using companies that Canopy Rivers considers comparable that have trading and volatility history prior to Canopy Rivers becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the options. For the three months ended June 30, 2020, the Company recorded $1,184 (three months ended June 30, 2019 – $2,594) in share-based compensation expense related to these options and the seed capital options with a corresponding increase to noncontrolling interests. In the three months ended June 30, 2020, Canopy Rivers granted $225 (three months ended June 30, 2019 – $nil) worth of RSUs which vest over a one-year |