What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 274 added, 131 removed, 650 unchanged (38% of the section changed)

3 unchanged sentences

(in thousands of Canadian dollars, except number of shares and per share data, unaudited)

September 30,

Current assets:

36 unchanged sentences

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands of Canadian dollars, except number of shares and per share data, unaudited)

Three months ended June 30,

Three months ended September 30,

Six months ended September 30,

Cost of goods sold

2 unchanged sentences

Share-based compensation

Expected credit losses on financial assets and

related charges

Asset impairment and restructuring costs

3 unchanged sentences

Other income (expense), net

Loss before income taxes

Income tax recovery (expense)

(Loss) income before income taxes

Income tax (expense) recovery

Net (loss) income

Net loss attributable to noncontrolling interests and

redeemable noncontrolling interest

Net loss attributable to Canopy Growth Corporation

Basic and diluted loss per share

Basic and diluted weighted average common shares outstanding

Comprehensive loss:

Net (loss) income attributable to Canopy Growth Corporation

Basic (loss) earnings per share

Basic weighted average common shares outstanding

Diluted (loss) earnings per share

Diluted weighted average common shares outstanding

Comprehensive (loss) income:

Net (loss) income

Other comprehensive (loss) income, net of income tax effect

Fair value changes of own credit risk of financial liabilities

Fair value changes of own credit risk of

financial liabilities

Foreign currency translation

Total other comprehensive loss, net of income tax effect

Comprehensive loss

Total other comprehensive (loss) income, net of

income tax effect

Comprehensive (loss) income

Comprehensive loss attributable to noncontrolling interests

and redeemable noncontrolling interest

Comprehensive loss attributable to Canopy Growth Corporation

Comprehensive (loss) income attributable to Canopy

Growth Corporation

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

14 unchanged sentences

Share-based compensation

Issuance and vesting of restricted

Changes in redeemable

3 unchanged sentences

Comprehensive loss

Balance at June 30, 2020

Balance at September 30, 2020

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

14 unchanged sentences

Share-based compensation

Issuance and vesting of restricted

Acreage warrant modification

3 unchanged sentences

noncontrolling interests

Comprehensive loss

Balance at June 30, 2019

Comprehensive (loss) income

Balance at September 30, 2019

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

2 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Three months ended June 30,

Six months ended September 30,

Cash flows from operating activities:

5 unchanged sentences

Asset impairment and restructuring costs

Expected credit losses on financial assets and related charges

Income tax (recovery) expense

Non-cash foreign currency

Interest paid

Change in operating assets and liabilities, net of effects from purchases

13 unchanged sentences

Investment in Acreage Arrangement

Loan advanced to Acreage Hempco

Recovery of amounts related to construction financing

15 unchanged sentences

Cash and cash equivalents, end of period

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

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars, unaudited)

Six months ended September 30,

Supplemental disclosure of cash flow information

9 unchanged sentences

Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario.

References in these condensed interim consolidated financial statements to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.

References herein to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.

The principal activities of the Company are the production, distribution and sale of cannabis as regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) in Canada, up to and including October 16, 2018.

On October 17, 2018, the ACMPR was superseded by The Cannabis Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.

The Company is also expanding to jurisdictions outside of Canada where federally lawful and regulated for cannabis and/or hemp including subsidiaries which operate in the United States, Europe, Latin America and the Caribbean, and Asia / Pacific.

The Company has also expanded to jurisdictions outside of Canada where federally lawful and regulated for cannabis and/or hemp including subsidiaries which operate in the United States, Europe, Latin America and the Caribbean, and Asia / Pacific.

Through its partially owned subsidiary Canopy Rivers Inc.

49 unchanged sentences

The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2019-12 effective April 1, 2021.

Investments-Equity Securities

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) .

3 unchanged sentences

The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2020-01 effective April 1, 2021.

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock.

In addition, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance, and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-

based accounting conclusions.

ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020.

The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2020-06 effective April 1, 202 2 .

ASSET IMPAIRMENT AND RESTRUCTURING COSTS

2 unchanged sentences

In addition, the Company incurred additional costs in the three months ended June 30, 2020, related primarily to the rationalization of our marketing organization in the current period.

As a result, in the three months ended June 30, 2020, the Company recognized asset impairment and restructuring costs of $ 12,794 in relation to (i) costs associated with the closure of certain of the Company’s Canadian production facilities;

In the three months ended September 30, 2020, the Company recorded adjustments related to changes in the estimated fair value of certain of the Company’s Canadian production facilities from March 31, 2020 and charges related to rationalizing certain research and development activities.

As a result, in the three and six months ended September 30, 2020, the Company recognized asset impairment and restructuring costs of $ 46,363 and $ 59,157 , respectively, in relation to (i) changes in the estimated fair value of certain of the Company’s Canadian production facilities, and costs associated with their closure;

(ii) completing the exit of the Company’s operations in South Africa and Lesotho;

and (iii) employee-related costs associated with rationalizing certain marketing activities.

(iii) employee-related costs associated with rationalizing certain marketing activities;

and (iv) charges related to rationalizing certain research and development activities.

CASH AND CASH EQUIVALENTS

The components of cash and cash equivalents are as follows:

September 30,

Cash equivalents

1 unchanged sentence

The components of short-term investments are as follows:

September 30,

Term deposits

1 unchanged sentence

Commercial paper and other

The amortized cost of short-term investments at June 30, 2020 is $ 1,060,890 (March 31, 2020 – $ 673,022 ).

The amortized cost of short-term investments at September 30, 2020 is $ 1,048,316 (March 31, 2020 – $ 673,022 ).

AMOUNTS RECEIVABLE, NET

The components of amounts receivable, net are as follows:

September 30,

Accounts receivable, net

2 unchanged sentences

Other receivables

Included in the accounts receivable, net balance at June 30, 2020 is an allowance for doubtful accounts of $ 917 (March 31, 2020 – $ 655 ) .

Included in the accounts receivable, net balance at September 30, 2020 is an allowance for doubtful accounts of $ 571 (March 31, 2020 – $ 655 ) .

The components of inventory are as follows:

September 30,

Raw materials, packaging supplies and consumables

1 unchanged sentence

Finished goods

In the three months ended June 30, 2020, the Company recorded write-downs related to inventory of $ 19,386 (three months ended June 30, 2019 – $ 4,789 ) in cost of goods sold.

In the three and six months ended September 30, 2020, the Company recorded write-downs related to inventory of $ 4,945 and $ 24,331 , respectively, (three and six months ended September 30, 2019 – $ 21,747 and $ 26,536 , respectively) in cost of goods sold.

PREPAID EXPENSES AND OTHER ASSETS

The components of prepaid expenses and other assets are as follows:

September 30,

Prepaid expenses

Prepaid inventory

PharmHouse Inc.

(“PharmHouse”), a joint venture formed on May 7, 2018 , between the Company and 2615975 Ontario Limited (the “PharmHouse JV Partner”), is a company licensed to cultivate cannabis under the Cannabis Act.

CCAA Proceedings

During the three months ended September 30, 2020, it was determined that the previously anticipated timeline for PharmHouse to generate cash flows from its offtake agreements with the Company and TerrAscend Canada Inc.

would not be met, and the ultimate timing and receipt of cash inflows pursuant to these agreements became uncertain.

As a result of this, as well as broader sector-wide challenges impacting the Canadian cannabis industry, PharmHouse did not have sufficient liquidity and capital resources to meet its business objectives and became unable to meet its financial obligations as they became due.

Accordingly, on September 15, 2020, PharmHouse obtained an order (the “Initial Order”) from the Ontario Superior Court of Justice (the “Court”) granting PharmHouse creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”) (the “CCAA Proceedings”).

The Court appointed an independent professional services firm to act as the Monitor of PharmHouse in the CCAA Proceedings while PharmHouse explores a restructuring of its business and operations (the “Restructuring”).

PharmHouse Recoverability Assessment

As a result of the CCAA Proceedings and the Restructuring, the Company determined that there were indicators of impairment present for its investments in various PharmHouse-related financial assets.

These investments are described below.

The Company performed impairment testing for its various PharmHouse-related financial assets by estimating the fair value of PharmHouse en bloc.

Due to the lack of profitable operating history for PharmHouse as a cannabis entity, the Company estimated the fair value of PharmHouse en bloc using an asset-based approach to value PharmHouse’s assets under an orderly liquidation scenario where cannabis operations are not continued at PharmHouse’s facility and the greenhouse is sold for purposes other than cannabis cultivation.

This amount was then compared to the carrying values of the various PharmHouse-related financial instruments held by the Company, in sequence based on the priority of claims on PharmHouse’s assets (the “PharmHouse Recoverability Assessment”).

The significant components of this fair value analysis included PharmHouse’s greenhouse facility and retrofits, separable machinery and equipment, saleable inventory, and cash.

Significant unobservable inputs used by the Company to determine the fair value of PharmHouse’s assets include the selling price per square foot for PharmHouse’s greenhouse facility;

the recoverability percentage on the liquidation of PharmHouse’s property, plant and equipment;

the selling price per gram of PharmHouse’s existing cannabis

and adjustments for the risk of fair value changes and liquidity.

Based on the foregoing, the Company estimated the recoverable value of PharmHouse’s assets in an orderly liquidation scenario to be approximately $ 65,000 .

The impact of the PharmHouse Recoverability Assessment on the Company’s various PharmHouse-related financial instruments is described below.

PharmHouse Financial Guarantee

As at September 30, 2020, PharmHouse had entered a syndicated credit agreement with amended terms (the “PharmHouse Credit Agreement”) with a number of Canadian banks to provide PharmHouse with a committed, non-revolving credit facility (the “PharmHouse Credit Facility”) with a maximum principal amount of $ 90,000 , which was fully drawn.

The obligations of PharmHouse under the PharmHouse Credit Facility are secured by guarantees of Canopy Rivers and Canopy Rivers Corporation (“CRC”, a wholly-owned subsidiary of Canopy Rivers), and a pledge by CRC of all of the shares of PharmHouse held by it (the “PharmHouse Financial Guarantee”).

Accordingly, if PharmHouse is not able to generate sufficient cash flows to service its obligations pursuant to the PharmHouse Credit Facility, the Company may be required to recognize a financial liability relating to all or a portion of the PharmHouse Financial Guarantee.

The PharmHouse Credit Agreement also contains certain representations and warranties and affirmative covenants applicable to the Company.

Based on the PharmHouse Recoverability Assessment described above, the Company determined that the fair value of PharmHouse’s assets under an orderly liquidation scenario where the facility is not used for cannabis operations may be less than the principal amount owed by PharmHouse pursuant to the PharmHouse Credit Facility.

Accordingly, the Company estimated that it has a financial liability related to the PharmHouse Financial Guarantee, reflecting the estimated shortfall between the recoverable amount of PharmHouse en bloc and the Company’s exposure to the PharmHouse Credit Facility.

As at September 30, 2020, the Company estimated the current expected credit loss related to its contingent obligation under the PharmHouse Financial Guarantee to be $ 25,000 , and recognized a financial liability for this amount in the consolidated balance sheet (March 31, 2020 – $nil) (see Note 17) and the associated expected credit loss in net income (loss) for the three and six months ended September 30, 2020 (three and six months ended September 30, 2019 – $nil).

Other financial assets, including loans receivable

As at September 30, 2020, the Company had advanced $ 40,000 of secured debt financing pursuant to a shareholder loan agreement with PharmHouse (March 31, 2020 – $ 40,000 ).

The shareholder loan has a three-year term and an annual interest rate of 12 %, with interest calculated monthly (effective as at the date principal is advanced) and payable quarterly upon the achievement of certain sales-related milestones.

As at September 30, 2020, the Company had advanced $ 2,450 to PharmHouse pursuant to a secured demand promissory note (March 31, 2020 – $ 2,450 ).

The secured demand promissory note is non-interest bearing both before and after demand or default.

Based on the terms of the secured demand promissory note, the Company had recognized the secured demand promissory note as a financial asset initially recorded at fair value and subsequently measured at amortized cost.

On August 4, 2020, the Company entered into an unsecured demand promissory note agreement with PharmHouse, pursuant to which it made total advances of $ 1,206 between August 4, 2020, and September 8, 2020.

The unsecured promissory note bears interest at a rate of 12 % per annum, calculated and compounded monthly, and is payable on the demand date.

Based on the terms of the unsecured demand promissory note, the Company has recognized the instrument as a financial asset initially recorded at fair value and subsequently measured at amortized cost.

Pursuant to the Initial Order, Canopy Rivers entered into an agreement to provide a super-priority, debtor-in-possession (“DIP”) interim, non-revolving credit facility up to a maximum principal amount of $ 7,214 (the “DIP Financing”) to enable PharmHouse to continue its day-to-day operations throughout the anticipated Restructuring.

The DIP Financing bears interest at a rate of 8 % per annum, calculated and compounded monthly and payable on the maturity date, which is the earlier of December 29, 2020, and the date the CCAA Proceedings are terminated.

As at September 30, 2020, the Company had advanced $ 2,100 pursuant to the DIP Financing.

As a result of the PharmHouse Recoverability Assessment described above, the Company recognized current expected credit losses of $ 25,000 related to its contingent obligation under the PharmHouse Financial Guarantee and concluded that the following amounts may not be recoverable:

(i) $ 2,100 advanced pursuant to DIP Financing;

(ii) $ 40,000 advanced under the shareholder loan agreement;

(iii) $ 2,450 advanced under the secured demand promissory note;

(iv) $ 1,206 advanced under the unsecured demand promissory note;

and (v) $ 8,989 in interest receivable in relation to the financial instruments.

Additionally, it was determined that certain advances in the amount of $ 15,000 provided to PharmHouse by the Company may not be recoverable.

Accordingly, the Company recorded expected credit losses on financial assets and related charges of $ 94,745 for the three and six months ended September 30, 2020 (three and six months ended September 30, 2019 - $nil).

PharmHouse equity method investment

As at September 30, 2020, the Company owned 10,998,660 common shares of PharmHouse (March 31, 2020 – 10,998,660 common shares), representing a 49 % equity interest on a non-diluted basis.

The Company had not yet received any distributions on account of its common share investment in PharmHouse.

As a result of the PharmHouse Recoverability Assessment described above, the Company determined that there was an other-than-temporary-impairment and recognized an impairment charge for the full amount of its equity method investment of $ 32,369 (see Note 10) for the three and six months ended September 30, 2020 (three and six months ended September 30, 2019 – $nil).

EQUITY METHOD INVESTMENTS

The following table presents changes in the Company’s investments in associates that are accounted for using the equity method in the three months ended June 30, 2020:

The following table presents changes in the Company’s investments in associates that are accounted for using the equity method in the six months ended September 30, 2020:

September 30,

1 See Note 9 for information regarding PharmHouse.

Where the Company does not have the same reporting date as its investees, the Company will account for its investment one quarter in arrears.

Accordingly, certain of the figures in the above table, including the Company’s share of the investee’s net income (loss), are based on the investees’ results for the three months ended March 31, 2020 (with respect to June 30, 2020) with adjustments for any signficant transactions.

The following tables present current and non-current assets, current and non-current liabilities as well as revenues and net loss of the Company’s equity method investments as at and for the three months ended March 31, 2020:

Accordingly, certain of the figures in the above table, including the Company’s share of the investee’s net income (loss), are based on the investees’ results for the six months ended June 30, 2020 (with respect to September 30, 2020) with adjustments for any signficant transactions.

OTHER FINANCIAL ASSETS

1 unchanged sentence

Additional details on how the fair value of significant investments are calculated are included in Note 23.

September 30,

credit losses

TerrAscend Canada

1 unchanged sentence

Exchangeable shares

Acreage Hempco 1

Loan receivable

1 unchanged sentence

Convertible debenture

Other - classified as fair value through net income (loss)

Other - elected as fair value through net income (loss)

Other - at fair value through net income (loss)

Other - classified as held for investment

Loan receivable

1 See Note 27 for information regarding Acreage Hempco.

2 See Note 9 for information regarding PharmHouse.

PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are as follows:

September 30,

Buildings and greenhouses

8 unchanged sentences

Accumulated depreciation

Depreciation expense included in cost of goods sold for the three months ended June 30, 2020 is $ 14,786 (three months ended June 30, 2019 – $ 9,316 ).

Depreciation expense included in selling, general and administrative expenses for the three months ended June 30, 2020 is $ 2,629 (three months ended June 30, 2019 – $ 4,271 ).

Depreciation expense included in cost of goods sold for the three and six months ended September 30, 2020 is $ 14,449 and $ 29,235 , respectively (three and six months ended September 30, 2019 – $ 12,138 and $ 21,455 , respectively).

Depreciation expense included in selling, general and administrative expenses for the three and six months ended September 30, 2020 is $ 4,509 and $ 7,138 , respectively (three and six months ended September 30, 2019 – $ 4,087 and $ 8,358 , respectively).

INTANGIBLE ASSETS

The components of intangible assets are as follows:

June 30, 2020

September 30, 2020

March 31, 2020

10 unchanged sentences

Total intangible assets

Amortization expense included in cost of goods sold for the three months ended June 30, 2020 is $ 702 (three months ended June 30, 2019 – $ 12 ).

Amortization expense included in selling, general and administrative expenses for the three months ended June 30, 2020 is $ 15,930 (three months ended June 30, 2019 – $ 7,153 ).

Amortization expense (recovery) included in cost of goods sold for the three and six months ended September 30, 2020 is $( 739 ) and $( 37 ) , respectively ( three and six months ended September 30, 2019 – $ 26 and $ 38 , respectively).

Amortization expense included in selling, general and administrative expenses for the three and six months ended September 30, 2020 is $ 13,539 and $ 29,469 , respectively (three and six months ended September 30, 2019 – $ 8,764 and $ 15,917 , respectively).

The changes in the carrying amount of goodwill are as follows:

1 unchanged sentence

Purchase accounting allocations

Finalization of S&B purchase price allocation

Finalization of Storz & Bickel purchase price allocation

Foreign currency translation adjustments

1 unchanged sentence

Foreign currency translation adjustments

Balance, June 30, 2020

Balance, September 30, 2020

OTHER ACCRUED EXPENSES AND LIABILITIES

The components of other accrued expenses and liabilities are as follows:

September 30,

Property, plant and equipment

3 unchanged sentences

Convertible senior notes

September 30,

Maturity Date

19 unchanged sentences

The notes will be convertible, at the holder’s option, at a conversion rate of 20.7577 common shares for every $ 1 principal amount of notes (equal to an initial conversion price of approximately $ 48.18 per common share), subject to adjustments in certain events.

In addition, the holder has the right to exercise the conversion option from September 30, 2018 to January 15, 2023, if (i) the market price of the Company common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $ 1 principal

amount of the notes for each trading day in the measurement period was less than 98 % of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”).

the preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $ 1 principal amount of the notes for each trading day in the measurement period was less than 98 % of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”).

A Fundamental Change occurred upon completion of the investment by Constellation Brands, Inc.

(“CBI”) in November 2018, and no note holders surrendered any portion of their notes as at the repurchase date of December 5, 2018 .

(“CBI”) in November 2018, and no note holders surrendered any portion of their notes in connection therewith .

The Company may, upon conversion by the holder, elect to settle in either cash, common shares, or a combination of cash and common shares, subject to certain circumstances.

4 unchanged sentences

The redemption of notes in either case shall be at a redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

For accounting purposes, the equity conversion feature did not meet the equity classification guidance, therefore the Company elected the fair value option under ASC 825 – Fair Value Measurements .

For accounting purposes, the equity conversion feature did not meet the equity classification guidance, therefore the Company elected the fair value option under ASC 825 – Financial Instruments (“ASC 825”).

The notes were initially recognized at fair value on the balance sheet.

1 unchanged sentence

The changes in fair value related to the Company’s own credit risk are recorded through other comprehensive income (loss).

The overall change in fair value of the notes during the three months ended June 30, 2020, was an increase of $ 35,694 (three months ended June 30, 2019 a decrease of $ 46,056 ), which included contractual interest of $ 6,444 (three months ended June 30, 2019, interest of $ 6,444 ).

The overall change in fair value of the notes during the three and six months ended September 30, 2020, was an increase of $ 36,306 and $ 72,000 , respectively (three and six months ended September 30, 2019, a decrease of $ 199,194 and $ 245,250 , respectively), which included contractual interest of $ 6,306 and $ 12,750 (three and six months ended September 30, 2019, interest of $ 6,306 and $ 12,750 , respectively).

Refer to Note 23 for additional details on how the fair value of the notes is calculated.

11 unchanged sentences

The components of other liabilities are as follows:

As at June 30, 2020

As at September 30, 2020

As at March 31, 2020

3 unchanged sentences

Minimum royalty obligations

PharmHouse Financial

Refund liability

Settlement liability

1 See Note 9 for information regarding the PharmHouse Financial Guarantee.

REDEEMABLE NONCONTROLLING INTEREST

3 unchanged sentences

Adjustments to redemption amount

As at June 30, 2020

As at September 30, 2020

As at March 31, 2019

1 unchanged sentence

Adjustments to redemption amount

As at June 30, 2019

As at September 30, 2019

SHARE CAPITAL

2 unchanged sentences

(i) Equity financings

There were no equity financings during the three months ended June 30, 2020 (June 30, 2019 - no ne).

There were no equity financings during the six months ended September 30, 2020 (six months ended September 30, 2019 - no ne).

(ii) Other issuances of common shares

During the three months ended June 30, 2020, the Company issued the following shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

During the six months ended September 30, 2020, the Company issued the following shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

Number of shares

1 unchanged sentence

Other issuances

During the three months ended June 30, 2019, the Company issued the following shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

During the six months ended September 30, 2019, the Company issued the following shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

Number of shares

4 unchanged sentences

Exercise of warrants

Balance outstanding at June 30, 2020 1

Expiry of warrants

Balance outstanding at September 30, 2020 1

1 This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value, see Note 27.

2 unchanged sentences

Issuance of Tranche B warrants

Other issuance of warrants

Exercise of warrants

Balance outstanding at June 30, 2019 1

Balance outstanding at September 30, 2019 1

1 This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value, see Note 27.

1 unchanged sentence

Authorized capital

Canopy Rivers Inc.

Canopy Rivers is authorized to issue an unlimited number of Class A common shares designated as subordinated voting shares (the “Subordinated Voting Shares”) and unlimited number of Class B common shares designated as multiple voting shares (the “Multiple Voting Shares”).

2 unchanged sentences

Issued and outstanding

As at June 30, 2020, Canopy Rivers had 36,468,318 Multiple Voting Shares (March 31, 2020 – 36,468,318 ) and 153,500,256 Subordinated Voting Shares (March 31, 2020 – 152,837,131 ) issued and outstanding.

As at June 30, 2020, the Company held 36,468,318 Multiple Voting Shares (March 31, 2020 – 36,468,318 ) and 15,223,938 Subordinated Voting shares (March 31, 2020 – 15,223,938 ) which represented a 27.2 % ownership interest in Canopy Rivers and 84.3 % of the voting rights (March 31, 2020 – 27.3 % and 84.4 % respectively).

As at September 30, 2020, Canopy Rivers had 36,468,318 Multiple Voting Shares (March 31, 2020 – 36,468,318 ) and 154,836,057 Subordinated Voting Shares (March 31, 2020 – 152,837,131 ) issued and outstanding.

As at September 30, 2020, the Company held 36,468,318 Multiple Voting Shares (March 31, 2020 – 36,468,318 ) and 15,223,938 Subordinated Voting shares (March 31, 2020 – 15,223,938 ) which represented a 26.9 % ownership interest in Canopy Rivers and 84.1 % of the voting rights (March 31, 2020 – 27.3 % and 84.4 % respectively).

The voting rights allow the Company to direct the relevant activities of Canopy Rivers such that the Company has control over Canopy Rivers and Canopy Rivers is consolidated in these financial statements.

There were no financings during the three months ended June 30, 2020, other than the release of shares related to share purchase financing as noted below.

There were no financings during the six months ended September 30, 2020, other than the release of shares related to share purchase financing as noted below.

Initial financing

1 unchanged sentence

These Subordinated Voting Shares were initially accounted for as seed capital options and are not considered issued for accounting purposes until the loans are repaid on an individual employee/consultant basis.

During the three months ended June 30, 2020, share purchase loans in the amount of $ 32 (three months ended June 30, 2019 – $ 19 ) relating to Canopy Rivers shares held in trust by the Company on behalf of certain Canopy Growth employees were repaid, resulting in the release from escrow of 638,891 Subordinated Voting Shares (three months ended June 30, 2019 – 377,775 ).

As at June 30, 2020, there were 2,166,669 seed capital options outstanding (March 31, 2020 – 2,805,560 ).

During the three and six months ended September 30, 2020, share purchase loans in the amount of $ 63 and $ 95 , respectively, (three and six months ended September 30, 2019 – $ 29 and $ 48 , respectively) relating to Canopy Rivers shares held in trust by the Company on behalf of certain Canopy Growth employees were repaid, resulting in the release from escrow of 1,266,668 and 1,905,559 Subordinated Voting Shares, respectively (three and six months ended September 30, 2019 – 583,333 and 961,108 , respectively).

As at September 30, 2020, there were 66,668 seed capital options outstanding (March 31, 2020 – 2,805,560 ).

Please refer to Note 20 for additional details on the seed capital options

5 unchanged sentences

All Subordinated Voting Share purchases made by Canopy Rivers under the NCIB will be funded out of Canopy Rivers’ working capital and will be cancelled immediately.

During the three months ended June 30, 2020, Canopy Rivers repurchased and cancelled a total of 109,100 Subordinated Voting Shares under the NCIB program for $ 125 , at a weighted average acquisition price of $ 1.14 per share (three months ended June 30, 2019 – not applicable).

During the three months ended September 30, 2020, Canopy Rivers repurchased and cancelled a total of 164,200 Subordinated Voting Shares under the NCIB program for $ 181 , at a weighted average acquisition price of $ 1.09 per share (three months ended September 30, 2019 – not applicable).

During the six months ended September 30, 2020, Canopy Rivers repurchased and cancelled a total of 273,300 Subordinated Voting Shares under the NCIB program for $ 307 , at a weighted average acquisition price of $ 1.11 per share (six months ended September 30, 2019 – not applicable).

SHARE-BASED COMPENSATION

1 unchanged sentence

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.

On September 21, 2020, the Company’s shareholders approved amendments to the Company’s Amended and Restated Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives.

The Omnibus Plan approved by the shareholders extended the maximum term of each Option (as defined below) to be granted by the Company to ten years from the date of grant rather than six years from the date of grant.

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 maximum number of common shares reserved for Awards is 55,806,917 at September 30, 2020.

As of September 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 being exercisable on each of the first, second and third anniversaries from the date of grant, with expiry dates set at six years from issuance.

The Board of Directors of the Company has the discretion to amend general vesting provisions and the term of any award, subject to limits contained in the Omnibus Plan.

The Employee Share Purchase Plan (the “Purchase Plan”) is the Company’s only other security-based compensation arrangement.

Under the Purchase Plan, the aggregate number of common shares that may be issued is 600,000 , and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 300,000 .

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:

As of September 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 six months ended September 30, 2020:

exercise price

3 unchanged sentences

Options forfeited/cancelled

Balance outstanding at June 30, 2020

The following is a summary of the Options as at June 30, 2020:

Balance outstanding at September 30, 2020

The following is a summary of the Options as at September 30, 2020:

Options Outstanding

1 unchanged sentence

Range of Exercise Prices

Outstanding at

June 30, 2020

Outstanding at September 30, 2020

Weighted Average

Contractual Life

Exercisable at

June 30, 2020

Exercisable at September 30, 2020

Weighted Average

5 unchanged sentences

$42.85 - $67.64

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 – 595,000 ).

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:

At September 30, 2020, the weighted average exercise price of Options outstanding and Options exercisable was $ 35.16 and $ 33.84 , respectively (March 31, 2020 – $ 34.89 and $ 31.84 , respectively).

The Company recorded $ 15,525 and $ 37,853 in share-based compensation expense related to Options issued to employees and contractors for the three and six months ended September 30, 2020, respectively (three and six months ended September 30, 2019 – $ 80,225 and $ 153,318 , respectively).

The share-based compensation expense for the six months ended September 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 six months ended September 30, 2019 – 445,000 ).

The Company uses the Black-Scholes option pricing model to establish the fair value of Options granted during the three months ended September 30, 2020 and 2019, on their measurement date by applying the following assumptions:

September 30,

Risk-free interest rate

7 unchanged sentences

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 – 1,713,592 Options were exercised ranging in price from $ 0.22 to $ 40.68 for gross proceeds of $ 16,077 ).

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:

During the six months ended September 30, 2020, 1,431,880 Options were exercised ranging in price from $ 0.06 to $ 27.99 for gross proceeds of $ 10,756 (for the six months ended September 30, 2019 – 3,290,212 Options were exercised ranging in price from $ 0.22 to $ 40.68 for gross proceeds of $ 36,023 ).

For the three and six months ended September 30, 2020, the Company recorded $ 2,343 and $ 6,185 respectively, in share-based compensation expense related to these RSUs (for the three and six months ended September 30, 2019 – $ 1,287 and $ 2,681 , respectively).

The following is a summary of the changes in the Company’s RSUs during the six months ended September 30, 2020:

Number of RSUs

Balance outstanding at March 31, 2020

RSUs released

RSUs cancelled and forfeited

Balance outstanding at June 30, 2020

Balance outstanding at September 30, 2020

Share-based compensation expense related to acquisition milestones is comprised of:

Three months ended

Six months ended

September 30,

Spectrum Colombia

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.

During the three and six months ended September 30, 2020, 397,164 and 1,149,086 common shares, respectively, (during the three and six months ended September 30, 2019 – 84,530 and 566,851 respectively) were released on completion of acquisition milestones.

At September 30, 2020, there were up to 3,965,798 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 has been estimated assuming the milestones were met at September 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.

5 unchanged sentences

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.

As at September 30, 2020, BioSteel had 1,352,000 (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.

The Company recorded $ 418 and $ 662 of share-based compensation expense related to the BioSteel options during the three and six months ended September 30, 2020, respectively (three and six months ended September 30, 2019 – $nil), with a corresponding increase in noncontrolling interest.

CANOPY RIVERS SHARE-BASED COMPENSATION PLAN

9 unchanged sentences

Options exercised

Balance outstanding at June 30, 2020

Options forfeited

Options expired

Balance outstanding at September 30, 2020

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.

4 unchanged sentences

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:

The following is a summary of the changes in Canopy Rivers’ stock options, excluding the seed capital options presented separately, during the six months ended September 30, 2020:

exercise price

4 unchanged sentences

Options forfeited/cancelled

Balance outstanding at June 30, 2020

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:

Balance outstanding at September 30, 2020

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 September 30, 2020 and 2019, on their measurement date by applying the following assumptions:

September 30,

Risk-free interest rate

7 unchanged sentences

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 period.

For the three months ended June 30, 2020, the Company recorded $ 117 (three months ended June 30, 2019 – $nil) of share-based compensation expense related to these RSUs.

For the three and six months ended September 30, 2020, the Company recorded $ 391 and $ 1,575 , respectively, (three and six months ended September 30, 2019 – $ 2,255 and $ 4,849 , respectively) in share-based compensation expense related to these options and the seed capital options with a corresponding increase to noncontrolling interests.

In the three and six months ended September 30, 2020, Canopy Rivers granted 28,884 (three and six months ended September 30, 2019 – none ) restricted share units which vest immediately.

For the three and six months ended September 30, 2020, the Company recorded $( 5 ) and $ 112 , respectively, (three and six months ended September 30, 2019 – $nil) of share-based compensation expense (recapture) related to these restricted share units.

In the three and six months ended September 30, 2020, Canopy Rivers granted 1,210,000 (three and six months ended September 30, 2019 – none ) performance share units which vest over a three-year period.

For the three and six months ended September 30, 2020, the Company recorded $ 404 (three and six months ended September 30, 2019 – $nil) of share-based compensation expense related to these performance share units.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

5 unchanged sentences

Other comprehensive loss

As at June 30, 2020

As at September 30, 2020

Foreign currency translation adjustments

3 unchanged sentences

Other comprehensive (loss) income

As at June 30, 2019

As at September 30, 2019

NONCONTROLLING INTERESTS

6 unchanged sentences

Ownership changes

As at June 30, 2020

As at September 30, 2020

As at March 31, 2019

4 unchanged sentences

Ownership changes

As at June 30, 2019

As at September 30, 2019

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 unchanged sentences

Quoted prices

June 30, 2020

September 30, 2020

Short-term investments

34 unchanged sentences

Increase or decrease in estimated control premium will result in an increase or decrease in fair value

Synergy value to Canopy Growth

Increase or decrease in estimated synergy value to Canopy Growth will result in an increase or decrease in fair value

Market access premium

Increase or decrease in estimated market access premium will result in an increase or decrease in fair value

TerrAscend exchangeable shares

2 unchanged sentences

Increase or decrease in probability of US legalization will result in an increase or decrease in fair value

Acreage Hempco Debenture

Discounted cash flow

Discount rate

Increase or decrease in discount rate will result in a decrease or increase in fair value

TerrAscend warrants

6 unchanged sentences

Increase or decrease in probability of US legalization will result in an increase or decrease in fair value

Discount rate

Increase or decrease in discount rate will result in a decrease or increase in fair value

ZeaKal shares

27 unchanged sentences

Increase or decrease in future wholesale price and production levels will result in an increase or decrease in fair value

During the three months ended June 30, 2020 and June 30, 2019, there were no transfers of amounts between levels .

During the six months ended September 30, 2020 and September 30, 2019, there were no transfers of amounts between levels .

Revenue is dissaggregated as follows:

Three months ended

Six months ended

September 30,

Recreational cannabis revenue

6 unchanged sentences

The Company recognizes variable consideration related to estimated future product returns and price adjustments as a reduction of the transaction price at the time revenue for the corresponding product sale is recognized.

Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $ 3,400 for the three months ended June 30, 2020 (three months ended June 30, 2019 – $ 8,000 ).

As of June 30, 2020, the liability for estimated returns and price adjustments was $ 8,433 (March 31, 2020 – $ 17,586 ).

Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $ 3,750 and $ 7,150 for the three and six months ended September 30, 2020, respectively (three and six months ended September 30, 2019 – $ 32,727 and $ 40,727 , respectively).

As of September 30, 2020, the liability for estimated returns and price adjustments was $ 7,392 (March 31, 2020 – $ 17,586 ).

OTHER INCOME (EXPENSE), NET

1 unchanged sentence

Three months ended

Six months ended

September 30,

Fair value changes on other financial assets

Fair value changes on liability arising from Acreage Arrangement

Fair value changes on liability arising from

Acreage Arrangement

Fair value changes on convertible senior notes

Fair value change on warrant derivative liability

Fair value changes on acquisition related contingent consideration

Fair value changes on acquisition related

contingent consideration

Interest income

1 unchanged sentence

Foreign currency loss

Other income, net

There have been no material changes to income tax matters in connection with normal course operations during the three months ended June 30, 2020.

Other (expense) income, net

There have been no material changes to income tax matters in connection with normal course operations during the six months ended September 30, 2020.

The Company is subject to income tax in numerous jurisdictions with varying income tax rates.

7 unchanged sentences

On June 24, 2020, the Company and Acreage Holdings, Inc.

(“Acreage”) entered into a proposal agreement (the “Proposal Agreement”) to amend the terms of the arrangement (the “Existing Arrangement”) made pursuant to an arrangement agreement (the “Arrangement Agreement”) between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019.

Pursuant to the terms of the Existing Arrangement, shareholders of Acreage and holders of certain securities convertible into Existing SVS (as defined below) as of June 26, 2019, received an immediate aggregate total payment of US$ 300,000 ($ 395,190 ) in exchange for granting Canopy Growth both the right and the obligation (the “Acreage financial instrument”) to acquire all of the issued and outstanding shares of Acreage following the occurrence or waiver of changes in U.S.

(“Acreage”) entered into a proposal agreement to amend the terms of the existing plan of arrangement (the “Prior Arrangement”) made pursuant to an arrangement agreement (the “Arrangement Agreement”) between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019.

Pursuant to the terms of the Prior Arrangement, shareholders of Acreage and holders of certain securities convertible into Existing SVS (as defined below) as of June 26, 2019, received an immediate aggregate total payment of US$ 300,000 ($ 395,190 ) in exchange for granting Canopy Growth both the right and the obligation (the “Acreage financial instrument”) to acquire all of the issued and outstanding shares of Acreage following the occurrence or waiver of changes in U.S.

federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and subject to the satisfaction or waiver of the conditions set out in the Arrangement Agreement.

Pursuant to the terms of the Proposal Agreement, the Existing Arrangement will be amended (the “Amended Arrangement”) to provide for, among other things, the following:

a capital reorganization of Acreage (the “Capital Reorganization”), pursuant to which Acreage will amend its Notice of Articles and Articles to, among other things, create the Fixed Shares (as defined below), the Floating Shares (as defined below) and the Fixed Multiple Shares (as defined below) and remove the existing Acreage subordinated voting shares (the “Existing SVS”), the existing Acreage proportionate voting shares (the “Existing PVS”) and the existing Acreage multiple voting shares (the “Existing MVS”).

Pursuant to the Capital Reorganization (i) each outstanding Existing SVS will be exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share;

(ii) each outstanding Existing PVS will be exchanged for 28 Fixed Shares and 12 Floating Shares;

and (iii) each outstanding Existing MVS will be exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share;

The new Class E subordinated voting shares (the “Fixed Shares”) will have the same attributes as the Existing SVS and will be listed on the Canadian Securities Exchange (the “CSE”).

Following the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event and subject to the satisfaction or waiver of the conditions set out in the Arrangement Agreement (as modified in connection with the Amended Arrangement), Canopy Growth will acquire all of the issued and outstanding Fixed Shares based on an amended exchange ratio equal to 0.3048 of a common share to be received for each Fixed Share held (reduced from 0.5818 per Existing SVS pursuant to the Existing Agreement).

In September 2020, Acreage obtained the requisite approvals of the shareholders of Acreage and the Supreme Court of British Columbia and on September 23, 2020, the Company and Acreage entered into a second amendment to the Arrangement Agreement and implemented an amended and restated plan of arrangement (the “Amended Arrangement”).

The Amended Arrangement provides for, among other things, the following:

A capital reorganization of Acreage (the “Capital Reorganization”), pursuant to which Acreage amended its Notice of Articles and Articles to, among other things, create the Fixed Shares (as defined below), the Floating Shares (as defined below) and the Fixed Multiple Shares (as defined below) and remove the existing Acreage subordinated voting shares (the “Existing SVS”), the existing Acreage proportionate voting shares (the “Existing PVS”) and the existing Acreage multiple voting shares (the “Existing MVS”).

Pursuant to the Capital Reorganization (i) each outstanding Existing SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share;

(ii) each outstanding Existing PVS was exchanged for 28 Fixed Shares and 12 Floating Shares;

and (iii) each outstanding Existing MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share;

The new Class E subordinated voting shares (the “Fixed Shares”) have the same attributes as the Existing SVS and are listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol ACRG.A.U.

The foregoing exchange ratio for the Fixed Shares is subject to adjustment in accordance with the Amended Arrangement if, among other things, Acreage issues greater than the permitted number of Fixed Shares;

The new Class D subordinated voting shares (the “Floating Shares”) will be listed on the CSE.

The new Class D subordinated voting shares (the “Floating Shares”) are listed on the CSE under the ticker symbol ACRG.B.U.

Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will have the right exercisable for a period of 30 days, to acquire all of the issued and outstanding Floating Shares for cash or common shares or a combination thereof, in Canopy Growth’s sole discretion at a price equal to the 30-day volume weighted average trading price of the Floating Shares on the CSE, subject to a minimum call price of US$ 6.41 per Floating Share.

1 unchanged sentence

The acquisition of the Floating Shares, if acquired, will take place concurrently with the closing of the acquisition of the Fixed Shares;

The new Class F multiple voting shares (the “Fixed Multiple Shares”) will have the same attributes as the Existing MVS, provided that each Fixed Multiple Share will entitle the holder thereof to 4,300 votes per share at shareholder meetings of Acreage.

Immediately prior to the acquisition of the Fixed Shares, each issued and outstanding Fixed Multiple Share will automatically be exchanges for one Fixed Share and thereafter be acquired by Canopy Growth upon the same terms and conditions as the acquisition of the Fixed Shares;

If the occurrence or waiver of the Triggering Event does not occur within 10 years from the date the Amended Arrangement is implemented, Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate;

Upon implementation of the Amended Arrangement, Canopy Growth will make a cash payment to the shareholders of Acreage and holders of certain securities convertible into Existing SVS in the aggregate amount of US$ 37,500 ;

Acreage is only permitted to issue an aggregate of up to 32,700,000 Fixed Shares and Floating Shares following the implementation of the Amended Arrangement .

Canopy Growth has also agreed to loan a wholly-owned subsidiary of Acreage (“Acreage Hempco”) up to US$ 100,000 pursuant to a secured debenture, of which US$ 50,000 will be subject to the satisfaction of certain conditions by Acreage Hempco.

The secured debenture will bear interest at a rate of 6.1 % per annum, and mature 10 years from the date the Amended Arrangement is implemented or such earlier date in accordance with the terms of the secured debenture.

As at June 30, 2020, no amounts have been loaned to Acreage Hempco.

Implementation of the Amended Arrangement is contingent upon obtaining the requisite prior approvals of the shareholders of Acreage and the Supreme Court of British Columbia and certain other closing conditions.

At June 30, 2020, the Acreage financial instrument represents a financial liability of $ 285,000 (March 31, 2020 – $ 250,000 ), as the estimated fair value of the Acreage business is less than the estimated fair value of the consideration to be provided upon the exercise of the Acreage financial instrument.

Fair value changes of $ 35,000 (three months ended June 30, 2019 – $nil) were recognized in other income (expense), net in the three months ended June 30, 2020 (see Note 24).

The new Class F multiple voting shares (the “Fixed Multiple Shares”) have the same attributes as the Existing MVS, provided that each Fixed Multiple Share entitles the holder thereof to 4,300 votes per share at shareholder meetings of Acreage.

Immediately prior to the acquisition of the Fixed Shares, each issued and outstanding Fixed Multiple Share will automatically be exchanged for one Fixed Share and thereafter be acquired by Canopy Growth upon the same terms and conditions as the acquisition of the Fixed Shares;

If the occurrence or waiver of the Triggering Event does not occur within 10 years from the date the Amended Arrangement was implemented (being September 23, 2030), Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate;

Upon implementation of the Amended Arrangement, Canopy Growth ma de a cash payment to the shareholders of Acreage and holders of certain securities convertible into Existing SVS in the aggregate amount of US$ 37,500 ($ 49,849 ) ;

Acreage is only permitted to issue an aggregate of up to 32,700,000 Fixed Shares and Floating Shares .

At September 30, 2020, the Acreage financial instrument represents a financial liability of $ 147,000 (March 31, 2020 – $ 250,000 ), as the estimated fair value of the Acreage business is less than the estimated fair value of the consideration to be provided upon the exercise of the Acreage financial instrument.

Fair value changes of $ 88,151 and $ 53,151 were recognized in other income (expense), net in the three and six months ended September 30, 2020, respectively (three and six months ended September 30, 2019 – $( 235,190 ) and $( 235,190 ), respectively) (see Note 25).

The fair value determination includes a high degree of subjectivity and judgment, which results in significant estimation uncertainty.

See Note 23 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis.

From a measurement perspective, Canopy Growth has elected the fair value option under ASC 825 – Financial Instruments .

From a measurement perspective, the Company has elected the fair value option under ASC 825.

In connection with the Amended Arrangement, an affiliate of the Company advanced US$ 50,000 ($ 66,995 ) to Universal Hemp, LLC, a wholly-owned subsidiary of Acreage (“Acreage Hempco”) pursuant to a secured debenture (“debenture”).

In accordance with the terms of the debenture, the funds cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States.

The debenture bears interest at a rate of 6.1 % per annum, matures 10 years from the implementation of the Amended Arrangement (being September 23, 2030) or such earlier date in accordance with the terms of the debenture, and all interest payments made pursuant to the debenture are payable in cash by Acreage Hempco.

The debenture is not convertible and is not guaranteed by Acreage.

The amount advanced on September 23, 2020 pursuant to the debenture has been recorded in other financial assets (see Note 11), and the Company has elected the fair value option under ASC 825.

At September 30, 2020, the estimated fair value of the debenture issued to an affiliate of the Company by Acreage Hempco was $ 43,681 , measured using a discounted cash flow model, and fair value changes of $ 23,314 were recognized in other income (expense), net in the three months ended September 30, 2020 (see Note 25).

An additional US$ 50,000 may be advanced pursuant to the debenture subject to the satisfaction of certain conditions by Acreage Hempco.

Amendment to the CBI Investor Rights Agreement and warrants

5 unchanged sentences

In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth will provide CBI with a share repurchase credit of up to $ 1.583 billion on the aggregate exercise price of the Tranche B Warrants and Tranche C Warrants in the event that Canopy Growth does not purchase for cancellation the lesser of (i) 27,378,866 common shares, and (ii) common shares with a value of $ 1.583 billion, during the period commencing on April 18, 2019 and ending on the date that is 24 months after the date that CBI exercises all of the Tranche A Warrants.

The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at June 30, 2020.

The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at September 30, 2020.

The modifications to the Tranche A Warrants resulted in them meeting the definition of a derivative instrument under ASC 815 - Derivatives and Hedging (“ASC 815”).

1 unchanged sentence

The Tranche B Warrants are accounted for as derivative instruments measured at fair value in accordance with ASC 815.

At June 30, 2020, the fair value of the warrant derivative liability is $ 287,122 , and a gain of $ 35,369 (three months ended June 30, 2019 – gain of $ 24,892 ) has been recognized in other income (expense), net in the three months ended June 30, 2020 (see Note 24).

At September 30, 2020, the fair value of the warrant derivative liability was $ 221,948 (March 31, 2020 – $ 322,491 ), and fair value changes of $ 65,174 and $ 100,543 have been recognized in other income (expense), net in the three and six months ended September 30, 2020, respectively (three and six months ended September 30, 2019 – gains of $ 641,854 and $ 666,746 , respectively) (see Note 25).

The fair value determination includes a high degree of subjectivity and judgment, which results in significant estimation uncertainty.

See Note 23 for additional details on how the fair value of the warrant derivative liability is calculated on a recurring basis.

The Tranche C Warrants are accounted for as derivative instruments, with the fair value continuing to be $nil at June 30, 2020.

The Tranche C Warrants are accounted for as derivative instruments, with the fair value continuing to be $nil at September 30, 2020.

SEGMENT INFORMATION

4 unchanged sentences

Financial information for Canopy Rivers is included in the table below, and in Note 22.

September 30,

Ownership interest

8 unchanged sentences

Entity-wide disclosures

All property, plant and equipment are located in Canada, except for $ 487,834 which is located outside of Canada as at June 30, 2020 (March 31, 2020 – $ 499,059 ).

All revenues were principally generated in Canada during the three months ended June 30, 2020, except for $ 44,699 related to exported medical cannabis and cannabis related merchandise generated outside of Canada (three months ended June 30, 2019 – $ 22,541 ).

For the three months ended June 30, 2020, one customer represented more than 10% of the Company’s net revenue (three months ended June 30, 2019 – one ).

All property, plant and equipment are located in Canada, except for $ 517,572 which is located outside of Canada as at September 30, 2020 (March 31, 2020 – $ 499,059 ).

All revenues were principally generated in Canada during the three and six months ended September 30, 2020, except for $ 48,959 and $ 93,658 , respectively related to exported medical cannabis and cannabis related merchandise generated outside of Canada (three and six months ended September 30, 2019 – $ 34,866 and $ 57,407 , respectively).

For the three months ended September 30, 2020, no customer represented more than 10% of the Company’s net revenue (three months ended September 30, 2019 – none ).

For the six months ended September 30, 2020, no customer represented more than 10% of the Company’s net revenue (six months ended September 30, 2019 – one ).

SUBSEQUENT EVENTS

On November 1, 2020, a production facility owned by the Company in Delta, British Columbia was damaged by a fire.

The facility has been non-operational since March 2020.

The Company is in the process of assessing the impact of the fire, including the extent of damages and potential insurance recoveries.

As a result, an estimate of the financial effect on the Company's consolidated financial statements is uncertain at this time.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements