What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-02-09 · 333 added, 498 removed, 493 unchanged (63% of the section changed)

10 unchanged sentences

Total current assets

Equity method investments

Other financial assets

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Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive loss

Total Canopy Growth Corporation shareholders' equity

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

Three months ended December 31,

Nine months ended December 31,

Three months ended June 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

Net income (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) income:

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

Fair value changes of own credit risk of

financial liabilities

Foreign currency translation

Total other comprehensive (loss) income, net of

income tax effect

Income (loss) before income taxes

Income tax (expense) recovery

Net income (loss)

Net loss attributable to noncontrolling interests and

redeemable noncontrolling interest

Net income (loss) attributable to Canopy Growth Corporation

Basic earnings (loss) per share

Basic weighted average common shares outstanding

Diluted earnings (loss) per share

Diluted weighted average common shares outstanding

Comprehensive loss:

Comprehensive income (loss) attributable to

noncontrolling interests and redeemable

noncontrolling interest

Comprehensive (loss) income attributable to Canopy

Growth Corporation

Net income (loss)

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

Fair value changes of own credit risk of financial liabilities

Foreign currency translation

Total other comprehensive income (loss), net of income tax effect

Comprehensive income (loss)

Comprehensive income (loss) attributable to noncontrolling interests

and redeemable noncontrolling interest

Comprehensive income (loss) attributable to Canopy Growth Corporation

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

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Other issuances of common shares

Exercise of warrants

Replacement equity instruments

from the acquisition of Supreme

Exercise of Omnibus Plan stock

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noncontrolling interests

Comprehensive loss

Balance at December 31, 2020

Comprehensive (loss) income

Balance at June 30, 2021

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

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Share-based compensation

Issuance of replacement equity

Issuance and vesting of restricted

Acreage warrant modification

Changes in redeemable

2 unchanged sentences

noncontrolling interests

Comprehensive (loss) income

Balance at December 31, 2019

Comprehensive income (loss)

Balance at June 30, 2020

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

2 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Nine months ended December 31,

Three months ended June 30,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net loss to net cash used in operating activities:

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Asset impairment and restructuring costs

Expected credit losses on financial assets and related charges

Income tax recovery

Income tax expense (recovery)

Non-cash foreign currency

Interest paid

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

of businesses:

Change in operating assets and liabilities, net of effects from

purchases of businesses:

Amounts receivable

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Purchases of intangible assets

Proceeds on sale of property, plant and equipment

Proceeds on sale of intangible assets

(Purchases) redemption of short-term investments

Sale of (investments in) equity method investments

Investments in other financial assets

Investment in Acreage Arrangement

Loan advanced to Acreage Hempco

Purchases of short-term investments

Net cash proceeds on sale of subsidiaries

Sale of (investments in) other financial assets

Recovery of amounts related to construction financing

5 unchanged sentences

Payment of share issue costs

Proceeds from issuance of shares by Canopy Rivers

Proceeds from issuance of shares by RIV Capital

Proceeds from exercise of stock options

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Repayment of long-term debt

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

6 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Nine months ended December 31,

Three months ended June 30,

Supplemental disclosure of cash flow information

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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 cannabis and/or hemp is federally lawful and regulated.

The Company and its subsidiaries currently operate in the United States, Europe, Latin America, 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.

Refer to Note 19 for a description of the plan of arrangement with Canopy Rivers.

The principal activities of the Company are the production, distribution and sale of a diverse range of cannabis and cannabinoid-based products for both adult recreational and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act , which came into effect on October 17, 2018 and regulates both the medical and recreational cannabis markets in Canada.

The Company has also expanded to jurisdictions outside of Canada where federally lawful, permissible and regulated for cannabis and/or hemp, and the Company, through its subsidiaries, operates in the United States, Germany, and certain other global markets.

Additionally, the Company produces, distributes and sells a range of other consumer products globally, including vaporizers;

beauty, skincare, wellness and sleep products;

and sports nutrition beverages.

BASIS OF PRESENTATION

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Information on the Company’s subsidiaries with noncontrolling interests is included in Note 20.

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.

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

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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 ASU 2016-13 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 ASU 2018-13 as of April 1, 2020.

In December 2019, the Financial Accounting Standards Board (“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.

The Company adopted ASU 2019-12 as of April 1, 202 1 .

There was no impact of adopting ASU 2019-12 on the condensed interim consolidated financial statements.

Accounting Guidance not yet adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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

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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.

The Company adopted ASU 2020-01 as of April 1, 2021.

There was no impact of adopting ASU 2020-01 on the condensed interim consolidated financial statements.

Accounting Guidance not yet adopted

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.

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.

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ASSET IMPAIRMENT AND RESTRUCTURING COSTS

In the three months ended June 30, 2020, the Company completed certain of the restructuring actions that had commenced in the year ended March 31, 2020, including completing the exit of the Company’s operations in South Africa and Lesotho, 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 its marketing organization in April 2020.

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

In December 2020, as the partial outcome of an ongoing end-to-end strategic review of its operations, the Company announced a series of Canadian operational changes designed to streamline its operations and further improve its gross margins.

The Company has ceased operations at its sites in St.

John’s, Newfoundland and Labrador;

Fredericton, New Brunswick;

Edmonton, Alberta;

Bowmanville, Ontario;

as well as its outdoor cannabis grow operations in Saskatchewan.

As a result of these restructuring actions, the Company eliminated approximately 220 full-time positions, and abandoned or impaired certain of its production facilities and intangible assets in the three months ended December 31, 2020.

A loss totaling $ 352,634 was recognized in the three months ended December 31, 2020 representing the difference between the net book value of the long-lived assets and their estimated salvage value or fair value.

Of this loss, $ 298,209 related to property, plant and equipment and $ 54,425 related to facility licenses and other intangible assets.

The losses related to property, plant and equipment were primarily attributable to buildings and greenhouses, production and warehouse equipment, and right-of-use assets.

Additionally, the Company recognized contractual and other settlement obligations of $ 13,058 and employee-related and other restructuring costs of $ 1,862 .

Additionally, the Company (i) completed the sale of its production facilities in Aldergrove and Delta, British Columbia in December 2020 and January 2021, respectively, for combined proceeds of $ 40,650 ;

and (ii) recorded additional charges related to the shifting of the Company’s strategy in Latin America, which the Company commenced in the three months ended March 31, 2020.

As a result, a loss totaling $ 28,437 was recognized in the three months ended December 31, 2020, representing the difference between the net book value of the long-lived assets and their selling price.

Additionally, the Company recognized costs totaling $ 4,431 related to contractual and other settlement obligations, employee-related costs, and other restructuring costs associated with the remediation of damages caused by the fire at the Delta facility in November, the closure of the facilities, and their sale.

As a result of the above, in the three and nine months ended December 31, 2020, the Company recognized asset impairment and restructuring costs of $ 400,422 and $ 459,579 , respectively, in relation to (i) the restructuring actions resulting in the closure of certain of its facilities in Canada in the three months ended December 31, 2020;

(ii) adjustments to the net book value of its production facilities in Aldergrove and Delta, British Columbia in order to reflect their selling prices, and other costs associated with their remediation, closure and sale;

(iii) charges related to the shifting of the Company’s strategy in Latin America;

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

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

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

Additionally, in the three and nine months ended December 31, 2020, the Company recognized charges of $ 15,637 in cost of goods sold, primarily relating to inventory write-downs associated with the closure of certain of the Company’s facilities in Canada.

In the three months ended June 30, 2021, the Company recorded charges related to operational changes resulting from the continuing strategic review of its business as a result of recent acquisition activities, and the partial outcome of certain integration initiatives.

Additionally, the Company recognized incremental costs associated with the closure of certain of its Canadian production facilities in December 2020.

Charges totaling $ 89,249 were recognized in the three months ended June 30, 2021, primarily representing the difference between the net book value of the associated long-lived assets and their estimated fair value.

CASH AND CASH EQUIVALENTS

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Government securities

Asset-backed securities

Commercial paper and other

The amortized cost of short-term investments at December 31, 2020 is $ 768,859 (March 31, 2020 – $ 673,022 ).

The amortized cost of short-term investments at June 30, 2021 is $ 1,492,227 (March 31, 2021 – $ 1,145,364 ).

AMOUNTS RECEIVABLE, NET

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Accounts receivable, net

Interest receivable

Indirect taxes receivable

Interest receivable

Other receivables

Included in the accounts receivable, net balance at December 31, 2020 is an allowance for doubtful accounts of $ 815 (March 31, 2020 – $ 655 ) .

Included in the accounts receivable, net balance at June 30, 2021 is an allowance for doubtful accounts of $ 1,582 (March 31, 2021 – $ 1,411 ) .

The components of inventory are as follows:

2 unchanged sentences

Finished goods

In the three and nine months ended December 31, 2020, the Company recorded write-downs related to inventory in cost of goods sold of $ 23,836 and $ 48,167 , respectively, including charges of $ 15,637 associated with the restructuring actions described in Note 3 (three and nine months ended December 31, 2019 – $ 6,018 and $ 32,554 , respectively).

In the three months ended June 30, 2021, the Company recorded write-downs related to inventory in cost of goods sold of $ 6,014 (three months ended June 30, 2020 – $ 19,386 ).

PREPAID EXPENSES AND OTHER ASSETS

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Prepaid inventory

PharmHouse Inc.

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

CCAA Proceedings

During the nine months ended December 31, 2020, PharmHouse determined that the previously anticipated timeline to generate cash flows from its offtake agreements with the Company and TerrAscend Canada Inc.

(“TerrAscend Canada”) 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”).

On October 29, 2020, PharmHouse received approval from the Court to commence its Sale and Investor Solicitation Process (“SISP”).

The SISP is intended to solicit interest in, and opportunities for, a sale of, or investment in, all or part of PharmHouse’s assets or business.

This may include a restructuring, recapitalization, or other form of reorganization of PharmHouse’s business and affairs.

Phase one of the SISP concluded on November 30, 2020, and a number of non-binding offers were received.

PharmHouse, with the assistance of the Monitor and the SISP advisor, selected a number of parties to bring forward to the next phase of the SISP, and binding offers for phase two of the SISP are due on or about February 16, 2021.

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 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 $ 57,500 .

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

PharmHouse Financial Guarantee

Prior to December 31, 2020, PharmHouse had entered into a syndicated credit agreement (as amended, the “PharmHouse Credit Agreement”) with a number of Canadian banks (the “Lenders”) 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 compensate the Lenders for their loss incurred on the PharmHouse Credit Facility.

The PharmHouse Credit Agreement also contains other covenants applicable to Canopy Rivers and CRC.

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 December 31 , 2020, the Company estimated the current expected credit loss related to its contingent obligation under the PharmHouse Financial Guarantee to be $ 32,500 , and recognized a financial liability for this amount in the consolidated balance sheet (March 31, 2020 – $ nil ) (see Note 17) .

During the three and nine months ended December 31, 2020, the Company recognized associated current expected credit loss es of $ 7,500 and $ 32,500 in net income (loss) for the three and nine months ended December 31 , 2020 , respectively (three and nine months ended December 31 , 2019 – $ nil ).

Other financial assets, including loans receivable

As at December 31, 2020, CRC 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 December 31, 2020, CRC 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, CRC 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, CRC 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 to PharmHouse (the “DIP Financing”) to enable PharmHouse to continue its day-to-day operations throughout the anticipated Restructuring.

The DIP Financing, which is subordinate to PharmHouse’s obligations to the Lenders under the PharmHouse Credit Facility, 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.

On December 15, 2020, the DIP Financing agreement entered into between CRC and PharmHouse was amended.

As a result of this amendment, the maximum principal amount available to be drawn by PharmHouse pursuant to the DIP Financing increased from $ 7,214 , to $ 9,700 , and the maturity date was extended from December 29, 2020 to February 28, 2021.

On December 18, 2020, the Court approved the DIP Financing amendment and extended the stay of proceedings in respect of PharmHouse until February 28, 2021, inclusively.

As at December 31, 2020, CRC had advanced $ 8,300 pursuant to the DIP Financing.

As a result of the PharmHouse Recoverability Assessment described above, the Company recognized current expected credit losses of $ 7,500 and $ 32,500 for the three and nine months ended December 31, 2020, respectively, related to its contingent obligation under the PharmHouse Financial Guarantee.

We also concluded that the following amounts may not be recoverable:

(i) $ 8,300 advanced pursuant to DIP Financing, of which $ 6,200 was advanced in the three months ended December 31, 2020;

(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, and costs of $ 35 were incurred associated with the Restructuring in the three months ended December 31, 2020.

Accordingly, the Company recorded expected credit losses on financial assets and related charges of $ 13,735 and $ 108,480 for the three and nine months ended December 31, 2020 (three and nine months ended December 31, 2019 - $nil).

PharmHouse equity method investment

As at December 31, 2020, CRC 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.

CRC 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) in the nine months ended December 31, 2020.

Refer to Note 19 for a description of the plan of arrangement with Canopy Rivers.

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 nine months ended December 31, 2020:

Derecognition

of investment

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 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 nine months ended September 30, 2020 (with respect to December 31, 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 nine months ended September 30, 2020:

On December 30, 2020, CRC sold its share s in CanapaR, in exchange for $ 7,000 cash and $ 1,000 in contingent consideration, which was recorded at its estimated fair value as an other financial asset.

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.

credit losses

TerrAscend Canada

Term loan / debenture

Additional details on how the fair value of significant investments is calculated are included in Note 21.

TerrAscend Exchangeable Shares

Exchangeable shares

TerrAscend Canada - October 2019

Term loan / debenture

TerrAscend Canada - March 2020

Term loan / debenture

Arise Bioscience

Term loan / debenture

TerrAscend - October 2019

TerrAscend - March 2020

TerrAscend - December 2020

Arise Bioscience

Acreage Hempco 1

Loan receivable

Royalty interest

Convertible debenture

Other - at fair value through net income (loss)

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1 See Note 27 for information regarding Acreage Hempco .

2 See Note 9 for information regarding PharmHouse.

Arise Bioscience

On December 10, 2020, the Company entered into a loan financing agreement with Arise Bioscience, Inc.

(“Arise Bioscience”), a wholly owned subsidiary of TerrAscend Corp.

(“TerrAscend”).

The investment is in the amount of US$ 20,000 ($ 25,478 ) (the “Loan”) pursuant to a secured debenture (the “Debenture”).

The Debenture bears interest at a rate of 6.1 % and is payable beginning in the fourth year after its issuance.

The Debenture will mature on December 10, 2030 .

In connection with the Loan, TerrAscend issued 2,105,718 common share purchase warrants to the Company (the “Warrants”).

1,926,983 Warrants are exercisable at a price of $ 15.28 per share, and expire on December 10, 2030 .

178,735 Warrants are exercisable at a price of $ 17.19 per share, and expire on December 10, 2031 .

The Warrants will be exercisable by the Company following changes in U.S.

federal laws permitting the cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States.

The Loan is repayable by Arise Bioscience at any time.

At issuance, the Debenture had a fair value of $ 11,758 and the Warrants had a fair value of $ 13,720 .

As of December 31, 2020, the Debenture had a fair value of $ 12,204 and the Warrants had a fair value of $ 14,026 .

See Note 23 for additional details on how the fair value of the Company’s investment is calculated on a recurring basis.

PROPERTY, PLANT AND EQUIPMENT

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Accumulated depreciation

Depreciation expense included in cost of goods sold for the three and nine months ended December 31, 2020 is $ 10,955 and $ 40,190 , respectively (three and nine months ended December 31, 2019 – $ 13,568 and $ 35,023 , respectively).

Depreciation expense included in selling, general and administrative expenses for the three and nine months ended December 31, 2020 is $ 7,297 and $ 14,435 , respectively (three and nine months ended December 31, 2019 – $ 6,201 and $ 14,559 , respectively).

See Note 3 for information on the impairment and abandonment of property, plant and equipment that the Company recognized in the three months ended December 31, 2020 as part of the restructuring actions resulting in the closure of certain of its facilities in Canada, and adjustments to the net book value of its production facilities in Aldergrove and Delta, British Columbia in order to reflect their selling prices.

Depreciation expense included in cost of goods sold for the three months ended June 30, 2021 is $ 10,462 (three months ended June 30, 2020 – $ 14,786 ).

Depreciation expense included in selling, general and administrative expenses for the three months ended June 30, 2021 is $ 6,654 (three months ended June 30, 2020 – $ 2,629 ).

INTANGIBLE ASSETS

The components of intangible assets are as follows:

December 31, 2020

June 30, 2021

March 31, 2021

Finite lived intangible assets

Licensed brands

Distribution channel

Health Canada and operating licenses

Intellectual property

Distribution channel

Software and domain names

Operating licenses

Amortizable intangibles in process

Indefinite lived intangible assets

Operating licenses

Acquired brands

Operating licenses

Total intangible assets

Amortization expense included in cost of goods sold for the three and nine months ended December 31, 2020 is $ 99 and $ 62 , respectively ( three and nine months ended December 31, 2019 – $ 71 and $ 109 , respectively).

Amortization expense included in selling, general and administrative expenses for the three and nine months ended December 31, 2020 is $ 14,034 and $ 43,503 , respectively (three and nine months ended December 31, 2019 – $ 10,624 and $ 26,541 , respectively).

See Note 3 for information on the impairment and abandonment of intangible assets that the Company recognized in the three months ended December 31, 2020 as part of the restructuring actions resulting in the closure of certain of its facilities in Canada.

Amortization expense included in cost of goods sold for the three months ended June 30, 2021 is $ 18 ( three months ended June 30, 2020 – $ 702 ).

Amortization expense included in selling, general and administrative expenses for the three months ended June 30, 2021 is $ 7,998 (three months ended June 30, 2020 – $ 15,930 ).

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

Balance, March 31, 2020

Purchase accounting allocations

Finalization of Storz & Bickel purchase price allocation

Foreign currency translation adjustments

Balance, March 31, 2021

Purchase accounting allocations

Disposal of consolidated entities

Foreign currency translation adjustments

Balance, December 31, 2020

Balance, June 30, 2021

OTHER ACCRUED EXPENSES AND LIABILITIES

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

Property, plant and equipment

Professional fees

Employee compensation

Taxes and government fees

Professional fees

The components of debt are as follows:

Convertible senior notes

Maturity Date

6 unchanged sentences

Credit risk fair value adjustment

Transferred receivables, bearing interest rate of

EURIBOR plus 0.850 %

Convertible debentures

September 10, 2025

Accretion debentures

September 10, 2025

Credit facility

March 18, 2026

Other revolving debt facility, loan, and financings

1 unchanged sentence

Long-term portion

Credit Facility

On March 18, 2021, the Company entered into a credit agreement (the “Credit Agreement”) providing for a five-year, first lien senior secured term loan facility in an aggregate principal amount of US$ 750,000 (the “Credit Facility”).

The Company also has the ability to obtain up to an additional US$ 500,000 of incremental senior secured debt pursuant to the Credit Agreement.

The Credit Facility has no principal payments, matures on March 18, 2026, has a coupon of LIBOR plus 8.50 % and is subject to a LIBOR floor of 1.00 %.

In the event that LIBOR can no longer be adequately ascertained or is no longer available, an alternative rate as permitted under the Credit Agreement will be used.

The Company’s obligations under the Credit Facility are guaranteed by material wholly-owned Canadian and U.S.

subsidiaries of the Company.

The Credit Facility is secured by substantially all of these assets, including material real property, of the borrowers and each of the guarantors.

The Credit Agreement contains representations and warranties, and affirmative and negative covenants, including a financial covenant requiring minimum liquidity of US$ 200,000 at the end of each fiscal quarter.

The proceeds from the Credit Facility were $ 893,160 , and the carrying amount is reflected net of financing costs.

Convertible Notes

On June 20, 2018, the Company issued convertible senior notes (the “Notes”) with an aggregate principal amount of $ 600,000 .

8 unchanged sentences

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

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

(“CBI”) in the Company in November 2018, and no holders of Notes 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.

6 unchanged sentences

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 the Company’s own

credit risk are recorded in other income (expenses), net.

All subsequent changes in fair value, excluding the impact of the change in fair value related to the 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 nine months ended December 31, 2020, was an increase of $ 105,588 and $ 177,588 , respectively (three and nine months ended December 31, 2019, a decrease of $ 47,556 and $ 292,806 , respectively), which included contractual interest of $ 6,588 and $ 19,338 (three and nine months ended December 31, 2019, interest of $ 6,444 and $ 19,194 , respectively).

The overall change in fair value of the Notes during the three months ended June 30, 2021, was a decrease of $ 51,372 (three months ended June 30, 2020, an increase of $ 35,694 ), which included contractual interest of $ 6,378 (three months ended June 30, 2020, interest of $ 6,444 ).

Refer to Note 21 for additional details on how the fair value of the Notes is calculated.

Transferred receivables

The factoring arrangement with PB Factoring GmbH was repaid and subsequently terminated effective December 31, 2020.

Supreme Cannabis Convertible Debentures and Accretion Debentures

On October 19, 2018, Supreme Cannabis (as defined below) entered into an indenture with Computershare Trust Company of Canada (the “Trustee”) pursuant to which Supreme Cannabis issued 6.0 % senior unsecured convertible debentures (the “Supreme Debentures”) for gross proceeds of $ 100,000 .

On September 9, 2020, Supreme Cannabis and the Trustee entered into a supplemental indenture to effect certain amendments to the Supreme Debentures, which included among other things:

(i) the cancellation of $ 63,500 of principal amount of the Supreme Debentures;

(ii) an increase in the interest rate to 8 % per annum;

(iii) the extension of the maturity date to September 10, 2025 ;

and (iv) a reduction in the conversion price to $ 0.285 .

In addition, on September 9, 2020, Supreme Cannabis issued new senior unsecured non-convertible debentures (“Accretion Debentures”).

The principal amount began at $nil and accretes at a rate of 11.06 % per annum based on the remaining principal amount of the Supreme Debentures of $ 36,500 to a maximum of $ 13,500 , compounding on a semi-annual basis commencing on September 9, 2020, and ending on September 9, 2023.

The Accretion Debentures are payable in cash, but do not bear cash interest and are not

convertible into Supreme Shares.

The principal amount of the Accretion Debentures will amortize, or be paid, at 1.0 % per month over the 24 months prior to maturity.

As a result of the Supreme Arrangement (as defined below), the Supreme Debentures remain outstanding as securities of Supreme Cannabis, which, upon conversion will entitle the holder thereof to receive, in lieu of the number of Supreme Shares (as defined below) to which such holder was theretofore entitled, the consideration payable under the Supreme Arrangement that such holder would have been entitled to be issued and receive if, immediately prior to the effective time of the Supreme Arrangement, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled.

In connection with the Supreme Arrangement, the Company, Supreme Cannabis and the Trustee entered into a supplemental indenture whereby the Company agreed to issue common shares upon conversion of any Supreme Debenture.

In addition, the Company may force conversion of the Supreme Debentures outstanding with 30 days’ notice if the daily volume weighted average trading price of the Company’s common shares is greater than $38.59 for any 10 consecutive trading days.

Prior to September 9, 2023, the Supreme Debentures are not redeemable.

Beginning on and after September 9, 2023, Supreme Cannabis may from time to time, upon providing 60 days prior written notice to the Trustee, redeem the Convertible Debentures outstanding, provided that the Accretion Debentures have already been redeemed in full.

Other revolving debt facility, loans, and financings

2 unchanged sentences

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 $nil with an interest rate of 3.45 %, or FCC prime rate plus 1.0 % , and matures on September 3, 2024 .

The current outstanding balance of the FCC debt facility is $nil (March 31, 2021 – $nil) with an interest rate of 3.45 %, or FCC prime rate plus 1.0 % .

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 .

1 unchanged sentence

The components of other liabilities are as follows:

As at December 31, 2020

As at June 30, 2021

As at March 31, 2021

Lease liabilities

Acquisition consideration

related liabilities

Lease liabilities

Minimum royalty obligations

PharmHouse Financial

Refund liability

Settlement liability

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

Settlement liabilities and

REDEEMABLE NONCONTROLLING INTEREST

1 unchanged sentence

As at March 31, 2021

Net loss attributable to redeemable noncontrolling interest

Net income (loss) attributable to redeemable noncontrolling interest

Adjustments to redemption amount

As at December 31, 2020

As at June 30, 2021

As at March 31, 2020

Initial recognition of noncontrolling interest

Net income (loss) attributable to redeemable noncontrolling interest

Net loss attributable to redeemable noncontrolling interest

Adjustments to redemption amount

As at December 31, 2019

As at June 30, 2020

SHARE CAPITAL

2 unchanged sentences

(i) Equity financings

There were no equity financings during the nine months ended December 31, 2020 (nine months ended December 31, 2019 - no ne).

There were no equity financings during the three months ended June 30, 2021 (three months ended June 30, 2020 - no ne).

(ii) Other issuances of common shares

During the nine months ended December 31, 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 three months ended June 30, 2021, 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

Acquisition of Supreme Cannabis

Completion of acquisition milestones

Other issuances

During the nine months ended December 31, 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 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:

Number of shares

Acquisition of BC Tweed NCI release from escrow

Completion of acquisition milestones

2 unchanged sentences

Balance outstanding at March 31, 2021 1

Exercise of warrants

Supreme Cannabis warrants

Expiry of warrants

Balance outstanding at December 31, 2020 1

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

Balance outstanding at June 30, 2021 1

1 This balance excludes the Tranche C Warrants (as defined below), which represent a derivative liability and have nominal value.

Balance outstanding at March 31, 2020 1

Tranche A warrant modification

Issuance of Tranche B warrants

Other issuance of warrants

Exercise of warrants

Balance outstanding at December 31, 2019 1

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 an 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 December 31, 2020, Canopy Rivers had 36,468,318 Multiple Voting Shares (March 31, 2020 – 36,468,318 ) and 155,034,391 Subordinated Voting Shares (March 31, 2020 – 152,837,131 ) issued and outstanding.

As at December 31, 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.

See “Canopy Rivers Arrangement Agreement” below for further details.

There were no financings during the nine months ended December 31, 2020, other than the release of shares related to a share purchase financing as noted below.

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 nine months ended December 31, 2020, share purchase loans in the amount of $nil and $ 95 , respectively, (three and nine months ended December 31, 2019 – $ 2 and $ 50 , 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 nil and 1,905,559 Subordinated Voting Shares, respectively (three and nine months ended December 31, 2019 – 38,890 and 999,998 , respectively).

As at December 31, 2020, there were 33,334 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 December 31, 2020, Canopy Rivers repurchased and cancelled a total of nil Subordinated Voting Shares under the NCIB program for $nil, at a weighted average acquisition price of $nil per share (three months ended December 31, 2019 – not applicable).

During the nine months ended December 31, 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 (nine months ended December 31, 2019 – not applicable).

Canopy Rivers Arrangement Agreement

In December 2020, Canopy Growth entered into an arrangement agreement (the “Canopy Rivers Arrangement Agreement”) with its wholly-owned subsidiary The Tweed Tree Lot Inc.

(“Tweed NB”), Canopy Rivers and its wholly-owned subsidiary, CRC, pursuant to which Canopy Growth will acquire certain assets from CRC, as set out below, in exchange for cash, common shares in the capital of Canopy Growth and the surrender of all shares in the capital of Canopy Rivers held by Canopy Growth by way of a plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”).

Pursuant to the Arrangement, Canopy Growth will increase its conditional ownership interest in TerrAscend through the acquisition of (i) 19,445,285 exchangeable shares in the capital of TerrAscend;

(ii) 2,225,714 common share purchase warrants in the capital of TerrAscend with an exercise price of $ 5.95 per share;

(iii) 333,723 common share purchase warrants in the capital of TerrAscend with an exercise price of $ 6.49 per share;

and (iv) a $ 13.2 million loan receivable owing by TerrAscend Canada to CRC.

The securities in the capital of TerrAscend are not currently convertible or exercisable, and will not be convertible or exercisable until federal laws in the United States with respect to marijuana are amended.

Subject to certain rights of first refusal, pursuant to the Arrangement, Canopy Growth will also acquire all of the common shares and Class A preferred shares in the capital of Les Serres Vert Cannabis Inc.

(“Vert Mirabel”) held by CRC.

In addition, all of the obligations of Tweed NB owing to CRC pursuant to a royalty agreement between the parties will be terminated.

Canopy Growth currently owns 36,468,318 Multiple Voting Shares and 15,223,938 Subordinate Voting Shares in the capital of Canopy Rivers, which represent approximately a 27 % ownership interest and 84 % of the aggregate voting rights of Canopy Rivers.

Pursuant to the Arrangement, all of the Multiple Voting Shares and Subordinate Voting Shares held by Canopy Growth will be repurchased by Canopy Rivers for cancellation on a cashless basis.

Canopy Growth will not have any equity, debt or other interest in Canopy Rivers following completion of the Arrangement.

As additional consideration for the assets being transferred and the termination of the royalty agreement, Canopy Growth will make a cash payment to CRC of $ 115.0 million and issue an aggregate of up to 3,750,000 common shares.

The Arrangement remains subject to approval by the shareholders of Canopy Rivers at a special shareholder meeting expected to be held on February 16, 2021.

The Arrangement does not require the approval of the shareholders of Canopy Growth.

In addition to Canopy Rivers shareholder approval, the Arrangement is subject to applicable approvals by the Ontario Superior Court of Justice and certain other closing conditions.

Balance outstanding at June 30, 2020 1

1 This balance excludes the Tranche C Warrants (as defined below), which represent a derivative liability and have nominal value.

SHARE-BASED COMPENSATION

3 unchanged sentences

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.

On May 27, 2021, the Board of Directors of the Company approved certain amendments to the Omnibus Plan in order to reduce the maximum number of shares available for issuance under the Omnibus Plan from 15 % of the issued and outstanding shares, to 10 % of the issued and outstanding shares from time to time less the number of shares issuable pursuant to other security-based compensation arrangements of the Company.

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, performance awards, or other shares-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 56,070,568 at December 31, 2020.

As of December 31, 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 share-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 December 31, 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 nine months ended December 31, 2020:

The maximum number of common shares reserved for Awards is 39,311,910 at June 30, 2021.

As of June 30, 2021, the only Awards issued have been Options, RSUs and PSUs under the Omnibus Plan.

The Omnibus Plan is administered by the Corporate Governance, Compensation and Nominating committee of the Company (“CGC&N Committee”) which 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, subject to the capacity of the CGC&N Committee pursuant to the Omnibus Plan to provide for an expiry date in an award agreement for the grant of options which is less than ten years from issuance.

The CGC&N Committee has the discretion to amend general vesting provisions and the term of any award, subject to limits contained in the Omnibus Plan.

Under the Company’s Employee Share Purchase Plan (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 .

For the three months ended June 30, 2021, no common shares were issued under the Purchase Plan.

The following is a summary of the changes in the Options outstanding during the three months ended June 30, 2021:

exercise price

1 unchanged sentence

Options granted

Replacement options issued as a result of the acquisition of Supreme Cannabis

Options exercised

Options forfeited

Balance outstanding at December 31, 2020

The following is a summary of the Options as at December 31, 2020:

Balance outstanding at June 30, 2021

The following is a summary of the Options as at June 30, 2021:

Options Outstanding

7 unchanged sentences

Range of Exercise Prices

December 31, 2020

June 30, 2021

$0.06 - $24.62

3 unchanged sentences

$42.85 - $171.54

At December 31, 2020, the weighted average exercise price of Options outstanding and Options exercisable was $ 36.12 and $ 35.91 , respectively (March 31, 2020 – $ 34.89 and $ 31.84 , respectively).

The Company recorded $ 16,663 and $ 54,516 in share-based compensation expense related to Options issued to employees and contractors for the three and nine months ended December 31, 2020, respectively (three and nine months ended December 31, 2019 – $ 57,735 and $ 211,053 , respectively).

The share-based compensation expense for the nine months ended December 31, 2020 includes an amount related to 2,112,745 Options being provided in exchange for services which are subject to performance conditions (for the nine months ended December 31, 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 December 31, 2020 and 2019, on their measurement date by applying the following assumptions:

At June 30, 2021, the weighted average exercise price of Options outstanding and Options exercisable was $ 36.50 and $ 37.23 , respectively (March 31, 2021 – $ 36.79 and $ 36.97 , respectively).

The Company recorded $ 8,044 in share-based compensation expense related to Options issued to employees and contractors for the three months ended June 30, 2021 (three months ended June 30, 2020 – $ 22,328 ).

The share-based compensation expense for the three months ended June 30, 2021 includes an amount related to 1,559,413 Options being provided in exchange for services which are subject to performance conditions (for the three months ended June 30, 2020 – 2,060,068 ).

During the three months ended June 30, 2021, the Company issued replacement options to employees in relation to the acquisition of Supreme Cannabis (Note 26) and recorded share-based compensation expense of $ 823 .

The Company uses the Black-Scholes option pricing model to establish the fair value of Options granted during the three months ended June 30, 2021 and 2020, on their measurement date by applying the following assumptions:

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 nine months ended December 31, 2020, 3,176,977 Options were exercised ranging in price from $ 0.06 to $ 36.34 for gross proceeds of $ 37,999 (for the nine months ended December 31, 2019 – 3,642,733 Options were exercised ranging in price from $ 0.22 to $ 40.68 for gross proceeds of $ 39,149 ).

For the three and nine months ended December 31, 2020, the Company recorded $ 2,685 and $ 8,870 , respectively, in share-based compensation expense (recovery) related to RSUs (for the three and nine months ended December 31, 2019 – $( 2,552 ) and $ 129 , respectively).

The following is a summary of the changes in the Company’s RSUs during the nine months ended December 31, 2020:

During the three months ended June 30, 2021, 205,335 Options were exercised ranging in price from $ 2.68 to $ 36.34 for gross proceeds of $ 3,592 (for 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, 2021, the Company recorded $ 2,295 , in share-based compensation expense related to RSUs (for the three months ended June 30, 2020 – $ 3,842 ).

The following is a summary of the changes in the Company’s RSUs during the three months ended June 30, 2021:

Number of RSUs

2 unchanged sentences

RSUs cancelled and forfeited

Balance outstanding at December 31, 2020

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

Three months ended

Nine months ended

Spectrum Colombia

During the three and nine months ended December 31, 2020, nil and 1,149,086 common shares, respectively, (during the three and nine months ended December 31, 2019 – 665,297 and 1,232,148 , respectively) were released on completion of acquisition milestones.

At December 31, 2020, there were up to 3,778,334 common shares to be issued on the completion of acquisition and asset purchase milestones.

Balance outstanding at June 30, 2021

During the three months ended June 30, 2021, the Company recorded $1,699 (for the three months ended June 30, 2020 – $2,970), in share-based compensation expense related to acquisition milestones.

During the three months ended June 30, 2021, 9,888,801 common shares, (during the three months ended June 30, 2020 – 751,922 ) were released on completion of acquisition milestones.

At June 30, 2021, there were up to 645,509 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 December 31, 2020.

The number of common shares has been estimated assuming the milestones were met at June 30, 2021.

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.

and Canindica Capital Ltd.

based on the fair market value of the Company’s Latin American business on that date.

BioSteel share-based payments

2 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 December 31, 2020, BioSteel had 1,507,000 (March 31, 2020 – 1,008,000 ) options outstanding which vest in equal tranches over a 5-year period.

As at June 30, 2021, BioSteel had 1,549,800 (March 31, 2021 – 1,581,000 ) 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 $ 256 and $ 918 of share-based compensation expense related to the BioSteel options during the three and nine months ended December 31, 2020, respectively (three and nine months ended December 31, 2019 – $ 247 ), 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

Options exercised

Options forfeited

Options expired

Balance outstanding at December 31, 2020

Canopy Rivers has a long-term incentive plan (“LTIP”) under which non-transferable options, RSUs, PSU, stock appreciation rights, and restricted stock may be granted to directors, officers, employees, or other eligible service providers of Canopy Rivers.

Pursuant to the LTIP, the maximum number of Subordinated Voting Shares issuable from treasury pursuant to outstanding options, RSUs and PSUs shall not exceed 10 % of the issued and outstanding Subordinated Voting Shares and Multiple Voting Shares, on an aggregate basis.

The LTIP 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 LTIP 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 LTIP.

The seed capital options are not within the scope of the LTIP.

The following is a summary of the changes in Canopy Rivers’ stock options, excluding the seed capital options presented separately, during the nine months ended December 31, 2020:

exercise price

Balance outstanding at March 31, 2020

Options granted

Options exercised

Options expired

Options forfeited

Balance outstanding at December 31, 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 December 31, 2020 and 2019, on their measurement date by applying the following assumptions:

Risk-free interest rate

Expected life of options (years)

Expected volatility

Expected forfeiture rate

Expected dividend yield

Black-Scholes value of each option

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 nine months ended December 31, 2020, the Company recorded $ 202 and $ 1,776 , respectively, (three and nine months ended December 31, 2019 – $ 1,333 and $ 6,182 , 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 nine months ended December 31, 2020, Canopy Rivers granted nil and 28,884 (three and nine months ended December 31, 2019 – none) restricted share units which vest immediately.

For the three and nine months ended December 31, 2020, the Company recorded $ 45 and $ 157 , respectively, (three and nine months ended December 31, 2019 – $nil) of share-based compensation expense related to these restricted share units.

In the three and nine months ended December 31, 2020 , Canopy Rivers granted nil and 1,210,000 , respectively ( three and nine months ended December 31, 2019 – none ) performance share units which vest over a three-year period.

During the three and nine months ended December 31, 2020, 285,000 performance share units were forfeited (three and nine months ended December 31, 2019 – nil ).

For the three and nine months ended December 31, 2020 , the Company recorded $ 134 and $ 538 , respectively ( three and nine months ended December 31, 2019 – $nil ) of share-based compensation expense related to these performance share units .

The Company recorded $ 265 of share-based compensation expense related to the BioSteel options during the three months ended June 30, 2021 (three months ended June 30, 2020 – $ 244 ), with a corresponding increase in noncontrolling interest.

RIV Capital Inc.

( “RIV Capital” ) share-based payments

For the three months ended June 30, 2020, the Company recorded $ 1,301 in share-based compensation expense related to its former subsidiary, RIV Capital.

The Company disposed of its investment in RIV Capital on February 23, 2021.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

4 unchanged sentences

As at March 31, 2021

Other comprehensive loss

As at December 31, 2020

Other comprehensive income (loss)

As at June 30, 2021

Foreign currency translation adjustments

2 unchanged sentences

As at March 31, 2020

Other comprehensive (loss) income

Income tax expense

As at December 31, 2019

Other comprehensive loss

As at June 30, 2020

NONCONTROLLING INTERESTS

2 unchanged sentences

Comprehensive income (loss)

Net loss attributable to redeemable

noncontrolling interest

Net (income) loss attributable to redeemable noncontrolling interest

Share-based compensation

Ownership changes

As at December 31, 2020

As at June 30, 2021

As at March 31, 2020

Comprehensive (loss) income

Net income attributable to redeemable

Comprehensive loss

Net loss attributable to redeemable

noncontrolling interest

1 unchanged sentence

Ownership changes

As at December 31, 2019

As at June 30, 2020

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 unchanged sentences

Quoted prices

December 31, 2020

June 30, 2021

Short-term investments

14 unchanged sentences

Valuation techniques

Convertible senior note

Convertible senior notes

Convertible note pricing model

9 unchanged sentences

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

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

7 unchanged sentences

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

TerrAscend exchangeable shares

TerrAscend Exchangeable Shares, TerrAscend Option

Put option pricing model

1 unchanged sentence

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

Acreage Hempco Debenture

Hempco Debenture

Discounted cash flow

1 unchanged sentence

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

TerrAscend warrants - March 2020

TerrAscend warrants - October 2019, March 2020, December 2020

Monte Carlo simulation model

1 unchanged sentence

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

Arise Bioscience term loan

Arise Bioscience term loan, TerrAscend Canada term loan -

Discounted cash flow

1 unchanged sentence

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

October 2019, March 2020

Discount rate

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

TerrAscend warrants - December 2020

Monte Carlo simulation model

SLANG Worldwide Warrant

Black-Sholes 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

ZeaKal shares

Market approach

Increase or decrease in share price will result in an increase or decrease in fair value

Greenhouse convertible debenture

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

Volatility of Canopy Growth 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

Financial asset / financial liability

Valuation techniques

Significant unobservable inputs

Relationship of unobservable inputs to fair value

BioSteel redeemable noncontrolling interest

BioSteel redeemable NCI

Discounted cash flow

9 unchanged sentences

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

During the nine months ended December 31, 2020 and December 31, 2019, there were no transfers of amounts between levels .

During the three months ended June 30, 2021 and June 30, 2020, there were no transfers of amounts between levels .

Revenue is dissaggregated as follows:

Three months ended

Nine months ended

Recreational cannabis revenue

Canadian recreational cannabis net revenue

Business-to-business 1

Business-to-consumer

Medical cannabis revenue

International

Other revenue

Gross revenue

Canadian medical cannabis net revenue 2

International and other revenue

Global cannabis net revenue

Other consumer products

Storz & Bickel

Other consumer products revenue

1 Canadian recreational business-to-business net revenue reflects excise taxes of $ 17,834 (three months ended June 30, 2020 – $ 7,246 ).

2 Canadian medical cannabis net revenue reflects excise taxes of $ 1,380 (three months ended June 30, 2020 – $ 1,426 ).

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 $ 10,900 for the three and nine months ended December 31, 2020, respectively (three and nine months ended December 31, 2019 – $ 5,343 and $ 46,070 , respectively).

As of December 31, 2020, the liability for estimated returns and price adjustments was $ 7,140 (March 31, 2020 – $ 17,586 ).

Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $ 3,000 for the three months ended June 30, 2021 (three months ended June 30, 2020 – $ 3,400 ).

As of June 30, 2021, the liability for estimated returns and price adjustments was $ 8,387 (March 31, 2021 – $ 6,441 ).

OTHER INCOME (EXPENSE), NET

1 unchanged sentence

Three months ended

Nine months ended

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

Gain on acquisition/disposal of consolidated entity

Other (expense) income, net

There have been no material changes to income tax matters in connection with normal course operations during the nine months ended December 31, 2020.

Loss on disposal of consolidated entity

Other income (expense), net

There have been no material changes to income tax matters in connection with normal course operations during the three months ended June 30, 2021.

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

4 unchanged sentences

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.

EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per share are calculated using the following numerators and denominators:

Three months ended

Basic earnings (loss) per share computation

Net income (loss) attributable to common shareholders

of Canopy Growth

Weighted average number of common shares outstanding

Basic earnings (loss) per share

Diluted earnings (loss) per share computation

Net income (loss) used in the computation of basic earnings (loss) per share

Numerator adjustments for diluted earnings (loss) per share:

Adjustment to net loss attributable to noncontrolling interests and redeemable

noncontrolling interest

Removal of fair value changes on convertible senior notes

Net income (loss) used in the computation of diluted earnings (loss) per share

Weighted average number of common shares outstanding used in the computation

of basic earnings (loss) per share

Denominator adjustments for diluted earnings (loss) per share:

Dilutive impact of assumed exercise or conversion of:

Convertible senior notes

Redeemable noncontrolling interest

Stock options

Other securities

Weighted average number of common shares for computation of diluted

earnings (loss) per share

Diluted earnings (loss) per share 1

1 In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.

The following table summarizes the consolidated balance sheet impact at acquisition of the Company’s business combinations that occurred in the three months ended June 30, 2021:

Cash and cash equivalents

Other current assets

Property, plant and equipment

Intangible assets

Distribution channel

Operating licenses

Accounts payable and other accrued expenses and liabilities

Debt and other liabilities

Deferred income tax liabilities

Net assets acquired

Consideration paid in cash

Consideration paid in shares

Replacement options

Replacement warrants

Other consideration

Total consideration

Consideration paid in cash

Cash and cash equivalents acquired

Net cash outflow (inflow)

The table above summarizes the fair value of the consideration given and the fair values assigned to the assets acquired and liabilities assumed for each acquisition.

Goodwill arose in these acquisitions because the cost of acquisition included a control premium.

In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development.

These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

No ne of the goodwill arising on these acquisitions is expected to be deductible in the computation of income for tax purposes.

(i) Ace Valley

On April 1, 2021 , the Company entered into a share purchase agreement (the “AV Share Purchase Agreement”) with Tweed Inc., AV Cannabis Inc.

(“Ace Valley”), and the shareholders of Ace Valley (the “AV Vendors”) pursuant to which the Company indirectly acquired 100 % of the issued and outstanding shares of Ace Valley for cash consideration of $ 51,623 .

Ace Valley is an Ontario-based cannabis brand with a focus on premium, ready-to-enjoy products including vapes, pre-roll joints and gummies.

Pursuant to the terms of the AV Share Purchase Agreement, the Company may be required to make certain earn-out payments to the AV Vendors, which may result in an additional cash payment or the issuance of common shares, subject to the fulfillment of certain conditions by April 1, 2023.

This represents liability-classified contingent consideration.

Management has estimated the fair value of this consideration to be $ 2,469 by assessing the probability and timing of the fulfillment of the specified conditions and discounting the expected cash outflows to present value.

Due to the timing of this acquisition, the purchase price allocation for the acquisition of Ace Valley is provisional.

The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

(ii) Supreme Cannabis

On June 22, 2021 , the Company and the Supreme Cannabis Company, Inc.

(“Supreme Cannabis”) completed an arrangement (the “Supreme Arrangement”) pursuant to which the Company acquired 100 % of the issued and outstanding common shares of Supreme Cannabis (the “Supreme Shares”).

Supreme Cannabis is a producer of recreational, wholesale and medical cannabis products, with a diversified portfolio of distinct cannabis companies, products and brands.

Pursuant to the Supreme Arrangement, the Company issued 9,013,400 common shares with a fair value on closing of $ 260,668 and made a cash payment of $ 84 to former Supreme Cannabis shareholders in consideration for their Supreme Shares.

The Company also assumed the obligation to issue 1,265,742 common shares upon the exercise of outstanding warrants of Supreme Cannabis and issued 140,159 replacement options.

The fair value of the obligation upon the exercise of the outstanding warrants of Supreme Cannabis was estimated to be $ 13,350 using a Black-Scholes model.

The replacement options’ fair value totaled $ 1,452 , calculated using a Black-Scholes model, of which $ 629 was included in consideration paid as it related to pre-combination services and the residual $ 823 fair value was recognized immediately in share-based compensation expense after the completion of the acquisition.

On June 22, 2021, Supreme Cannabis had convertible debentures outstanding with a principal amount of $ 26,968 which were convertible into 94,625,183 Supreme Shares.

As a result of the acquisition the conversion feature was adjusted in accordance with an exchange ratio of 0.011659 .

The fair value of these convertible debentures on June 22, 2021 was estimated to be $ 36,751 , of which $ 4,937 was allocated to the conversion feature and $ 31,814 to the debt component.

Due to the timing of this acquisition, the purchase price allocation for the acquisition of Supreme Cannabis is provisional.

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 “Acreage 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.

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 Acreage 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

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 Acreage 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.

On September 23, 2020, the Company and Acreage Holdings, Inc.

(“Acreage”) entered into a second amendment (the “Acreage Amending Agreement”) to the arrangement agreement (the “Acreage Arrangement Agreement”) between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019, and implemented an amended and restated plan of arrangement (the “Acreage Amended Arrangement”).

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

Following the occurrence or waiver (at the discretion of Canopy Growth) 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 Acreage Arrangement Agreement (as modified in connection with the Acreage Amending Agreement), Canopy Growth will acquire all of the issued and outstanding Class E subordinated voting shares (the “Fixed Shares”) based on an amended exchange ratio equal to 0.3048 of a common share to be received for each Fixed Share held.

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

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 Class D subordinated voting shares (the “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 Canadian Securities Exchange, 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 Acreage 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;

Upon implementation of the Amended Arrangement, Canopy Growth made 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 );

Immediately prior to the acquisition of the Fixed Shares, each issued and outstanding Class F multiple voting 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 by September 23, 2030, Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate;

Upon implementation of the Acreage Amended Arrangement, Canopy Growth made a cash payment to the shareholders of Acreage and holders of certain convertible securities 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 December 31, 2020, the Acreage financial instrument represents a financial liability of $ 450,000 (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 $( 303,000 ) and $( 249,849 ) were recognized in other income (expense), net in the three and nine months ended December 31, 2020, respectively (three and nine months ended December 31, 2019 – $( 30,000 ) and $( 265,190 ), respectively) (see Note 25).

At June 30, 2021, the right and the obligation (the “Acreage financial instrument”) to acquire the Fixed Shares represents a financial liability of $ 450,000 (March 31, 2021 – $ 600,000 ), 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 $ 150,000 were recognized in other income (expense), net in the three months ended June 30, 2021 (three months ended June 30, 2020 – $ 35,000 ) (see Note 23).

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

1 unchanged sentence

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

In connection with the Amended Arrangement, on September 23, 2020, 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 connection with the Acreage Amended Arrangement, on September 23, 2020, 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 bears interest at a rate of 6.1 % per annum, matures on 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 9), and the Company has elected the fair value option under ASC 825 (see Note 21).

At December 31, 2020, the estimated fair value of the debenture issued to an affiliate of the Company by Acreage Hempco was $ 26,561 , measured using a discounted cash flow model, and fair value changes and foreign currency translation adjustments totaling $( 17,120 ) and $( 40,434 ) were recognized in other income (expense), net in the three and nine months ended December 31, 2020, respectively (see Note 25).

At June 30, 2021, the estimated fair value of the debenture issued to an affiliate of the Company by Acreage Hempco was $ 28,391 (March 31, 2021 – $ 27,448 ), measured using a discounted cash flow model, and fair value changes and foreign currency translation adjustments totaling $ 943 were recognized in other income (expense), net in the three months ended June 30, 2021 (see Note 23).

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

7 unchanged sentences

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 December 31, 2020.

The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at June 30, 2021.

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 December 31, 2020, the fair value of the warrant derivative liability was $ 415,946 (March 31, 2020 – $ 322,491 ), and fair value changes of $( 193,998 ) and $( 93,455 ) have been recognized in other income (expense), net in the three and nine months ended December 31, 2020, respectively (three and nine months ended December 31, 2019 – gains of $ 82,512 and $ 749,258 , respectively) (see Note 25).

At June 30, 2021, the fair value of the warrant derivative liability was $ 299,318 (March 31, 2021 – $ 615,575 ), and fair value changes of $ 316,257 have been recognized in other income (expense), net in the three months ended June 30, 2021 (three months ended June 30, 2020 – gain of $ 35,369 ) (see Note 23).

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

See Note 21 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 December 31, 2020.

The Tranche C Warrants are accounted for as derivative instruments, with the fair value continuing to be $nil at June 30, 2021.

SEGMENT INFORMATION

Reportable segments

The Company operates in two segments:

i) 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 ii) 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.

Refer to Note 19 for a description of the plan of arrangement with Canopy Rivers.

Ownership interest

Cash and cash equivalents

Prepaid expenses and other current assets

Investments in associates

Other financial assets

Other long-term assets

Other liabilities

Noncontrolling interests

Equity attributable to Canopy Growth

The Company is reporting its financial results for the following two operating segments, which are also its reportable segments:

(i) global cannabis, and (ii) other consumer products.

These segments reflect how the Company’s operations are managed, how the Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), allocates resources and evaluates performance, and how the Company’s internal management financial reporting is structured.

The Company’s global cannabis segment encompasses the production, distribution and sale of a diverse range of cannabis and cannabinoid-based consumer products in Canada and internationally pursuant to applicable international and domestic legislation, regulations and permits.

The Company’s other consumer products segment comprises the production, distribution and sale of consumer products, including (i) Storz & Bickel vaporizers;

(ii) This Works beauty, skincare, wellness and sleep products;

(iii) BioSteel sports nutrition beverages, mixes, protein, gum and mints;

and (iv) other revenue sources.

The Company’s CODM evaluates the performance of these two segments focusing on (i) segment net revenue, and (ii) segment gross margin and gross margin

percentage as the measure of segment profit or loss.

Accordingly, information regarding segment net revenue and segment gross margin for the comparative periods has been recast to reflect the aforementioned change in reportable segments.

Three months ended

Segmented net revenue

Global cannabis

Other consumer products

Segmented gross margin:

Global cannabis

Other consumer products

Selling, general and administrative expenses

Share-based compensation

Asset impairment and restructuring costs

Operating loss

Loss from equity method investments

Other income (expense), net

Net income (loss) before incomes taxes

Asset information by segment is not provided to, or reviewed by, the Company’s CODM as it is not used to make strategic decisions, allocate resources, or assess performance.

Entity-wide disclosures

All property, plant and equipment are located in Canada, except for $ 462,083 which is located outside of Canada as at December 31, 2020 (March 31, 2020 – $ 499,059 ).

All revenues were principally generated in Canada during the three and nine months ended December 31, 2020, except for $ 61,468 and $ 155,126 , respectively related to exported medical cannabis and cannabis related merchandise generated outside of Canada (three and nine months ended December 31, 2019 – $ 43,029 and $ 100,436 , respectively).

For the three months ended December 31, 2020, one customer represented more than 10% of the Company’s net revenue (three months ended December 31, 2019 – one ).

For the nine months ended December 31, 2020, one customer represented more than 10% of the Company’s net revenue (nine months ended December 31, 2019 – one ).

SUBSEQUENT EVENTS

TerrAscend Option Agreement

On January 13, 2021, the Company entered into an option agreement to acquire 1,072,450 common shares of TerrAscend for US$ 10,500 , conditional upon the occurrence or waiver of amendments to federal laws of the United States 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.

Disaggregation of net revenue by geographic area:

Three months ended

United States

Disaggregation of property, plant and equipment by geographic area:

United States

For the three months ended June 30, 2021, one customer represented more than 10% of the Company’s net revenue (three months ended June 30, 2020 – one ).

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