Canopy Growth Corp 10-Q

Item 1. Financial Statements. CANOPY GROWTH CORPORATION CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS (in thousands of Canadian dollars, except number of shares and per share data, unaudited) September 30, 2020 March 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 673,287 $ 1,303,176 Short-term investments 1,048,921 673,323 Restricted short-term investments 14,332 21,539 Amounts receivable, net 79,668 90,155 Inventory 398,454 391,086 Prepaid expenses and other assets 77,227 85,094 Total current assets 2,291,889 2,564,373 Equity method investments 25,663 65,843 Other financial assets 381,878 249,253 Property, plant and equipment 1,495,143 1,524,803 Intangible assets 437,344 476,366 Goodwill 1,933,476 1,954,471 Other assets 8,337 22,636 Total assets $ 6,573,730 $ 6,857,745 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 81,064 $ 123,393 Other accrued expenses and liabilities 83,064 64,994 Current portion of long-term debt 13,272 16,393 Other liabilities 147,060 215,809 Total current liabilities 324,460 420,589 Long-term debt 520,424 449,022 Deferred income tax liabilities 39,569 47,113 Liability arising from Acreage Arrangement 147,000 250,000 Warrant derivative liability 221,948 322,491 Other liabilities 167,267 190,660 Total liabilities 1,420,668 1,679,875 Commitments and contingencies Redeemable noncontrolling interest 83,900 69,750 Canopy Growth Corporation shareholders' equity: Common shares - $nil par value; Authorized - unlimited number of shares; Issued - 372,046,111 shares and 350,112,927 shares, respectively 6,745,255 6,373,544 Additional paid-in capital 2,533,112 2,615,155 Accumulated other comprehensive income 103,306 220,899 Deficit ( 4,463,798 ) ( 4,323,236 ) Total Canopy Growth Corporation shareholders' equity 4,917,875 4,886,362 Noncontrolling interests 151,287 221,758 Total shareholders' equity 5,069,162 5,108,120 Total liabilities and shareholders' equity $ 6,573,730 $ 6,857,745 The accompanying notes are an integral part of these condensed interim consolidated financial statements. 1 CANOPY GROWTH CORPORATION 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 September 30, Six months ended September 30, 2020 2019 2020 2019 Revenue $ 150,828 $ 85,621 $ 269,916 $ 189,012 Excise taxes 15,562 9,008 24,234 21,917 Net revenue 135,266 76,613 245,682 167,095 Cost of goods sold 109,186 72,970 213,107 145,162 Gross margin 26,080 3,643 32,575 21,933 Operating expenses Selling, general and administrative expenses 147,253 181,601 282,645 327,248 Share-based compensation 21,984 92,881 52,669 180,243 Expected credit losses on financial assets and related charges 94,745 - 94,745 - Asset impairment and restructuring costs 46,363 - 59,157 - Total operating expenses 310,345 274,482 489,216 507,491 Operating loss ( 284,265 ) ( 270,839 ) ( 456,641 ) ( 485,558 ) Loss from equity method investments ( 32,991 ) ( 2,171 ) ( 40,180 ) ( 4,004 ) Other income (expense), net 221,256 509,893 269,461 542,661 (Loss) income before income taxes ( 96,000 ) 236,883 ( 227,360 ) 53,099 Income tax (expense) recovery ( 552 ) 5,767 2,486 ( 4,500 ) Net (loss) income ( 96,552 ) 242,650 ( 224,874 ) 48,599 Net loss attributable to noncontrolling interests and redeemable noncontrolling interest ( 64,491 ) ( 16,268 ) ( 84,312 ) ( 24,450 ) Net (loss) income attributable to Canopy Growth Corporation $ ( 32,061 ) $ 258,918 $ ( 140,562 ) $ 73,049 Basic (loss) earnings per share $ ( 0.09 ) $ 0.75 $ ( 0.38 ) $ 0.21 Basic weighted average common shares outstanding 371,520,534 347,226,921 367,663,135 346,028,903 Diluted (loss) earnings per share $ ( 0.09 ) $ 0.25 $ ( 0.38 ) $ 0.19 Diluted weighted average common shares outstanding 371,520,534 380,323,118 367,663,135 382,765,533 Comprehensive (loss) income: Net (loss) income $ ( 96,552 ) $ 242,650 $ ( 224,874 ) $ 48,599 Other comprehensive (loss) income, net of income tax effect Fair value changes of own credit risk of financial liabilities ( 37,110 ) 22,050 ( 52,470 ) 36,660 Foreign currency translation ( 11,999 ) 8,627 ( 65,123 ) ( 52,117 ) Total other comprehensive (loss) income, net of income tax effect ( 49,109 ) 30,677 ( 117,593 ) ( 15,457 ) Comprehensive (loss) income ( 145,661 ) 273,327 ( 342,467 ) 33,142 Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest ( 64,491 ) ( 16,268 ) ( 84,312 ) ( 24,450 ) Comprehensive (loss) income attributable to Canopy Growth Corporation $ ( 81,170 ) $ 289,595 $ ( 258,155 ) $ 57,592 The accompanying notes are an integral part of these condensed interim consolidated financial statements. 2 CANOPY GROWTH CORPORATION CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands of Canadian dollars, unaudited) Additional paid-in capital Accumulated Common shares Share-based reserve Warrants Ownership changes Redeemable noncontrolling interest other comprehensive income (loss) Deficit Noncontrolling interests Total Balance at March 31, 2020 $ 6,373,544 $ 517,741 $ 2,638,951 $ ( 501,403 ) $ ( 40,134 ) $ 220,899 $ ( 4,323,236 ) $ 221,758 $ 5,108,120 Other issuances of common shares and warrants 35,666 ( 27,728 ) - - - - - - 7,938 Exercise of warrants 315,256 - ( 70,266 ) - - - - - 244,990 Exercise of Omnibus Plan stock options 18,959 ( 8,203 ) - - - - - - 10,756 Share-based compensation - 49,916 - - - - - - 49,916 Issuance and vesting of restricted share units 1,830 ( 1,830 ) - - - - - - - Changes in redeemable noncontrolling interest - - - - ( 23,575 ) - - 9,425 ( 14,150 ) Ownership changes relating to noncontrolling interests - - - ( 357 ) - - - 4,416 4,059 Comprehensive loss - - - - - ( 117,593 ) ( 140,562 ) ( 84,312 ) ( 342,467 ) Balance at September 30, 2020 $ 6,745,255 $ 529,896 $ 2,568,685 $ ( 501,760 ) $ ( 63,709 ) $ 103,306 $ ( 4,463,798 ) $ 151,287 $ 5,069,162 The accompanying notes are an integral part of these condensed interim consolidated financial statements. 3 CANOPY GROWTH CORPORATION CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands of Canadian dollars, unaudited) Additional paid-in capital Accumulated Common shares Share-based reserve Warrants Ownership changes Redeemable noncontrolling interest other comprehensive income (loss) Deficit Noncontrolling interests Total Balance at March 31, 2019 $ 6,029,222 $ 505,172 $ 1,589,925 $ ( 500,963 ) $ ( 2,110 ) $ ( 5,905 ) $ ( 835,118 ) $ 285,485 $ 7,065,708 Other issuances of common shares and warrants 244,622 ( 244,877 ) 359 - - - - - 104 Exercise of warrants 932 - ( 486 ) - - - - - 446 Exercise of Omnibus Plan stock options 58,764 ( 22,741 ) - - - - - - 36,023 Share-based compensation - 175,395 - - - - - - 175,395 Issuance and vesting of restricted share units 389 ( 389 ) - - - - - - - Acreage warrant modification - - 1,049,153 - - - ( 2,166,792 ) - ( 1,117,639 ) Changes in redeemable noncontrolling interest - - - - 779 - - ( 3,679 ) ( 2,900 ) Ownership changes relating to noncontrolling interests - - - ( 335 ) - - - 5,339 5,004 Comprehensive (loss) income - - - - - ( 15,457 ) 73,049 ( 24,450 ) 33,142 Balance at September 30, 2019 $ 6,333,929 $ 412,560 $ 2,638,951 $ ( 501,298 ) $ ( 1,331 ) $ ( 21,362 ) $ ( 2,928,861 ) $ 262,695 $ 6,195,283 The accompanying notes are an integral part of these condensed interim consolidated financial statements. 4 CANOPY GROWTH CORPORATION CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of Canadian dollars, unaudited) Six months ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 224,874 ) $ 48,599 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of property, plant and equipment 36,373 29,813 Amortization of intangible assets 29,432 15,955 Share of loss on equity method investments 40,180 4,004 Share-based compensation 52,669 180,243 Asset impairment and restructuring costs 59,157 - Expected credit losses on financial assets and related charges 94,745 - Income tax (recovery) expense ( 2,486 ) 4,500 Non-cash foreign currency ( 17,756 ) ( 1,463 ) Interest paid ( 12,837 ) ( 12,750 ) Change in operating assets and liabilities, net of effects from purchases of businesses: Amounts receivable 1,498 11,390 Prepaid expenses and other assets ( 6,604 ) ( 50,224 ) Inventory ( 23,500 ) ( 143,229 ) Accounts payable and accrued liabilities ( 11,408 ) 10,584 Other, including non-cash fair value adjustments ( 294,884 ) ( 469,507 ) Net cash used in operating activities ( 280,295 ) ( 372,085 ) Cash flows from investing activities: Purchases of and deposits on property, plant and equipment ( 90,195 ) ( 440,150 ) Purchases of intangible assets ( 7,604 ) ( 9,538 ) Proceeds on sale of intangible assets 18,337 - (Purchases) redemption of short-term investments ( 367,779 ) 388,027 Investments in equity method investments - ( 4,719 ) Investments in other financial assets ( 7,526 ) ( 36,423 ) Investment in Acreage Arrangement ( 49,849 ) ( 395,190 ) Loan advanced to Acreage Hempco ( 66,995 ) - Recovery of amounts related to construction financing 10,000 - Payment of acquisition related liabilities ( 6,394 ) ( 21,447 ) Net cash outflow on acquisition of noncontrolling interests ( 125 ) - Net cash outflow on acquisition of subsidiaries - ( 416,028 ) Net cash used in investing activities ( 568,130 ) ( 935,468 ) Cash flows from financing activities: Payment of share issue costs ( 677 ) ( 129 ) Proceeds from issuance of shares by Canopy Rivers 92 156 Proceeds from exercise of stock options 10,756 36,023 Proceeds from exercise of warrants 244,990 446 Issuance of long-term debt 1,564 5,278 Repayment of long-term debt ( 5,920 ) ( 104,282 ) Net cash provided by (used in) financing activities 250,805 ( 62,508 ) Effect of exchange rate changes on cash and cash equivalents ( 32,269 ) ( 8,305 ) Net decrease in cash and cash equivalents ( 629,889 ) ( 1,378,366 ) Cash and cash equivalents, beginning of period 1,303,176 2,480,830 Cash and cash equivalents, end of period $ 673,287 $ 1,102,464 The accompanying notes are an integral part of these condensed interim consolidated financial statements. 5 CANOPY GROWTH CORPORATION CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of Canadian dollars, unaudited) Six months ended September 30, 2020 2019 Supplemental disclosure of cash flow information Cash received during the period: Income taxes $ 2,000 $ - Cash paid during the period: Income taxes $ 15,587 $ 1,305 Noncash investing and financing activities Additions to property, plant and equipment $ 24,840 $ 128,440 The accompanying notes are an integral part of these condensed interim consolidated financial statements. 6 CANOPY GROW TH CORPORATION NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (in thousands of Canadian dollars, unaudited) 1 . DESCRIPTION OF BUSINESS Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario. 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 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. (“Canopy Rivers”), the Company also provides growth capital and a strategic support platform that pursues investment opportunities in the global cannabis sector, where federally lawful. 2 . BASIS OF PRESENTATION These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars. Our condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated. Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2020 (the “Annual Report”), and have been prepared on a basis consistent with the accounting policies as described in the Annual Report. These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP. The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted. Principles of consolidation The accompanying condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with noncontrolling interests is included in Note 22. Variable interest entities A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity. Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Under Accounting Standards Codification (“ASC”) 810 – Consolidations , where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE. 7 Equity method investments Investments accounted for using the equity method include those investments where the Company (i) can exercise significant influence over the other entity and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, and subsequently adjusted for the Company’s share of net income (loss), comprehensive income (loss) and distributions received from the investee. If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized are not reversed in subsequent periods. Refer to Note 10 for additional information on the Company’s investments accounted for using the equity method. Use of estimates The preparation of these condensed interim consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates. New accounting policies Recently Adopted Accounting Pronouncements Measurement of Credit Losses on Financial Instruments In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. Canopy Growth adopted the new standard as of April 1, 2020. There was no impact of adopting ASU 2016-13 on the condensed interim consolidated financial statements. Fair Value Measurement In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. Canopy Growth adopted the new standard as of April 1, 2020. There was no impact of adopting ASU 2018-13 on the condensed interim consolidated financial statements. Accounting Guidance not yet adopted Income Taxes In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted. 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) . ASU 2020-01 clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The guidance in ASU 2020-01 is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. 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- 8 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 . 3. ASSET IMPAIRMENT AND RESTRUCTURING COSTS In the year ended March 31, 2020, the Company commenced an organizational and strategic review of its business which resulted in several restructuring actions designed to improve organizational focus, streamline operations and align the Company’s production capability with projected demand. In the three months ended June 30, 2020, the Company completed certain of the restructuring actions that had commenced in the previous fiscal year, and recorded final adjustments related to changes in certain estimates recorded at March 31, 2020. 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. 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; (iii) employee-related costs associated with rationalizing certain marketing activities; and (iv) charges related to rationalizing certain research and development activities. 4. CASH AND CASH EQUIVALENTS The components of cash and cash equivalents are as follows: September 30, March 31, 2020 2020 Cash $ 433,626 $ 679,581 Cash equivalents 239,661 623,595 $ 673,287 $ 1,303,176 5. SHORT-TERM INVESTMENTS The components of short-term investments are as follows: September 30, March 31, 2020 2020 Term deposits $ 550,737 $ 374,000 Government securities 182,883 226,087 Commercial paper and other 315,301 73,236 $ 1,048,921 $ 673,323 The amortized cost of short-term investments at September 30, 2020 is $ 1,048,316 (March 31, 2020 – $ 673,022 ). 6. AMOUNTS RECEIVABLE, NET The components of amounts receivable, net are as follows: September 30, March 31, 2020 2020 Accounts receivable, net $ 63,004 $ 51,166 Interest receivable 7,812 10,303 Indirect taxes receivable 2,648 22,982 Other receivables 6,204 5,704 $ 79,668 $ 90,155 9 Included in the accounts receivable, net balance at September 30, 2020 is an allowance for doubtful accounts of $ 571 (March 31, 2020 – $ 655 ) . 7. INVENTORY The components of inventory are as follows: September 30, March 31, 2020 2020 Raw materials, packaging supplies and consumables $ 62,422 $ 75,507 Work in progress 256,594 255,934 Finished goods 79,438 59,645 $ 398,454 $ 391,086 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. 8. PREPAID EXPENSES AND OTHER ASSETS The components of prepaid expenses and other assets are as follows: September 30, March 31, 2020 2020 Prepaid expenses $ 45,112 $ 41,423 Deposits 20,203 7,773 Prepaid inventory 1,915 21,217 Other assets 9,997 14,681 $ 77,227 $ 85,094 9. PHARMHOUSE 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 10 inventory; 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). 11 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). 10. 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 six months ended September 30, 2020: Balance at Share of Balance at Ownership March 31, net (loss) Impairment September 30, Entity Instrument percentage 2020 income losses 2020 PharmHouse 1 Shares 49 % $ 37,025 $ ( 4,656 ) $ ( 32,369 ) $ - More Life Shares 40 % 10,300 - - 10,300 CanapaR Shares 49 % 8,500 ( 639 ) - 7,861 Agripharm Shares 40 % 5,000 ( 3,017 ) - 1,983 Other Shares 18%-27% 5,018 501 - 5,519 $ 65,843 $ ( 7,811 ) $ ( 32,369 ) $ 25,663 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 six months ended June 30, 2020 (with respect to September 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 six months ended June 30, 2020: Current Non-current Current Non-current Entity assets assets liabilities liabilities Revenue Net loss CanapaR $ 13,676 $ 10,949 $ 2,002 $ - $ 165 $ ( 1,300 ) Agripharm 6,981 24,179 25,899 1,683 2,915 ( 7,541 ) Other 9,937 20,865 3,861 11,572 4,197 ( 3,729 ) $ 30,594 $ 55,993 $ 31,762 $ 13,255 $ 7,277 $ ( 12,570 ) 12 11. OTHER FINANCIAL ASSETS The following table outlines changes in other financial assets. Additional details on how the fair value of significant investments are calculated are included in Note 23. Exercise of Balance at Allowance options / Balance at March 31, Fair value for expected disposal September 30, Entity Instrument 2020 Additions changes credit losses of shares 2020 TerrAscend Canada Term loan / debenture $ 53,820 $ - $ 23,070 $ - $ - $ 76,890 TerrAscend Exchangeable shares 47,000 - 67,000 - - 114,000 TerrAscend Warrants 25,004 - 54,096 - - 79,100 Acreage Hempco 1 Debenture - 66,995 ( 23,314 ) - 43,681 PharmHouse 2 Loan receivable 40,000 - - ( 40,000 ) - - ZeaKal Shares 14,186 - ( 886 ) - - 13,300 Agripharm Royalty interest 12,600 - ( 5,900 ) - - 6,700 Greenhouse Convertible debenture 10,517 - ( 4,117 ) - - 6,400 Other - at fair value through net income (loss) Various 31,978 7,951 ( 6,089 ) - ( 4,203 ) 29,637 Other - classified as held for investment Loan receivable 14,148 3,906 - ( 5,756 ) ( 128 ) 12,170 $ 249,253 $ 78,852 $ 103,860 $ ( 45,756 ) $ ( 4,331 ) $ 381,878 1 See Note 27 for information regarding Acreage Hempco. 2 See Note 9 for information regarding PharmHouse. 13 12. PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are as follows: September 30, March 31, 2020 2020 Buildings and greenhouses $ 929,612 $ 876,732 Production and warehouse equipment 288,985 300,666 Leasehold improvements 116,867 75,964 Land 71,988 65,003 Office and lab equipment 31,293 29,978 Computer equipment 33,155 30,744 Right-of-use-assets Buildings and greenhouses 161,431 169,754 Production and warehouse equipment 655 927 Assets in process 305,138 365,644 1,939,124 1,915,412 Less: Accumulated depreciation ( 443,981 ) ( 390,609 ) $ 1,495,143 $ 1,524,803 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). 13. INTANGIBLE ASSETS The components of intangible assets are as follows: September 30, 2020 March 31, 2020 Gross Net Gross Net Carrying Carrying Carrying Carrying Amount Amount Amount Amount Finite lived intangible assets Licensed brands $ 66,117 $ 47,393 $ 66,227 $ 53,797 Distribution channel 74,124 41,133 74,768 47,117 Health Canada and operating licenses 62,604 54,747 63,631 57,250 Intellectual property 230,794 194,631 240,386 215,044 Software and domain names 16,792 9,958 16,056 10,013 Amortizable intangibles in process 5,187 5,187 9,590 9,590 Total 455,618 353,049 470,658 392,811 Indefinite lived intangible assets Operating licenses $ 8,000 $ 7,000 Acquired brands 76,295 76,555 Total intangible assets $ 437,344 $ 476,366 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). 14 14. GOODWILL The changes in the carrying amount of goodwill are as follows: Balance, March 31, 2019 $ 1,489,859 Purchase accounting allocations 443,724 Finalization of Storz & Bickel purchase price allocation ( 24,990 ) Foreign currency translation adjustments 45,878 Balance, March 31, 2020 1,954,471 Foreign currency translation adjustments ( 20,995 ) Balance, September 30, 2020 $ 1,933,476 15. OTHER ACCRUED EXPENSES AND LIABILITIES The components of other accrued expenses and liabilities are as follows: September 30, March 31, 2020 2020 Property, plant and equipment $ 6,613 $ 1,173 Professional fees 13,008 7,677 Employee compensation 31,021 33,415 Other 32,422 22,729 $ 83,064 $ 64,994 16. DEBT The components of debt are as follows: Convertible senior notes September 30, March 31, Maturity Date 2020 2020 Convertible senior notes at 4.25 % interest with semi-annual interest payments July 15, 2023 Principal amount $ 600,000 $ 600,000 Accrued interest 5,454 5,454 Non-credit risk fair value adjustment ( 7,590 ) ( 27,120 ) Credit risk fair value adjustment ( 75,660 ) ( 128,130 ) 522,204 450,204 Transferred receivables, bearing interest rate of EURIBOR plus 0.850 % 1,553 4,678 Other revolving debt facility, loan, and financings 9,939 10,533 533,696 465,415 Less: current portion ( 13,272 ) ( 16,393 ) Long-term portion $ 520,424 $ 449,022 On June 20, 2018, the Company issued convertible senior notes (the “notes”) with an aggregate principal amount of $ 600,000 . The notes bear interest at a rate of 4.25 % per annum, payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019 . The notes will mature on July 15, 2023 . The notes are subordinated in right of payment to any existing and future senior indebtedness, including indebtedness under the revolving credit facility. The notes will rank senior in right of payment to any future subordinated borrowings. The notes are effectively junior to any secured indebtedness and the notes are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries. Holders of the notes may convert the notes at their option at any time from January 15, 2023 to the maturity date. 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 15 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 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. Under the terms of the indenture if a Fundamental Change occurs and a holder elects to convert its notes from and including on the date of the Fundamental Change up to, and including, the business day immediately prior to the Fundamental Change repurchase date, the Company may be required to increase the conversion rate for the notes so surrendered for conversion by a number of additional common shares. The Company cannot redeem the notes prior to July 20, 2021, except in the event of certain changes in Canadian tax law. On or after July 20, 2021 , the Company could redeem for cash, subject to certain conditions, any or all of the notes, at its option, if the last reported sales price of the Company’s common shares for at least 20 trading days during any 30 consecutive trading day period ending within 5 trading days immediately preceding the date on which the Company provides notice of redemption exceeds 130 % of the conversion price on each applicable trading day. The Company may also redeem the notes, if certain tax laws related to Canadian withholding tax change subject to certain further conditions. 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 – Financial Instruments (“ASC 825”). The notes were initially recognized at fair value on the balance sheet. All subsequent changes in fair value, excluding the impact of the change in fair value related to Company’s own credit risk are recorded in other income (expenses), net. 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 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. Transferred receivables The carrying amount of the transferred receivables include receivables which are subject to a factoring arrangement. Under this agreement, C 3 Cannabinoid Compound Company (“C 3 ”) has transferred the relevant receivables to PB Factoring GmbH in exchange for cash. The transferred receivables to PB Factoring GmbH are $ 1,542 and the associated secured borrowing is $ 1,553 . Other revolving debt facility, loans, and financings On August 13, 2019, the Company, through its wholly owned subsidiary, Tweed Farms Inc., entered into a $ 40,000 revolving debt facility with Farm Credit Canada (“FCC”). The new facility replaces the previous loans with FCC and is secured by the Company’s property in Niagara-on-the-Lake. The extinguishment of $ 4,912 in previous FCC debt resulted in no gain or loss. The current outstanding balance of the FCC debt facility is $ 5,268 with an interest rate of 3.45 %, or FCC prime rate plus 1.0 % , and matures on September 3, 2024 . The revolving debt facility with FCC is secured by a first charge on the properties in Niagara-on-the-Lake, Ontario, a corporate guarantee from the Company, and a general corporate security agreement . 16 17. OTHER LIABILITIES The components of other liabilities are as follows: As at September 30, 2020 As at March 31, 2020 Current Long-term Total Current Long-term Total Acquisition consideration related liabilities $ 38,281 $ 14,165 $ 52,446 $ 104,028 $ 9,791 $ 113,819 Lease liabilities 39,083 103,658 142,741 40,356 120,047 160,403 Minimum royalty obligations 16,785 43,332 60,117 9,368 50,445 59,813 PharmHouse Financial Gaurantee 1 25,000 - 25,000 - - - Refund liability 7,392 - 7,392 17,586 - 17,586 Settlement liability 5,421 2,583 8,004 33,162 7,932 41,094 Other 15,098 3,529 18,627 11,309 2,445 13,754 $ 147,060 $ 167,267 $ 314,327 $ 215,809 $ 190,660 $ 406,469 1 See Note 9 for information regarding the PharmHouse Financial Guarantee. 18. REDEEMABLE NONCONTROLLING INTEREST The net changes in the redeemable noncontrolling interests are as follows: Vert Mirabel BioSteel Total As at March 31, 2020 $ 20,250 $ 49,500 $ 69,750 Loss attributable to noncontrolling interest ( 6,897 ) ( 2,528 ) ( 9,425 ) Adjustments to redemption amount 16,347 7,228 23,575 As at September 30, 2020 $ 29,700 $ 54,200 $ 83,900 Vert Mirabel As at March 31, 2019 $ 6,400 Income attributable to noncontrolling interest 3,679 Adjustments to redemption amount ( 779 ) As at September 30, 2019 $ 9,300 19. SHARE CAPITAL CANOPY GROWTH Authorized An unlimited number of common shares. (i) Equity financings 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 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 Share capital Share based reserve Completion of acquisition milestones 1,149,086 $ 21,531 $ ( 13,009 ) Other issuances 412,417 14,135 ( 14,719 ) Total 1,561,503 $ 35,666 $ ( 27,728 ) 17 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 Share capital Share based reserve Completion of acquisition milestones 543,411 $ 20,713 $ ( 20,713 ) Other issuances 23,440 873 ( 1,128 ) Total 566,851 $ 21,586 $ ( 21,841 ) (iii) Warrants Number of whole warrants Average exercise price Warrant value Balance outstanding at March 31, 2020 1 146,299,443 $ 52.44 $ 2,638,951 Exercise of warrants ( 18,876,901 ) 12.98 ( 70,266 ) Expiry of warrants ( 91,933 ) 44.37 - Balance outstanding at September 30, 2020 1 127,330,609 $ 58.30 $ 2,568,685 1 This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value, see Note 27. Number of whole warrants Average exercise price Warrant value Balance outstanding at March 31, 2019 107,848,322 $ 43.80 $ 1,589,925 Tranche A warrant modification - - 1,049,153 Issuance of Tranche B warrants 38,454,444 76.68 - Other issuance of warrants 9,200 32.83 359 Exercise of warrants ( 12,523 ) 35.55 ( 486 ) Balance outstanding at September 30, 2019 1 146,299,443 $ 52.44 $ 2,638,951 1 This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value, see Note 27. CANOPY RIVERS Authorized capital 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”). Each Subordinated Voting Share carries the right to one vote per share and each Multiple Voting Share carries the right to 20 votes per share at all meetings of the shareholders of Canopy Rivers. There is no priority or distinction between the two classes of shares in respect of their entitlement to the payment of dividends or participation on liquidation, dissolution or winding-up of Canopy Rivers. Issued and outstanding 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. Financings 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. 18 Initial financing 10,066,668 Subordinated Voting Shares were acquired by certain employees of the Company and another individual by way of share purchase loans, whereby funds were advanced to Canopy Rivers by the Company on behalf of such individuals. 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 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 Share buyback On April 2, 2020, Canopy Rivers received approval from the Toronto Stock Exchange (“TSX”) to commence a normal course issuer bid (“NCIB”) to purchase up to 10,409,961 Subordinated Voting Shares, representing 10 % of Canopy Rivers’ issued and outstanding Subordinated Voting Shares, in the open market or as otherwise permitted by the TSX, subject to the normal terms and limitations of such bids. The NCIB will expire on April 1, 2021 . Daily purchases are limited to 70,653 Subordinating Voting Shares, representing 25 % of the average daily trading volume on the TSX over a specified period. The NCIB may be utilized at the sole discretion of Canopy Rivers, with no contractual obligation to purchase any specified number of shares. 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 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). 20. 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 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. 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 55,806,917 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 ten 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 September 30, 2020, no common shares have been issued under the Purchase Plan. 19 The following is a summary of the changes in the Options outstanding under the Omnibus Plan during the six months ended September 30, 2020: Options issued Weighted average exercise price Balance outstanding at March 31, 2020 32,508,395 $ 34.89 Options granted 295,451 22.48 Options exercised ( 1,431,880 ) 7.51 Options forfeited/cancelled ( 5,502,996 ) 40.03 Balance outstanding at September 30, 2020 25,868,970 $ 35.16 The following is a summary of the Options as at September 30, 2020: Options Outstanding Options Exercisable Range of Exercise Prices Outstanding at September 30, 2020 Weighted Average Remaining Contractual Life (years) Exercisable at September 30, 2020 Weighted Average Remaining Contractual Life (years) $0.06 - $24.62 4,805,135 3.09 3,177,738 2.28 $24.63 - $33.53 5,239,348 4.47 1,527,637 3.63 $33.54 - $36.80 5,543,626 4.02 2,382,409 3.78 $36.81 - $42.84 4,625,715 4.04 2,662,872 3.96 $42.85 - $67.64 5,655,146 4.40 2,504,168 4.32 25,868,970 4.03 12,254,824 3.52 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, September 30, 2020 2019 Risk-free interest rate 0.36 % 1.44 % Expected life of options (years) 3 - 6 3 - 5 Expected volatility 76 % 72 % Expected forfeiture rate 17 % 11 % Expected dividend yield nil nil Black-Scholes value of each option $ 12.85 $ 22.57 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 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 ). 20 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 883,009 RSUs granted 100,928 RSUs released ( 62,900 ) RSUs cancelled and forfeited ( 113,763 ) Balance outstanding at September 30, 2020 807,274 Share-based compensation expense related to acquisition milestones is comprised of: Three months ended Six months ended September 30, September 30, September 30, September 30, 2020 2019 2020 2019 Canindica $ 605 $ 2,286 $ 1,203 $ 6,296 Spectrum Colombia - 4,141 - 6,400 Other 2,303 2,687 4,675 6,699 $ 2,908 $ 9,114 $ 5,878 $ 19,395 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 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. (“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 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 $ 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 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 ( 1,905,559 ) $ ( 95 ) Options forfeited ( 500,000 ) $ ( 25 ) Options expired ( 333,333 ) $ ( 17 ) Balance outstanding at September 30, 2020 66,668 $ 3 21 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 six months ended September 30, 2020: Options issued Weighted average exercise price Balance outstanding at March 31, 2020 13,066,004 $ 2.31 Options granted - - Options exercised ( 366,667 ) - Options expired ( 381,000 ) 3.64 Options forfeited/cancelled ( 296,668 ) 1.82 Balance outstanding at September 30, 2020 12,021,669 $ 2.33 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, September 30, 2020 2019 Risk-free interest rate - 1.41 % Expected life of options (years) - 3 - 4 Expected volatility - 70 % Expected forfeiture rate - nil Expected dividend yield - nil Black-Scholes value of each option - $ 1.23 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 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. 22 21. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income includes the following components: Foreign currency translation adjustments Changes of own credit risk of financial liabilities Accumulated other comprehensive income (loss) As at March 31, 2020 $ 126,723 $ 94,176 $ 220,899 Other comprehensive loss ( 65,123 ) ( 52,470 ) ( 117,593 ) As at September 30, 2020 $ 61,600 $ 41,706 $ 103,306 Foreign currency translation adjustments Changes of own credit risk of financial liabilities Accumulated other comprehensive income (loss) As at March 31, 2019 $ 41,225 $ ( 47,130 ) $ ( 5,905 ) Other comprehensive (loss) income ( 52,117 ) 36,660 ( 15,457 ) As at September 30, 2019 $ ( 10,892 ) $ ( 10,470 ) $ ( 21,362 ) 22. NONCONTROLLING INTERESTS The net change in the noncontrolling interests is as follows: Canopy Rivers Vert Mirabel BioSteel Other non- material interests Total As at March 31, 2020 $ 211,086 $ 7,132 $ 489 $ 3,051 $ 221,758 Comprehensive loss ( 70,953 ) ( 10,831 ) ( 2,528 ) - ( 84,312 ) Net loss attributable to redeemable noncontrolling interest - 6,897 2,528 - 9,425 Share-based compensation 2,091 - 662 - 2,753 Ownership changes 1,413 - - - 1,413 Warrants 250 - - - 250 As at September 30, 2020 $ 143,887 $ 3,198 $ 1,151 $ 3,051 $ 151,287 Canopy Rivers Vert Mirabel Other non- material interests Total As at March 31, 2019 $ 280,012 $ 2,422 $ 3,051 $ 285,485 Comprehensive (loss) income ( 30,214 ) 5,764 - ( 24,450 ) Net income attributable to redeemable noncontrolling interest - ( 3,679 ) - ( 3,679 ) Share-based compensation 4,849 - - 4,849 Ownership changes 490 - - 490 As at September 30, 2019 $ 255,137 $ 4,507 $ 3,051 $ 262,695 23. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value: • Level 1 – defined as observable inputs such as quoted prices in active markets; • Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and • Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value measurement is categorized in its entirety by reference to its lowest level of significant input. 23 The Company records cash, accounts receivable, interest receivable and, accounts payable, and other accrued expenses and liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include items such as property, plant and equipment, goodwill and other intangible assets, equity and other investments and other assets. We determine the fair value of these items using Level 3 inputs, as described in the related sections below. The following table represents our financial assets and liabilities measured at estimated fair value on a recurring basis: Fair value measurement using Quoted prices Significant prices in other Significant active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total September 30, 2020 Assets: Short-term investments $ 1,048,921 $ - $ - $ 1,048,921 Restricted short-term investments 14,332 - - 14,332 Other financial assets 1,425 5,174 375,570 382,169 Liabilities: Convertible senior notes - 522,204 - 522,204 Liability arising from Acreage Arrangement - - 147,000 147,000 Warrant derivative liability - - 221,948 221,948 March 31, 2020 Assets: Short-term investments $ 673,323 $ - $ - $ 673,323 Restricted short-term investments 21,539 - - 21,539 Other financial assets 2,596 36 192,473 195,105 Liabilities: Convertible senior notes - 450,204 - 450,204 Liability arising from Acreage Arrangement - - 250,000 250,000 Warrant derivative liability - - 322,491 322,491 The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 2 financial instruments: Financial asset / financial liability Valuation techniques Key inputs Convertible senior note Convertible note pricing model Quoted prices in over-the-counter broker market 24 The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments: Financial asset / financial liability Valuation techniques Significant unobservable inputs Relationship of unobservable inputs to fair value Acreage financial instrument Probability weighted expected return model Probability of each scenario Change in probability of occurrence in each scenario will result in a change in fair value Value and number of common shares to be issued Increase or decrease in value and number of common shares will result in a decrease or increase in fair value Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value Estimated premium on US legalization Increase or decrease in estimated premium on US legalization will result in an increase or decrease in fair value Control premium Increase or decrease in estimated control premium 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 Put option pricing model Probability and timing of US legalization 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 Monte Carlo simulation model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value TerrAscend Canada term loan Discounted cash flow Probability and timing of US legalization 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 Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value Greenhouse convertible debenture FinCAD model Share price Increase or decrease in share price will result in an increase or decrease in fair value Agripharm royalty interest and repayable debenture Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value Future royalties Increase or decrease in future royalties to be paid will result in an increase or decrease in fair value Warrant derivative liability Monte Carlo simulation model Volatility of common share price Increase or decrease in volatility will result in an increase or decrease in fair value Expected life Increase or decrease in expected life will result in an increase or decrease in fair value BioSteel redeemable noncontrolling interest Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value Future wholesale price and production levels Increase or decrease in future wholesale price and production levels will result in an increase or decrease in fair value Vert Mirabel redeemable noncontrolling interest Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value Future wholesale price and production levels Increase or decrease in future wholesale price and production levels will result in an increase or decrease in fair value 25 During the six months ended September 30, 2020 and September 30, 2019, there were no transfers of amounts between levels . 24. REVENUE Revenue is dissaggregated as follows: Three months ended Six months ended September 30, September 30, September 30, September 30, 2020 2019 2020 2019 Recreational cannabis revenue Business to business $ 56,423 $ 16,677 $ 98,603 $ 67,102 Business to consumer 18,709 13,100 28,039 23,738 Medical cannabis revenue Canadian 15,250 14,149 30,586 27,200 International 17,474 18,090 37,665 28,586 Other revenue 42,972 23,605 75,023 42,386 Gross revenue 150,828 85,621 269,916 189,012 Excise taxes 15,562 9,008 24,234 21,917 Net revenue $ 135,266 $ 76,613 $ 245,682 $ 167,095 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 $ 3,750 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 ). 25. OTHER INCOME (EXPENSE), NET Other income (expense), net is dissaggregated as follows: Three months ended Six months ended September 30, September 30, September 30, September 30, 2020 2019 2020 2019 Fair value changes on other financial assets $ 82,053 $ ( 69,735 ) $ 103,860 $ ( 110,822 ) Fair value changes on liability arising from Acreage Arrangement 88,151 ( 235,190 ) 53,151 ( 235,190 ) Fair value changes on convertible senior notes ( 11,946 ) 164,394 ( 32,280 ) 195,840 Fair value change on warrant derivative liability 65,174 641,854 100,543 666,746 Fair value changes on acquisition related contingent consideration 2,886 ( 70 ) 42,869 ( 1,640 ) Interest income 2,775 16,463 11,768 39,181 Interest expense ( 1,523 ) ( 1,165 ) ( 2,678 ) ( 2,371 ) Foreign currency loss ( 5,041 ) ( 5,553 ) ( 11,000 ) ( 8,409 ) Other (expense) income, net ( 1,273 ) ( 1,105 ) 3,228 ( 674 ) $ 221,256 $ 509,893 $ 269,461 $ 542,661 26. INCOME TAXES 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. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements. 26 The Company continues to believe the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made. 27. ACREAGE ARRANGEMENT AND AMENDMENTS TO CBI INVESTOR RIGHTS AGREEMENT AND WARRANTS Acreage Arrangement On June 24, 2020, the Company and Acreage Holdings, Inc. (“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. 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. 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 Prior Arrangement). 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”) 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. The foregoing exchange ratio for the Floating Shares is subject to adjustment in accordance with the Amended Arrangement if Acreage issues greater than the permitted number of Floating Shares. 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”) 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; 27 • 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 ) ; and • 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 $( 235,190 ), respectively) (see Note 25). The fair value determination includes a high degree of subjectivity and judgment, which results in significant estimation uncertainty. See Note 23 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis. From a measurement perspective, the Company has elected the fair value option under ASC 825. In connection with the Amended Arrangement, an affiliate of the Company advanced US$ 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 On April 18, 2019, certain wholly-owned subsidiaries of CBI and Canopy Growth entered into a second amended and restated investor rights agreement and a consent agreement. In connection with these agreements, on June 27, 2019 Canopy Growth (i) extended the term of the first tranche of warrants, which allow CBI to acquire 88.5 million additional shares of Canopy Growth for a fixed price of $ 50.40 per share (the “Tranche A Warrants”), to November 1, 2023 ; and (ii) replaced the second tranche of warrants with two new tranches of warrants (the “Tranche B Warrants” and the “Tranche C Warrants”) as follows: • the Tranche B Warrants are exercisable to acquire 38.5 million common shares at a price of C$ 76.68 per common share; and • the Tranche C Warrants are exercisable to acquire 12.8 million common shares at a price equal to the 5-day volume-weighted average price of the common shares immediately prior to exercise. 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 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”). They continue to be classified in equity as the number of shares and exercise price were both fixed at inception. The Tranche B Warrants are accounted for as derivative instruments measured at fair value in accordance with ASC 815. 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 September 30, 2020. 28 28. SEGMENT INFORMATION Reportable segments The Company operates in two segments: 1) Cannabis, Hemp and Other Consumer Products, which encompasses the production, distribution and sale of a diverse range of cannabis, hemp-based, and other consumer products in Canada and internationally pursuant to applicable international and domestic legislation, regulations and permits; and 2) Canopy Rivers, a publicly-traded company in Canada, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful. Financial information for Canopy Rivers is included in the table below, and in Note 22. September 30, 2020 March 31, 2020 Ownership interest 27 % 27 % Cash and cash equivalents $ 37,928 $ 46,724 Prepaid expenses and other current assets 3,912 11,598 Investments in associates 10,337 50,543 Other financial assets 134,828 146,812 Other long-term assets 23,411 22,058 Other liabilities ( 29,130 ) ( 2,771 ) Noncontrolling interests ( 143,887 ) ( 211,086 ) Equity attributable to Canopy Growth $ 37,399 $ 63,878 Entity-wide disclosures 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 ). 29. 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. 29