Acquisitions | 29. ACQUISITIONS (a) Year ended March 31, 2022 The following table summarizes the consolidated balance sheet impact at acquisition of the Company’s business combinations that occurred in the year ended March 31, 2022. Ace Supreme Valley Cannabis (i) (ii) Other Total Cash and cash equivalents $ 1,544 $ 41,306 $ 1,227 $ 44,077 Inventory 878 33,426 362 34,666 Other current assets 2,249 14,791 335 17,375 Property, plant and equipment 105 187,407 1,510 189,022 Intangible assets Brands 14,000 22,800 - 36,800 Distribution channel - 3,500 - 3,500 Operating licenses - 24,400 2,000 26,400 Goodwill 39,152 58,842 7,329 105,323 Accounts payable and other accrued expenses and liabilities (1,724 ) (12,935 ) (30 ) (14,689 ) Debt and other liabilities - (88,324 ) (1,037 ) (89,361 ) Deferred income tax liabilities (1,899 ) (5,545 ) (540 ) (7,984 ) Net assets acquired $ 54,305 $ 279,668 $ 11,156 $ 345,129 Consideration paid in cash $ 51,836 $ 84 $ 7,104 $ 59,024 Consideration paid in shares - 260,668 4,052 264,720 Replacement options - 629 - 629 Replacement warrants - 13,350 - 13,350 Other consideration 2,469 4,937 - 7,406 Total consideration $ 54,305 $ 279,668 $ 11,156 $ 345,129 Consideration paid in cash $ 51,836 $ 84 $ 7,104 $ 59,024 Less: Cash and cash equivalents acquired (1,544 ) (41,306 ) (1,227 ) (44,077 ) Net cash outflow (inflow) $ 50,292 $ (41,222 ) $ 5,877 $ 14,947 The table above summarizes the fair value of the consideration given and the fair values assigned to the assets acquired and liabilities assumed for each acquisition. Goodwill arose in these acquisitions because the cost of acquisition included a control premium. In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. Except for some of the goodwill arising in respect of the Ace Valley and Supreme Cannabis acquisition, none of the goodwill arising on these acquisitions is expected to be deductible in the computation of income for tax purposes. (i) Ace Valley On April 1, 2021, the Company entered into a share purchase agreement (the “AV Share Purchase Agreement”) with Tweed Inc., AV Cannabis Inc. (“Ace Valley”), and the shareholders of Ace Valley (the “AV Vendors”) pursuant to which the Company indirectly acquired 100% of the issued and outstanding shares of Ace Valley for cash consideration of $51,836. Ace Valley is an Ontario-based cannabis brand with a focus on premium, ready-to-enjoy products including vapes, pre-roll joints and gummies. Pursuant to the terms of the AV Share Purchase Agreement, the Company may be required to make certain earn-out payments to the AV Vendors, which may result in an additional cash payment or the issuance of common shares, subject to the fulfillment of certain conditions by April 1, 2023. This represents liability-classified contingent consideration. Management has estimated the fair value of this consideration to be $2,469 by assessing the probability and timing of the fulfillment of the specified conditions and discounting the expected cash outflows to present value. In the year ended March 31, 2022, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. (ii) Supreme Cannabis On June 22, 2021, the Company and The Supreme Cannabis Company, Inc. (“Supreme Cannabis”) completed an arrangement (the “Supreme Arrangement”) pursuant to which the Company acquired 100% of the issued and outstanding common shares of Supreme Cannabis (the “Supreme Shares”). Supreme Cannabis is a producer of recreational, wholesale and medical cannabis products, with a diversified portfolio of distinct cannabis companies, products and brands. Pursuant to the Supreme Arrangement, the Company issued 9,013,400 common shares with a fair value on closing of $260,668 and made a cash payment of $84 to former Supreme Cannabis shareholders in consideration for their Supreme Shares. The Company also assumed the obligation to issue 1,265,742 common shares upon the exercise of outstanding warrants of Supreme Cannabis and issued 140,159 replacement options. The fair value of the obligation upon the exercise of the outstanding warrants of Supreme Cannabis was estimated to be $13,350 using a Black-Scholes model. The replacement options’ fair value totaled $1,452, calculated using a Black-Scholes model, of which $629 was included in consideration paid as it related to pre-combination services and the residual $823 fair value was recognized immediately in share-based compensation expense after the completion of the acquisition. On June 22, 2021, Supreme Cannabis had convertible debentures outstanding with a principal amount of $27,045 which were convertible into 94,895,649 Supreme Shares. As a result of the acquisition the conversion feature was adjusted in accordance with an exchange ratio of 0.011659. The fair value of these convertible debentures on June 22, 2021 was estimated to be $36,593, of which $4,937 was allocated to the conversion feature and $31,656 to the debt component. Due to the timing of this acquisition, the purchase price allocation for the acquisition of Supreme Cannabis is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received. (b) Acquisitions completed in the year ended March 31, 2021 There were no acquisitions during the year ended March 31, 2021. (c) Acquisitions completed in the year ended March 31, 2020 The following table summarizes the consolidated balance sheet impact at acquisition of the Company’s business combinations that occurred in the year ended March 31, 2020: Spectrum Storz & C 3 This Works BioSteel BCT UK Bickel (i) (ii) (iii) (iv) (iv) 30(c)(v) Total Cash and cash equivalents $ 2,818 $ 1,619 $ 225 $ 7,886 $ - $ - $ 12,548 Other current assets 15,140 8,239 12,972 2,296 67 - 38,714 Property, plant and equipment 8,345 478 391 5 895 - 10,114 Intangible assets Brands 10,613 22,114 3,600 - - - 36,327 Distribution channel 4,058 12,988 14,700 - - - 31,746 Operating licenses - - - - 1,158 - 1,158 Intellectual property 36,520 16,848 20,900 5,267 - 24,990 104,525 Software and domain names 8 176 541 - - - 725 Goodwill 287,010 22,214 35,939 85,700 12,861 (24,990 ) 418,734 Accounts payable and other accrued expenses and liabilities (3,652 ) (4,100 ) (3,852 ) (2,176 ) (922 ) - (14,702 ) Debt and other liabilities (3,942 ) - (3,659 ) - - - (7,601 ) Deferred income tax liabilities (11,219 ) (7,911 ) (3,817 ) (838 ) (36 ) - (23,821 ) Net assets $ 345,699 $ 72,665 $ 77,940 $ 98,140 $ 14,023 $ - $ 608,467 Noncontrolling interests - - (18,733 ) - - - (18,733 ) Net assets acquired $ 345,699 $ 72,665 $ 59,207 $ 98,140 $ 14,023 $ - $ 589,734 Consideration paid in cash $ 345,699 $ 72,665 $ 47,924 $ 45,098 $ - $ - $ 511,386 Fair value of previously held equity interest - - - 37,919 14,023 - 51,942 Replacement options - - - 1,885 - - 1,885 Other consideration - - 11,283 13,238 - - 24,521 Total consideration $ 345,699 $ 72,665 $ 59,207 $ 98,140 $ 14,023 $ - $ 589,734 Consideration paid in cash $ 345,699 $ 72,665 $ 47,924 $ 45,098 $ - $ - $ 511,386 Less: Cash and cash equivalents acquired (2,818 ) (1,619 ) (225 ) (7,886 ) - - (12,548 ) Net cash outflow $ 342,881 $ 71,046 $ 47,699 $ 37,212 $ - $ - $ 498,838 The table above summarizes the fair value of the consideration given and the fair values assigned to the assets acquired and liabilities assumed for each acquisition. Goodwill arose in these acquisitions because the cost of acquisition included a control premium. In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. Except for the goodwill arising in respect of the Storz & Bickel GmbH & Co., KG (“Storz & Bickel”) acquisition, none of the goodwill arising on these acquisitions is expected to be deductible in the computation of income for tax purposes. (i) C 3 On April 30, 2019, the Company acquired 100% of the shares of C 3 3 five-year 3 In the year ended March 31, 2020, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The measurement period adjustments include: Useful life Measurement period impact Adjustments (years) Valuation methodology Acquisition related intangible assets Distribution channel $ 4,058 10 Income approach Intellectual property 36,520 10 Relief-from-royalty Licensed brands 10,613 2 Relief-from-royalty Other adjustments Inventory step-up 1,814 Deferred income tax liabilities (11,219 ) Net impact to goodwill $ (41,786 ) (ii) This Works On May 21, 2019, the Company acquired 100% of the shares of TWP UK Holdings Limited (“This Works”) and its subsidiary companies, This Works Products Limited, TWP USA Inc. and TWP IP Limited for total cash consideration of $72,665 (GBP 43,296). Based in London, United Kingdom, This Works is a natural skincare and sleep solutions company. In the year ended March 31, 2020, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The measurement period adjustments include: Useful life Measurement period impact Adjustments (years) Valuation methodology Acquisition related intangible assets Acquired brands $ 19,130 Indefinite Relief-from-royalty Distribution channel 12,988 10 Income approach using a multi-period excess earnings method Intellectual property 16,848 10 Replacement cost Licensed brands 2,984 5 Income approach using a multi-period excess earnings method Other adjustments Inventory step-up 1,755 Deferred income tax liabilities (7,911 ) Net Impact to Goodwill $ (45,794 ) (iii) BioSteel On October 1, 2019, the Company purchased 72% of the outstanding shares of BioSteel, a North America-based producer of sports nutrition products. Initial cash consideration was $50,707 subject to certain adjustments and holdbacks such that $47,924 was advanced on closing. The purchase price was to be further adjusted based on a multiple of BioSteel’s calendar 2019 net revenue. Management has concluded that this purchase price adjustment is nominal. Through its voting rights, the Company controls BioSteel and therefore, the acquisition was accounted for as a business combination. The noncontrolling interests of $18,733 recognized at acquisition date were recorded at their share of fair value. Prior to September 30, 2019, the Company had advanced a total of $8,500 to BioSteel under a secured loan agreement. The acquisition resulted in an effective settlement of the loan payable of $8,500 which has been recorded as other consideration. Immediately following the October 1 acquisition, the Company subscribed for additional shares of BioSteel for consideration of $14,000 which was funded through a cash advance of $10,000 and the conversion of $4,000 of the loan payable. After completing this investment, the Company’s ownership interest in BioSteel is 76.7%. The shares not purchased by the Company will be retained by certain current shareholders and management for a period of up to 5 years (the “Rollover Shareholders”). On the third anniversary of the closing Canopy Growth will have a right to purchase, and the Rollover Shareholders will have a right to sell one half of the remaining interest held by the Rollover Shareholders to Canopy Growth at a specified valuation based on a multiple of BioSteel’s net revenue. On the fifth anniversary of the closing Canopy Growth will have a right to purchase, and the Rollover Shareholders will have a right to sell the balance of the remaining interest held by the Rollover Shareholders to Canopy Growth at a valuation to be mutually agreed upon by the parties. The call and put options represent redeemable noncontrolling interest (“BioSteel Redeemable NCI”) and is recorded at fair value on initial recognition. See Note 19 for a continuity of the BioSteel Redeemable NCI. See Note 24 for additional details on how the fair value is calculated. In the year ended March 31, 2020, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The measurement period adjustments include: Useful life Measurement period impact Adjustments (years) Valuation methodology Acquisition related intangible assets Acquired brands $ 3,600 Indefinite Relief-from-royalty Distribution channel 14,700 11 Income approach using a multi-period excess earnings method Intellectual property 20,900 11 Relief-from-royalty, net of product migration Other adjustments Inventory step-up 2,710 Deferred income tax liabilities (3,817 ) Net impact to goodwill $ (38,093 ) (iv) BCT and Spectrum UK BCT is a cannabis research and development organization in the United Kingdom which was formed in fiscal 2018 through a collaboration agreement between CHI and Beckley Research and Innovations Limited. In the fourth quarter of fiscal 2019, the Company and BCT had formed another joint venture – Spectrum Biomedical UK (“Spectrum UK”). The purpose of Spectrum UK was to become the exclusive distributor of cannabis-based medicinal products made by the Company. Since their inception the Company had been accounting for its 42% interest in BCT and its 67% interest in Spectrum UK using the equity method. Though BCT and Spectrum UK are VIE’s, due to the fact that both entities are jointly controlled, Canopy Growth is not the primary beneficiary of either entity and therefore is not required to consolidate either entity. On October 11, 2019, the Company acquired all its unowned interest in BCT to increase its total ownership of BCT’s issued and outstanding shares to 100%. Following this transaction, the Company will control both BCT and Spectrum UK, and both BCT and Spectrum UK will be accounted for as wholly owned subsidiaries. Cash consideration for this transaction was $58,336 of which $45,098 was advanced on closing, $8,750 was paid during October 2020, and $5,861 was paid on October 1, 2021 and has a fair value of $5,746. Consideration also included 155,565 replacement options. The fair value of the replacement options was determined using a Black-Scholes model and $1,885 of the total fair value has been included as consideration paid to acquire BCT as it related to pre-combination vesting service and $1,987 of the fair value will be recognized as share-based compensation expense ratably over the post-combination vesting period. The acquisition of the unowned interests is accounted for as business combinations achieved in stages under ASC 805. The Company remeasured its 42% interest in BCT and its 67% interest in Spectrum UK to fair value and recognized a total gain of $39,485 which reflects the difference between the carrying value of $12,457 and the implied fair value $51,942. The fair value was estimated to be the transaction price less an estimated control premium of 5%. The consideration paid for BCT included $250 cash and 16,430 replacement options that were issued to a member of key management of the Company that was a shareholder and option holder in BCT. In the year ended March 31, 2020, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The measurement period adjustments include: Useful life Measurement period impact Adjustments (years) Valuation methodology Acquisition related intangible assets Intellectual property $ 5,267 1 Replacement cost Operating license 1,158 1 Replacement cost Other adjustments Deferred income tax liabilities (874 ) Net impact to goodwill $ (5,551 ) (d) More Life On November 7, 2019 the Company entered into agreements with certain entities that are controlled by Aubrey “Drake” Graham to launch the More Life Growth Company (“More Life”). Under the agreements Canopy Growth sold 100% of the shares of 1955625 Ontario Inc., a wholly owned subsidiary of Canopy Growth that holds the Health Canada license for a facility located in Scarborough, Ontario to More Life (“More Life Facility”) in exchange for a 40% interest in More Life. Certain entities that are controlled by Drake hold a 60% ownership interest in More Life. Following this transaction, the Company no longer controlled 1955625 Ontario Inc. and the Company derecognized the assets and liabilities of 1955625 Ontario Inc. from its consolidated financial statements at their carrying amounts. Management has concluded that the subsidiary does not meet the definition of an operation and no goodwill was allocated. The derecognized assets and liabilities on November 7, 2019, were as follows: Current assets $ 100 Intangible assets 2,810 Net assets disposed $ 2,910 Fair value of retained interest 25,200 Gain on disposal of consolidated entity $ 22,290 The gain calculated on the derecognition of 1955625 Ontario Inc.’s assets and liabilities was the difference between the carrying amounts of the derecognized assets and liabilities of 1955625 Ontario Inc. and the fair value of the consideration received, being the fair value of the Company’s interest in More Life. This gain was recognized in other income (expense), net, in the year ended March 31, 2020. The fair value of this interest on the transaction date was estimated to be $25,200 which was determined using a discounted cash flow approach. The most significant inputs to the fair value measurement are the discount rate and expectations about future royalties. As consideration for the 60% interest in More Life, certain entities that are controlled by Drake granted More Life the right to exclusively exploit certain intellectual property and brands in association with the growth, manufacture, production, marketing and sale of cannabis and cannabis-related products, accessories, merchandise and paraphernalia in Canada and internationally. More Life sublicensed such rights in Canada to Canopy Growth in exchange for royalty payments. On November 7, 2019, Canopy Growth recorded an intangible asset equal to the present value of the agreed minimum royalty payments. As part of the Company’s restructuring of its global operations in the year ended March 31, 2020, the Company recognized an impairment charge related to the remaining intangible assets in the amount of $32,717. The Company and More Life agreed to terminate the sublicense agreement between the two parties as of March 1, 2021, and as a result the Company derecognized the remaining minimum royalty obligations owing to More Life in the amount of $33,681. The difference between the termination payment made by the Company to More Life and the remaining minimum royalty obligations was recorded in asset impairment and restructuring costs; refer to Note 5. Through its ownership and other rights, the Company was determined to have significant influence over More Life and accounts for its interest in More Life using the equity method of accounting. The investment was initially recognized at its fair value of $25,200 and adjusted thereafter to recognize the Company’s share of net income (loss) and other comprehensive income (loss). The fair value of the Company’s interest in More Life was estimated to be $10,300 at March 31, 2020 using the same valuation techniques and inputs as described above. As at March 31, 2021, as a result of the termination of the sublicense agreement between the Company and More Life, the Company determined that the fair value of its’ interest in More Life was $nil, and accordingly, the Company recognized an impairment on its equity method investment in the amount of $10,300 in the year ended March 31, 2021 (year ended March 31, 2020 – $14,900) as part of the restructuring of its global operations. See Note 5 for further information. |