Item 1. Financial Statements
Item 1. Financial Statements.
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars, except number of shares and per share data, unaudited)
June 30,
2021
March 31,
2021
ASSETS
Current assets:
Cash and cash equivalents
$
559,840
$
1,154,653
Short-term investments
1,491,286
1,144,563
Restricted short-term investments
14,336
11,332
Amounts receivable, net
106,455
92,435
Inventory
411,675
367,979
Prepaid expenses and other assets
91,584
67,232
Total current assets
2,675,176
2,838,194
Other financial assets
791,658
708,167
Property, plant and equipment
1,142,614
1,074,537
Intangible assets
347,063
308,167
Goodwill
2,000,458
1,889,354
Other assets
9,514
5,061
Total assets
$
6,966,483
$
6,823,480
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
91,339
$
67,262
Other accrued expenses and liabilities
79,938
100,813
Current portion of long-term debt
15,705
9,827
Other liabilities
69,148
106,428
Total current liabilities
256,130
284,330
Long-term debt
1,545,073
1,573,136
Deferred income tax liabilities
26,570
21,379
Liability arising from Acreage Arrangement
450,000
600,000
Warrant derivative liability
299,318
615,575
Other liabilities
109,038
107,240
Total liabilities
2,686,129
3,201,660
Commitments and contingencies
Redeemable noncontrolling interest
135,300
135,300
Canopy Growth Corporation shareholders' equity:
Common shares - $nil par value; Authorized - unlimited number of shares;
Issued - 393,119,100 shares and 382,875,179 shares, respectively
7,463,557
7,168,557
Additional paid-in capital
2,413,779
2,415,650
Accumulated other comprehensive loss
( 61,518
)
( 34,240
)
Deficit
( 5,675,738
)
( 6,068,156
)
Total Canopy Growth Corporation shareholders' equity
4,140,080
3,481,811
Noncontrolling interests
4,974
4,709
Total shareholders' equity
4,145,054
3,486,520
Total liabilities and shareholders' equity
$
6,966,483
$
6,823,480
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
1
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in thousands of Canadian dollars, except number of shares and per share data, unaudited)
Three months ended June 30,
2021
2020
Revenue
$
155,423
$
119,088
Excise taxes
19,214
8,672
Net revenue
136,209
110,416
Cost of goods sold
108,971
103,921
Gross margin
27,238
6,495
Operating expenses
Selling, general and administrative expenses
112,574
135,392
Share-based compensation
13,126
30,685
Asset impairment and restructuring costs
89,249
12,794
Total operating expenses
214,949
178,871
Operating loss
( 187,711
)
( 172,376
)
Loss from equity method investments
( 100
)
( 7,189
)
Other income (expense), net
580,666
48,205
Income (loss) before income taxes
392,855
( 131,360
)
Income tax (expense) recovery
( 2,900
)
3,038
Net income (loss)
389,955
( 128,322
)
Net loss attributable to noncontrolling interests and
redeemable noncontrolling interest
( 2,463
)
( 19,821
)
Net income (loss) attributable to Canopy Growth Corporation
$
392,418
$
( 108,501
)
Basic earnings (loss) per share
$
1.02
$
( 0.30
)
Basic weighted average common shares outstanding
384,055,133
363,763,347
Diluted earnings (loss) per share
$
0.84
$
( 0.30
)
Diluted weighted average common shares outstanding
404,546,243
363,763,347
Comprehensive loss:
Net income (loss)
$
389,955
$
( 128,322
)
Other comprehensive income (loss), net of income tax effect
Fair value changes of own credit risk of financial liabilities
660
( 15,360
)
Foreign currency translation
( 27,938
)
( 53,124
)
Total other comprehensive income (loss), net of income tax effect
( 27,278
)
( 68,484
)
Comprehensive income (loss)
362,677
( 196,806
)
Comprehensive income (loss) attributable to noncontrolling interests
and redeemable noncontrolling interest
( 2,463
)
( 19,821
)
Comprehensive income (loss) attributable to Canopy Growth Corporation
$
365,140
$
( 176,985
)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
2
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, unaudited)
Additional paid-in capital
Accumulated
Common shares
Share-based reserve
Warrants
Ownership changes
Redeemable noncontrolling interest
other comprehensive income (loss)
Deficit
Noncontrolling interests
Total
Balance at March 31, 2021
$
7,168,557
$
480,786
$
2,568,438
$
( 512,340
)
$
( 121,234
)
$
( 34,240
)
$
( 6,068,156
)
$
4,709
$
3,486,520
Other issuances of common shares
and warrants
285,915
( 25,692
)
-
-
-
-
-
-
260,223
Replacement equity instruments
from the acquisition of Supreme
Cannabis
-
5,566
13,350
-
-
-
-
-
18,916
Exercise of Omnibus Plan stock
options
5,522
( 1,930
)
-
-
-
-
-
-
3,592
Share-based compensation
-
12,861
-
-
-
-
-
-
12,861
Issuance and vesting of restricted
share units
3,563
( 3,563
)
-
-
-
-
-
-
-
Changes in redeemable
noncontrolling interest
-
-
-
-
( 2,463
)
-
-
2,463
-
Ownership changes relating to
noncontrolling interests
-
-
-
-
-
-
-
265
265
Comprehensive (loss) income
-
-
-
-
-
( 27,278
)
392,418
( 2,463
)
362,677
Balance at June 30, 2021
$
7,463,557
$
468,028
$
2,581,788
$
( 512,340
)
$
( 123,697
)
$
( 61,518
)
$
( 5,675,738
)
$
4,974
$
4,145,054
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
3
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, unaudited)
Additional paid-in capital
Accumulated
Common shares
Share-based reserve
Warrants
Ownership changes
Redeemable noncontrolling interest
other comprehensive income (loss)
Deficit
Noncontrolling interests
Total
Balance at March 31, 2020
$
6,373,544
$
517,741
$
2,638,951
$
( 501,403
)
$
( 40,134
)
$
220,899
$
( 4,323,236
)
$
221,758
$
5,108,120
Other issuances of common shares
and warrants
26,214
( 26,798
)
-
-
-
-
-
-
( 584
)
Exercise of warrants
315,256
-
( 70,266
)
-
-
-
-
-
244,990
Exercise of Omnibus Plan stock
options
9,231
( 4,509
)
-
-
-
-
-
-
4,722
Share-based compensation
-
29,140
-
-
-
-
-
-
29,140
Changes in redeemable
noncontrolling interest
-
-
-
-
( 22,513
)
-
-
10,663
( 11,850
)
Ownership changes relating to
noncontrolling interests
-
-
-
162
-
-
-
2,647
2,809
Comprehensive income (loss)
-
-
-
-
-
( 68,484
)
( 108,501
)
( 19,821
)
( 196,806
)
Balance at June 30, 2020
$
6,724,245
$
515,574
$
2,568,685
$
( 501,241
)
$
( 62,647
)
$
152,415
$
( 4,431,737
)
$
215,247
$
5,180,541
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
4
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
Three months ended June 30,
2021
2020
Cash flows from operating activities:
Net income (loss)
$
389,955
$
( 128,322
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment
17,116
17,415
Amortization of intangible assets
8,016
16,632
Share of loss on equity method investments
100
7,189
Share-based compensation
13,126
30,685
Asset impairment and restructuring costs
89,249
12,794
Income tax expense (recovery)
2,900
( 3,038
)
Non-cash foreign currency
( 17,846
)
8,688
Interest paid
( 23,666
)
( 57
)
Change in operating assets and liabilities, net of effects from
purchases of businesses:
Amounts receivable
( 4,946
)
17,577
Prepaid expenses and other assets
( 8,804
)
( 16,059
)
Inventory
44,228
( 10,772
)
Accounts payable and accrued liabilities
( 16,960
)
3,755
Other, including non-cash fair value adjustments
( 658,248
)
( 75,033
)
Net cash used in operating activities
( 165,780
)
( 118,546
)
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment
( 20,279
)
( 61,547
)
Purchases of intangible assets
( 833
)
( 3,088
)
Proceeds on sale of intangible assets
-
18,337
Purchases of short-term investments
( 346,603
)
( 382,486
)
Net cash proceeds on sale of subsidiaries
10,324
-
Sale of (investments in) other financial assets
56
( 2,564
)
Recovery of amounts related to construction financing
-
10,000
Payment of acquisition related liabilities
( 8,367
)
( 4,511
)
Net cash outflow on acquisition of noncontrolling interests
-
( 125
)
Net cash outflow on acquisition of subsidiaries
( 8,857
)
-
Net cash used in investing activities
( 374,559
)
( 425,984
)
Cash flows from financing activities:
Payment of share issue costs
( 444
)
( 595
)
Proceeds from issuance of shares by RIV Capital
-
92
Proceeds from exercise of stock options
3,592
4,722
Proceeds from exercise of warrants
-
244,990
Issuance of long-term debt
-
4,439
Repayment of long-term debt
( 48,116
)
( 6,345
)
Net cash (used in) provided by financing activities
( 44,968
)
247,303
Effect of exchange rate changes on cash and cash equivalents
( 9,506
)
( 30,079
)
Net decrease in cash and cash equivalents
( 594,813
)
( 327,306
)
Cash and cash equivalents, beginning of period
1,154,653
1,303,176
Cash and cash equivalents, end of period
$
559,840
$
975,870
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
5
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
Three months ended June 30,
2021
2020
Supplemental disclosure of cash flow information
Cash received during the period:
Income taxes
$
33
$
2,000
Cash paid during the period:
Income taxes
$
330
$
408
Noncash investing and financing activities
Additions to property, plant and equipment
$
4,776
$
17,337
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
6
CANOPY GROWTH CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, unaudited)
1 . DESCRIPTION OF BUSINESS
Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario. References herein to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.
The principal activities of the Company are the production, distribution and sale of 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.
2 . BASIS OF PRESENTATION
These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars. Our condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated.
Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021 (the “Annual Report”) and have been prepared on a basis consistent with the accounting policies as described in the Annual Report.
These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP.
The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted.
Principles of consolidation
The accompanying condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with noncontrolling interests is included in Note 20.
Use of estimates
The preparation of these condensed interim consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.
New accounting policies
Recently Adopted Accounting Pronouncements
Income Taxes
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
7
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.
Investments-Equity Securities
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) . ASU 2020-01 clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The 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. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2020-06 effective April 1, 2022.
3. ASSET IMPAIRMENT AND RESTRUCTURING COSTS
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.
4. CASH AND CASH EQUIVALENTS
The components of cash and cash equivalents are as follows:
June 30,
March 31,
2021
2021
Cash
$
367,284
$
436,588
Cash equivalents
192,556
718,065
$
559,840
$
1,154,653
5. SHORT-TERM INVESTMENTS
The components of short-term investments are as follows:
June 30,
March 31,
2021
2021
Term deposits
$
442,916
$
463,824
Government securities
92,360
136,620
Asset-backed securities
252,848
16,342
Commercial paper and other
703,162
527,777
$
1,491,286
$
1,144,563
The amortized cost of short-term investments at June 30, 2021 is $ 1,492,227 (March 31, 2021 – $ 1,145,364 ).
8
6. AMOUNTS RECEIVABLE, NET
The components of amounts receivable, net are as follows:
June 30,
March 31,
2021
2021
Accounts receivable, net
$
87,582
$
67,106
Indirect taxes receivable
8,674
8,281
Interest receivable
6,052
5,140
Other receivables
4,147
11,908
$
106,455
$
92,435
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 ) .
7. INVENTORY
The components of inventory are as follows:
June 30,
March 31,
2021
2021
Raw materials, packaging supplies and consumables
$
66,006
$
55,554
Work in progress
219,816
223,652
Finished goods
125,853
88,773
$
411,675
$
367,979
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 ).
8. PREPAID EXPENSES AND OTHER ASSETS
The components of prepaid expenses and other assets are as follows:
June 30,
March 31,
2021
2021
Prepaid expenses
$
44,412
$
28,349
Deposits
21,008
18,316
Prepaid inventory
1,157
1,496
Other assets
25,007
19,071
$
91,584
$
67,232
9
9. OTHER FINANCIAL ASSETS
The following table outlines changes in other financial assets. Additional details on how the fair value of significant investments is calculated are included in Note 21.
Foreign
Exercise of
Balance at
currency
options /
Balance at
March 31,
Fair value
translation
disposal
June 30,
Entity
Instrument
2021
changes
adjustments
of shares
2021
TerrAscend Exchangeable Shares
Exchangeable shares
$
385,000
$
53,000
$
-
$
-
$
438,000
TerrAscend Canada - October 2019
Term loan / debenture
10,240
540
-
-
10,780
TerrAscend Canada - March 2020
Term loan / debenture
56,330
3,350
-
-
59,680
Arise Bioscience
Term loan / debenture
13,077
1,376
( 171
)
-
14,282
TerrAscend - October 2019
Warrants
17,250
2,780
-
-
20,030
TerrAscend - March 2020
Warrants
152,910
22,820
-
-
175,730
TerrAscend - December 2020
Warrants
13,240
1,840
-
-
15,080
TerrAscend
Option
10,600
1,500
-
-
12,100
Acreage Hempco 1
Debenture
27,448
1,302
( 359
)
-
28,391
SLANG
Warrants
9,400
( 4,000
)
-
-
5,400
Other - at fair value through net income (loss)
Various
5,487
( 356
)
-
( 100
)
5,031
Other - classified as held for investment
Loan receivable
7,185
-
-
( 31
)
7,154
$
708,167
$
84,152
$
( 530
)
$
( 131
)
$
791,658
1 See Note 27 for information regarding Acreage Hempco .
10
10. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
June 30,
March 31,
2021
2021
Buildings and greenhouses
$
833,426
$
651,166
Production and warehouse equipment
210,671
216,925
Leasehold improvements
101,163
106,837
Office and lab equipment
35,053
30,546
Land
33,158
34,747
Computer equipment
22,719
26,431
Right-of-use-assets
Buildings and greenhouses
100,530
100,517
Production and warehouse equipment
530
530
Assets in process
26,653
129,428
1,363,903
1,297,127
Less: Accumulated depreciation
( 221,289
)
( 222,590
)
$
1,142,614
$
1,074,537
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 ).
11. INTANGIBLE ASSETS
The components of intangible assets are as follows:
June 30, 2021
March 31, 2021
Gross
Net
Gross
Net
Carrying
Carrying
Carrying
Carrying
Amount
Amount
Amount
Amount
Finite lived intangible assets
Intellectual property
$
211,069
$
165,077
$
212,100
$
168,655
Distribution channel
76,599
35,208
73,756
35,176
Software and domain names
29,655
18,193
27,836
18,149
Brands
21,102
7,241
21,812
8,894
Operating licenses
10,500
10,500
-
-
Amortizable intangibles in process
875
875
1,952
1,952
Total
$
349,800
$
237,094
$
337,456
$
232,826
Indefinite lived intangible assets
Acquired brands
$
101,969
$
67,341
Operating licenses
8,000
8,000
Total intangible assets
$
347,063
$
308,167
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 ).
11
12. GOODWILL
The changes in the carrying amount of goodwill are as follows:
Balance, March 31, 2020
$
1,954,471
Foreign currency translation adjustments
( 65,117
)
Balance, March 31, 2021
$
1,889,354
Purchase accounting allocations
122,374
Disposal of consolidated entities
( 5,245
)
Foreign currency translation adjustments
( 6,025
)
Balance, June 30, 2021
$
2,000,458
13. OTHER ACCRUED EXPENSES AND LIABILITIES
The components of other accrued expenses and liabilities are as follows:
June 30,
March 31,
2021
2021
Employee compensation
$
36,061
$
47,237
Taxes and government fees
14,250
13,550
Professional fees
7,303
11,544
Other
22,324
28,482
$
79,938
$
100,813
14. DEBT
The components of debt are as follows:
June 30,
March 31,
Maturity Date
2021
2021
Convertible senior notes at 4.25 % interest with
semi-annual interest payments
July 15, 2023
Principal amount
$
600,000
$
600,000
Accrued interest
12,042
5,664
Non-credit risk fair value adjustment
52,620
109,710
Credit risk fair value adjustment
( 28,620
)
( 27,960
)
636,042
687,414
Convertible debentures
September 10, 2025
30,532
-
Accretion debentures
September 10, 2025
9,802
-
Credit facility
March 18, 2026
880,927
891,677
Other revolving debt facility, loan, and financings
3,475
3,872
1,560,778
1,582,963
Less: current portion
( 15,705
)
( 9,827
)
Long-term portion
$
1,545,073
$
1,573,136
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.
12
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 . The Notes bear interest at a rate of 4.25 % per annum, payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019 . The Notes will mature on July 15, 2023 . The Notes are subordinated in right of payment to any existing and future senior indebtedness, including indebtedness under the revolving credit facility. The Notes will rank senior in right of payment to any future subordinated borrowings. The Notes are effectively junior to any secured indebtedness and the Notes are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.
Holders of the Notes may convert the Notes at their option at any time from January 15, 2023 to the maturity date. The Notes will be convertible, at the holder’s option, at a conversion rate of 20.7577 common shares for every $ 1 principal amount of Notes (equal to an initial conversion price of approximately $ 48.18 per common share), subject to adjustments in certain events. In addition, the holder has the right to exercise the conversion option from September 30, 2018 to January 15, 2023, if (i) the market price of the Company common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $ 1 principal amount of the Notes for each trading day in the measurement period was less than 98 % of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the Notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”). A Fundamental Change occurred upon completion of the investment by Constellation Brands, Inc. (“CBI”) in 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. Under the terms of the indenture, if a Fundamental Change occurs and a holder elects to convert its Notes from and including on the date of the Fundamental Change up to, and including, the business day immediately prior to the Fundamental Change repurchase date, the Company may be required to increase the conversion rate for the Notes so surrendered for conversion by a number of additional common shares.
The Company cannot redeem the Notes prior to July 20, 2021, except in the event of certain changes in Canadian tax law. On or after July 20, 2021 , the Company could redeem for cash, subject to certain conditions, any or all of the Notes, at its option, if the last reported sales price of the Company’s common shares for at least 20 trading days during any 30 consecutive trading day period ending within 5 trading days immediately preceding the date on which the Company provides notice of redemption exceeds 130 % of the conversion price on each applicable trading day. The Company may also redeem the Notes, if certain tax laws related to Canadian withholding tax change subject to certain further conditions. The redemption of Notes in either case shall be at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
For accounting purposes, the equity conversion feature did not meet the equity classification guidance, therefore the Company elected the fair value option under ASC 825 – Financial Instruments (“ASC 825”). The Notes were initially recognized at fair value on the balance sheet. All subsequent changes in fair value, excluding the impact of the change in fair value related to 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 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.
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
13
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
On August 13, 2019, the Company, through its wholly owned subsidiary, Tweed Farms Inc., entered into a $ 40,000 revolving debt facility with Farm Credit Canada (“FCC”). The new facility replaces the previous loans with FCC and is secured by the Company’s property in Niagara-on-the-Lake. The extinguishment of $ 4,912 in previous FCC debt resulted in no gain or loss.
The current outstanding balance of the FCC debt facility is $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 .
15. OTHER LIABILITIES
The components of other liabilities are as follows:
As at June 30, 2021
As at March 31, 2021
Current
Long-term
Total
Current
Long-term
Total
Lease liabilities
$
36,862
$
93,174
$
130,036
$
42,061
$
94,164
$
136,225
Acquisition consideration
related liabilities
10,095
10,393
20,488
16,577
7,808
24,385
Refund liability
8,387
-
8,387
6,441
-
6,441
Settlement liabilities and
other
13,804
5,471
19,275
41,349
5,268
46,617
$
69,148
$
109,038
$
178,186
$
106,428
$
107,240
$
213,668
16. REDEEMABLE NONCONTROLLING INTEREST
The net changes in the redeemable noncontrolling interests are as follows:
Vert
Mirabel
BioSteel
Total
As at March 31, 2021
$
11,500
$
123,800
$
135,300
Net income (loss) attributable to redeemable noncontrolling interest
1,293
( 3,756
)
( 2,463
)
Adjustments to redemption amount
( 1,293
)
3,756
2,463
As at June 30, 2021
$
11,500
$
123,800
$
135,300
Vert
Mirabel
BioSteel
Total
As at March 31, 2020
$
20,250
$
49,500
$
69,750
Net loss attributable to redeemable noncontrolling interest
( 9,253
)
( 1,410
)
( 10,663
)
Adjustments to redemption amount
18,803
3,710
22,513
As at June 30, 2020
$
29,800
$
51,800
$
81,600
14
17. SHARE CAPITAL
CANOPY GROWTH
Authorized
An unlimited number of common shares.
(i) Equity financings
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 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
Share
capital
Share
based
reserve
Acquisition of Supreme Cannabis
9,013,400
$
260,668
$
-
Completion of acquisition milestones
875,401
25,247
( 25,692
)
Total
9,888,801
$
285,915
$
( 25,692
)
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
Share
capital
Share
based
reserve
Completion of acquisition milestones
751,922
$
12,079
$
( 12,079
)
Other issuances
412,417
14,135
( 14,719
)
Total
1,164,339
$
26,214
$
( 26,798
)
(iii) Warrants
Number of
whole
warrants
Average
exercise
price
Warrant
value
Balance outstanding at March 31, 2021 1
127,073,136
$
58.33
$
2,568,438
Supreme Cannabis warrants
1,265,742
$
25.61
$
13,350
Expiry of warrants
( 145,831
)
32.61
-
Balance outstanding at June 30, 2021 1
128,193,047
$
58.04
$
2,581,788
1 This balance excludes the Tranche C Warrants (as defined below), which represent a derivative liability and have nominal value. See Note 27.
Number of
whole
warrants
Average
exercise
price
Warrant
value
Balance outstanding at March 31, 2020 1
146,299,443
$
52.44
$
2,638,951
Exercise of warrants
( 18,876,901
)
12.98
( 70,266
)
Balance outstanding at June 30, 2020 1
127,422,542
$
58.29
$
2,568,685
1 This balance excludes the Tranche C Warrants (as defined below), which represent a derivative liability and have nominal value. See Note 27.
18. SHARE-BASED COMPENSATION
CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN
Canopy Growth's eligible employees participate in a share-based compensation plan as noted below.
15
On September 21, 2020, the Company’s shareholders approved amendments to the Company’s Amended and Restated Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives. The Omnibus Plan approved by the shareholders extended the maximum term of each Option (as defined below) to be granted by the Company to ten years from the date of grant rather than six years from the date of grant. 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.
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:
Options
issued
Weighted
average
exercise price
Balance outstanding at March 31, 2021
17,704,311
$
36.79
Options granted
560,085
30.87
Replacement options issued as a result of the acquisition of Supreme Cannabis
140,159
80.53
Options exercised
( 205,335
)
17.50
Options forfeited
( 809,960
)
43.79
Balance outstanding at June 30, 2021
17,389,260
$
36.50
The following is a summary of the Options as at June 30, 2021:
Options Outstanding
Options Exercisable
Weighted Average
Weighted Average
Remaining
Remaining
Outstanding at
Contractual Life
Exercisable at
Contractual Life
Range of Exercise Prices
June 30, 2021
(years)
June 30, 2021
(years)
$0.06 - $24.62
2,357,356
3.15
1,407,826
2.43
$24.63 - $33.53
4,491,920
4.11
2,090,648
3.36
$33.54 - $36.80
3,405,640
3.42
2,186,429
3.42
$36.81 - $42.84
2,992,796
3.68
2,034,251
3.22
$42.85 - $171.54
4,141,548
3.64
2,469,037
3.56
17,389,260
3.65
10,188,191
3.25
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 ).
16
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:
June 30,
June 30,
2021
2020
Risk-free interest rate
0.67 %
0.33 %
Expected life of options (years)
3 - 5
3 - 5
Expected volatility
76 %
76 %
Expected forfeiture rate
18 %
16 %
Expected dividend yield
nil
nil
Black-Scholes value of each option
$ 17.25
$ 12.31
Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that Options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the Options.
During the three months ended June 30, 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
Balance outstanding at March 31, 2021
753,310
RSUs granted
536,314
RSUs released
( 149,785
)
RSUs cancelled and forfeited
( 24,334
)
Balance outstanding at June 30, 2021
1,115,505
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 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. and Canindica Capital Ltd. based on the fair market value of the Company’s Latin American business on that date.
BioSteel share-based payments
On October 1, 2019, the Company purchased 72 % of the outstanding shares of BioSteel Sports Nutrition Inc. (“BioSteel”). BioSteel has a stock option plan under which non-transferable options to purchase common shares of BioSteel may be granted to directors, officers, employees, or independent contractors of the BioSteel. As at June 30, 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 $ 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.
17
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.
19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income includes the following components:
Foreign currency translation adjustments
Changes of own credit risk of financial liabilities
Accumulated other comprehensive income (loss)
As at March 31, 2021
$
( 28,246
)
$
( 5,994
)
$
( 34,240
)
Other comprehensive income (loss)
( 27,938
)
660
( 27,278
)
As at June 30, 2021
$
( 56,184
)
$
( 5,334
)
$
( 61,518
)
Foreign currency translation adjustments
Changes of own credit risk of financial liabilities
Accumulated other comprehensive income (loss)
As at March 31, 2020
$
126,723
$
94,176
$
220,899
Other comprehensive loss
( 53,124
)
( 15,360
)
( 68,484
)
As at June 30, 2020
$
73,599
$
78,816
$
152,415
20. NONCONTROLLING INTERESTS
The net change in the noncontrolling interests is as follows:
Vert
Mirabel
BioSteel
Other non-
material
interests
Total
As at March 31, 2021
$
-
$
1,658
$
3,051
$
4,709
Comprehensive income (loss)
1,293
( 3,756
)
-
( 2,463
)
Net (income) loss attributable to redeemable noncontrolling interest
( 1,293
)
3,756
-
2,463
Share-based compensation
-
265
-
265
Ownership changes
-
-
-
-
Warrants
-
-
-
-
As at June 30, 2021
$
-
$
1,923
$
3,051
$
4,974
Canopy
Rivers
Vert
Mirabel
BioSteel
Other non-
material
interests
Total
As at March 31, 2020
$
211,086
$
7,132
$
489
$
3,051
$
221,758
Comprehensive loss
( 3,883
)
( 14,528
)
( 1,410
)
-
( 19,821
)
Net loss attributable to redeemable
noncontrolling interest
-
9,253
1,410
-
10,663
Share-based compensation
1,301
-
244
-
1,545
Ownership changes
852
-
-
-
852
Warrants
250
-
-
-
250
As at June 30, 2020
$
209,606
$
1,857
$
733
$
3,051
$
215,247
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
•
Level 1 – defined as observable inputs such as quoted prices in active markets;
•
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
18
•
Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.
The Company records cash, accounts receivable, interest receivable and accounts payable, and other accrued expenses and liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include items such as property, plant and equipment, goodwill and other intangible assets, equity and other investments and other assets. We determine the fair value of these items using Level 3 inputs, as described in the related sections below.
The following table represents our financial assets and liabilities measured at estimated fair value on a recurring basis:
Fair value measurement using
Quoted prices
Significant
prices in
other
Significant
active
observable
unobservable
markets
inputs
inputs
(Level 1)
(Level 2)
(Level 3)
Total
June 30, 2021
Assets:
Short-term investments
$
1,491,286
$
-
$
-
$
1,491,286
Restricted short-term investments
14,336
-
-
14,336
Other financial assets
268
-
784,236
784,504
Liabilities:
Convertible senior notes
-
636,042
-
636,042
Liability arising from Acreage Arrangement
-
-
450,000
450,000
Warrant derivative liability
-
-
299,318
299,318
March 31, 2021
Assets:
Short-term investments
$
1,144,563
$
-
$
-
$
1,144,563
Restricted short-term investments
11,332
-
-
11,332
Other financial assets
254
-
700,728
700,982
Liabilities:
Convertible senior notes
-
687,414
-
687,414
Liability arising from Acreage Arrangement
-
-
600,000
600,000
Warrant derivative liability
-
-
615,575
615,575
The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 2 financial instruments:
Financial asset / financial liability
Valuation techniques
Key inputs
Convertible senior notes
Convertible note pricing model
Quoted prices in over-the-counter broker market
19
The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments:
Financial asset / financial liability
Valuation techniques
Significant unobservable inputs
Relationship of unobservable inputs to fair value
Acreage financial instrument
Probability weighted expected return model
Probability of each scenario
Change in probability of occurrence in each scenario will result in a change in fair value
Number of common shares to be issued
Increase or decrease in value and number of common shares will result in a decrease or increase in fair value
Probability and timing of US legalization
Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Estimated premium on US legalization
Increase or decrease in estimated premium on US legalization will result in an increase or decrease in fair value
Control premium
Increase or decrease in estimated control premium will result in an increase or decrease in fair value
Market access premium
Increase or decrease in estimated market access premium will result in an increase or decrease in fair value
TerrAscend Exchangeable Shares, TerrAscend Option
Put option pricing model
Probability and timing of US legalization
Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Hempco Debenture
Discounted cash flow
Discount rate
Increase or decrease in discount rate will result in a decrease or increase in fair value
TerrAscend warrants - October 2019, March 2020, December 2020
Monte Carlo simulation model
Probability and timing of US legalization
Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Arise Bioscience term loan, 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
October 2019, March 2020
Discount rate
Increase or decrease in discount rate will result in a decrease or increase in fair value
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
Warrant derivative liability
Monte Carlo simulation model
Volatility of Canopy Growth share price
Increase or decrease in volatility will result in an increase or decrease in fair value
BioSteel redeemable NCI
Discounted cash flow
Discount rate
Increase or decrease in discount rate will result in a decrease or increase in fair value
Future wholesale price and production levels
Increase or decrease in future wholesale price and production levels will result in an increase or decrease in fair value
Vert Mirabel redeemable noncontrolling interest
Discounted cash flow
Discount rate
Increase or decrease in discount rate will result in a decrease or increase in fair value
Future wholesale price and production levels
Increase or decrease in future wholesale price and production levels will result in an increase or decrease in fair value
During the three months ended June 30, 2021 and June 30, 2020, there were no transfers of amounts between levels .
20
22. REVENUE
Revenue is dissaggregated as follows:
Three months ended
June 30,
June 30,
2021
2020
Canadian recreational cannabis net revenue
Business-to-business 1
$
42,693
$
34,934
Business-to-consumer
17,344
9,330
60,037
44,264
Canadian medical cannabis net revenue 2
13,492
13,910
73,529
58,174
International and other revenue
C 3
11,443
15,369
Other
7,967
5,739
19,410
21,108
Global cannabis net revenue
92,939
79,282
Other consumer products
Storz & Bickel
24,070
17,120
This Works
6,551
6,049
BioSteel
6,661
2,448
Other
5,988
5,517
Other consumer products revenue
43,270
31,134
Net revenue
$
136,209
$
110,416
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 $ 3,000 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 ).
23. OTHER INCOME (EXPENSE), NET
Other income (expense), net is dissaggregated as follows:
Three months ended
June 30,
June 30,
2021
2020
Fair value changes on other financial assets
$
84,152
$
21,807
Fair value changes on liability arising from Acreage Arrangement
150,000
( 35,000
)
Fair value changes on convertible senior notes
50,712
( 20,334
)
Fair value change on warrant derivative liability
316,257
35,369
Fair value changes on acquisition related contingent consideration
( 199
)
39,983
Interest income
2,647
8,993
Interest expense
( 24,564
)
( 1,155
)
Foreign currency loss
1,030
( 5,959
)
Loss on disposal of consolidated entity
( 2,339
)
-
Other income (expense), net
2,970
4,501
$
580,666
$
48,205
21
24. INCOME TAXES
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. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements.
The Company continues to believe that the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made.
25. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share are calculated using the following numerators and denominators:
Three months ended
June 30,
June 30,
2021
2020
Basic earnings (loss) per share computation
Net income (loss) attributable to common shareholders
of Canopy Growth
$
392,418
$
(108,501
)
Weighted average number of common shares outstanding
384,055,133
363,763,347
Basic earnings (loss) per share
$
1.02
$
(0.30
)
Diluted earnings (loss) per share computation
Net income (loss) used in the computation of basic earnings (loss) per share
$
392,418
$
(108,501
)
Numerator adjustments for diluted earnings (loss) per share:
Adjustment to net loss attributable to noncontrolling interests and redeemable
noncontrolling interest
(2,463
)
-
Removal of fair value changes on convertible senior notes
(50,712
)
-
Net income (loss) used in the computation of diluted earnings (loss) per share
$
339,243
$
(108,501
)
Weighted average number of common shares outstanding used in the computation
of basic earnings (loss) per share
384,055,133
363,763,347
Denominator adjustments for diluted earnings (loss) per share:
Dilutive impact of assumed exercise or conversion of:
Convertible senior notes
13,214,767
-
Redeemable noncontrolling interest
4,289,296
-
Stock options
1,190,278
-
Other securities
1,796,769
-
Weighted average number of common shares for computation of diluted
earnings (loss) per share
404,546,243
363,763,347
Diluted earnings (loss) per share 1
$
0.84
$
(0.30
)
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.
22
26. ACQUISITIONS
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:
Ace
Supreme
Valley
Cannabis
(i)
(ii)
Total
Cash and cash equivalents
$
1,544
$
41,306
$
42,850
Inventory
878
33,681
34,559
Other current assets
2,249
15,145
17,394
Property, plant and equipment
105
179,123
179,228
Intangible assets
Brands
14,000
20,900
34,900
Distribution channel
-
3,000
3,000
Operating licenses
-
10,500
10,500
Goodwill
36,464
85,910
122,374
Accounts payable and other accrued expenses and liabilities
( 1,148
)
( 13,258
)
( 14,406
)
Debt and other liabilities
-
( 90,482
)
( 90,482
)
Deferred income tax liabilities
-
( 6,157
)
( 6,157
)
Net assets acquired
$
54,092
$
279,668
$
333,760
Consideration paid in cash
$
51,623
$
84
$
51,707
Consideration paid in shares
-
260,668
260,668
Replacement options
-
629
629
Replacement warrants
-
13,350
13,350
Other consideration
2,469
4,937
7,406
Total consideration
$
54,092
$
279,668
$
333,760
Consideration paid in cash
$
51,623
$
84
$
51,707
Less: Cash and cash equivalents acquired
( 1,544
)
( 41,306
)
( 42,850
)
Net cash outflow (inflow)
$
50,079
$
( 41,222
)
$
8,857
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.
23
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. 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.
27. ACREAGE ARRANGEMENT AND AMENDMENTS TO CBI INVESTOR RIGHTS AGREEMENT AND WARRANTS
Acreage Arrangement
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;
•
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 ); and
•
Acreage is only permitted to issue an aggregate of up to 32,700,000 Fixed Shares and Floating Shares.
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. See Note 21 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis. From a measurement perspective, the Company has elected the fair value option under ASC 825.
24
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 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 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.
Amendment to the CBI Investor Rights Agreement and warrants
On April 18, 2019, certain wholly-owned subsidiaries of CBI and Canopy Growth entered into a second amended and restated investor rights agreement and a consent agreement. In connection with these agreements, on June 27, 2019, Canopy Growth (i) extended the term of the first tranche of warrants, which allow CBI to acquire 88.5 million additional shares of Canopy Growth for a fixed price of $ 50.40 per share (the “Tranche A Warrants”), to November 1, 2023 ; and (ii) replaced the second tranche of warrants with two new tranches of warrants (the “Tranche B Warrants” and the “Tranche C Warrants”) as follows:
•
the Tranche B Warrants are exercisable to acquire 38.5 million common shares at a price of C$ 76.68 per common share; and
•
the Tranche C Warrants are exercisable to acquire 12.8 million common shares at a price equal to the 5-day volume-weighted average price of the common shares immediately prior to exercise.
In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth will provide CBI with a share repurchase credit of up to $ 1.583 billion on the aggregate exercise price of the Tranche B Warrants and Tranche C Warrants in the event that Canopy Growth does not purchase for cancellation the lesser of (i) 27,378,866 common shares; and (ii) common shares with a value of $ 1.583 billion, during the period commencing on April 18, 2019 and ending on the date that is 24 months after the date that CBI exercises all of the Tranche A Warrants. The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at 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”). They continue to be classified in equity as the number of shares and exercise price were both fixed at inception.
The Tranche B Warrants are accounted for as derivative instruments measured at fair value in accordance with ASC 815. At 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 June 30, 2021.
28. SEGMENT INFORMATION
Reportable segments
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
25
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
June 30,
June 30,
2021
2020
Segmented net revenue
Global cannabis
$
92,939
$
79,282
Other consumer products
43,270
31,134
$
136,209
$
110,416
Segmented gross margin:
Global cannabis
$
13,369
$
( 6,858
)
Other consumer products
13,869
13,353
27,238
6,495
Selling, general and administrative expenses
112,574
135,392
Share-based compensation
13,126
30,685
Asset impairment and restructuring costs
89,249
12,794
Operating loss
( 187,711
)
( 172,376
)
Loss from equity method investments
( 100
)
( 7,189
)
Other income (expense), net
580,666
48,205
Net income (loss) before incomes taxes
$
392,855
$
( 131,360
)
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
Disaggregation of net revenue by geographic area:
Three months ended
June 30,
June 30,
2021
2020
Canada
$
82,612
$
65,717
Germany
26,106
27,997
United States
19,867
10,445
Other
7,624
6,257
$
136,209
$
110,416
Disaggregation of property, plant and equipment by geographic area:
June 30,
March 31,
2021
2021
Canada
$
931,042
$
847,678
United States
143,283
143,747
Other
68,289
83,112
$
1,142,614
$
1,074,537
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 ).
26
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.