What changed in this filing

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Item 1. Financial Statements

2022-02-09 compared with 2021-11-08 · 136 added, 150 removed, 750 unchanged (28% of the section changed)

3 unchanged sentences

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

September 30,

Current assets:

38 unchanged sentences

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

Three months ended September 30,

Six months ended

September 30,

Three months ended December 31,

Nine months ended December 31,

Cost of goods sold

9 unchanged sentences

(Loss) income before income taxes

Income tax recovery (expense)

Income tax recovery

Net (loss) income

Net loss attributable to noncontrolling interests and

Net (loss) income attributable to noncontrolling interests and

redeemable noncontrolling interest

11 unchanged sentences

Comprehensive income (loss)

Comprehensive loss attributable to noncontrolling interests

Comprehensive income (loss) attributable to noncontrolling interests

and redeemable noncontrolling interest

26 unchanged sentences

Comprehensive income (loss)

Balance at September 30, 2021

Balance at December 31, 2021

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

21 unchanged sentences

Comprehensive income (loss)

Balance at September 30, 2020

Balance at December 31, 2020

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

2 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Six months ended September 30,

Nine months ended December 31,

Cash flows from operating activities:

Net income (loss)

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

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation of property, plant and equipment

18 unchanged sentences

Proceeds on sale of intangible assets

Purchases of short-term investments

(Purchases) redemption of short-term investments

Net cash proceeds on sale of subsidiaries

(Investments in) sale of other financial assets

Sale of equity method investments

Investment in other financial assets

Investment in Acreage Arrangement

7 unchanged sentences

Proceeds from exercise of warrants

Issuance of long-term debt

Repayment of long-term debt

9 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Six months ended September 30,

Nine months ended December 31,

Supplemental disclosure of cash flow information

53 unchanged sentences

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, which will result in the closure of its Niagara-on-the-Lake, Ontario and Langley, British Columbia facilities.

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, which resulted in the closure of its Niagara-on-the-Lake, Ontario and Langley, British Columbia facilities.

Additionally, the Company recognized costs associated with the closure of previously-identified Canadian production facilities in December 2020.

In the three months ended September 30, 2021, the Company recognized incremental costs associated with the closure of previously-identified Canadian production facilities in December 2020.

As a result, in the three and six months ended September 30, 2021, the Company recognized asset impairment and restructuring costs of $ 2,510 and $ 91,759 , respectively, primarily representing the difference between the net book value of the associated long-lived assets and their estimated fair value.

In the three months ended September 30, 2021, the Company recognized incremental costs associated with the closure of certain of its Canadian production facilities in December 2020.

In the three months ended December 31, 2021, the Company recorded charges primarily associated with adjustments related to changes in the estimated fair value of certain of the Company’s Canadian sites that were closed in December 2020.

As a result, in the three and nine months ended December 31, 2021, the Company recognized asset impairment and restructuring costs of $ 36,439 and $ 128,198 , respectively, primarily representing the difference between the net book value of the associated long-lived assets and their estimated fair value.

CASH AND CASH EQUIVALENTS

The components of cash and cash equivalents are as follows:

September 30,

Cash equivalents

1 unchanged sentence

The components of short-term investments are as follows:

September 30,

Term deposits

Government securities

Asset-backed securities

Government securities

Commercial paper and other

The amortized cost of short-term investments at September 30, 2021 is $ 1,151,334 (March 31, 2021 – $ 1,145,364 ).

The amortized cost of short-term investments at December 31, 2021 is $ 809,722 (March 31, 2021 – $ 1,145,364 ).

AMOUNTS RECEIVABLE, NET

The components of amounts receivable, net are as follows:

September 30,

Accounts receivable, net

2 unchanged sentences

Other receivables

Included in the accounts receivable, net balance at September 30, 2021 is an allowance for doubtful accounts of $ 1,324 (March 31, 2021 – $ 1,411 ) .

Included in the accounts receivable, net balance at December 31, 2021 is an allowance for doubtful accounts of $ 2,037 (March 31, 2021 – $ 1,411 ) .

The components of inventory are as follows:

September 30,

Raw materials, packaging supplies and consumables

1 unchanged sentence

Finished goods

In the three and six months ended September 30, 2021, the Company recorded write-downs related to inventory in cost of goods sold of $ 86,837 and $ 92,851 (three and six months ended September 30, 2020 – $ 4,945 and $ 24,331 ).

In the three and nine months ended December 31, 2021, the Company recorded write-downs related to inventory in cost of goods sold of $ 11,811 and $ 104,662 (three and nine months ended December 31, 2020 – $ 23,836 and $ 48,167 ).

PREPAID EXPENSES AND OTHER ASSETS

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

September 30,

Prepaid expenses

3 unchanged sentences

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

September 30,

TerrAscend Exchangeable Shares

14 unchanged sentences

1 See Note 27 for information regarding Acreage Hempco .

On October 14, 2021, the Company and Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana” and each, a “Wana Entity”) entered into definitive agreements (the “Wana Agreements”) providing the Company with the right, upon the occurrence or waiver (at the Company’s discretion) 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”), to acquire 100 % of the outstanding membership interests of Wana.

Wana manufactures and sells gummies in the U.S.

state of Colorado and licenses its intellectual property to partners, who manufacture, distribute, and sell Wana-branded gummies across the United States.

The Wana Agreements are structured as three separate option agreements whereby the Company has a call option (the “Call Option”) to acquire 100 % of the membership interests in each Wana Entity.

As consideration for entering into the Wana Agreements, the Company made an upfront cash payment (the “Upfront Payment”) in the aggregate amount of $ 368,067 (US$ 297,500 ).

Upon the Company’s exercise of its right to acquire Wana, the Company will make payments equal to 15 % of the fair market value of Wana at the time the options are exercised (the “Call Option Payments”).

As additional consideration for the right to acquire Wana, the Company expects to make additional deferred payments (the “Deferred Payments”) in respect of Wana as of the 2.5- and 5 -year anniversary of the Upfront Payment, computed based on a pre-determined contractual formula as follows:

Deferred Payment 1:

25 % of the amount computed as the estimated fair value of Wana at the 2.5 -year anniversary, less (i) the Upfront Payment, (ii) Wana debt, and (iii) certain other deductions;

plus Wana cash, all at the 2.5-year anniversary.

Deferred Payment 2:

25 % of the amount computed as the estimated fair value of Wana at the 5 -year anniversary, less (i) the greater of (a) the Upfront Payment and (b) the estimated fair value of Wana at the 2.5-year anniversary, (ii) Wana debt, and (iii) certain other deductions, all at the 5-year anniversary;

plus the difference in Wana cash between the 5-year and 2.5-year anniversaries.

Payment of the Deferred Payments is not contingent upon the occurrence or waiver (at the Company’s discretion) of the Triggering Event or the exercise of the Call Option.

At the Company’s option, the Call Option Payments and the Deferred Payments may be satisfied in cash, common shares or a combination thereof at the Company’s sole discretion.

Until such time as the Company exercises its right to acquire Wana, the Company will have no economic or voting interest in Wana, the Company will not control Wana, and the Company and Wana will continue to operate independently.

Upon initial recognition, the Company estimated the fair value of the Wana financial instrument to be $ 442,227 , consisting of (i) the Upfront Payment as noted above;

and (ii) the present value of the estimated Deferred Payments, totaling $ 74,160 (see Note 15).

The Wana financial instrument, in effect, represents an option to purchase 100 % of Wana for a payment equal to 15 % of Wana’s fair market value at the time the option is exercised.

There was no change in the estimated fair value of the Wana financial instrument from initial recognition to December 31, 2021.

Any subsequent changes in estimated fair value will be recognized in net income (loss).

See Note 21 for additional details on how the fair value of the Wana financial instrument is calculated on a recurring basis.

PROPERTY, PLANT AND EQUIPMENT

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

September 30,

Buildings and greenhouses

8 unchanged sentences

Accumulated depreciation

Depreciation expense included in cost of goods sold for the three and six months ended September 30, 2021 is $ 14,388 and $ 24,850 , respectively (three and six months ended September 30, 2020 – $ 14,449 and $ 29,235 , respectively).

Depreciation expense included in selling, general and administrative expenses for the three and six months ended September 30, 2021 is $ 5,604 and $ 12,258 , respectively (three and six months ended September 30, 2020 – $ 4,509 and $ 7,138 , respectively).

Depreciation expense included in cost of goods sold for the three and nine months ended December 31, 2021 is $ 13,813 and $ 38,663 , respectively (three and nine months ended December 31, 2020 – $ 10,955 and $ 40,190 , respectively).

Depreciation expense included in selling, general and administrative expenses for the three and nine months ended December 31, 2021 is $ 5,546 and $ 17,804 , respectively (three and nine months ended December 31, 2020 – $ 7,297 and $ 14,435 , respectively).

INTANGIBLE ASSETS

The components of intangible assets are as follows:

September 30, 2021

December 31, 2021

March 31, 2021

9 unchanged sentences

Total intangible assets

Amortization expense included in cost of goods sold for the three and six months ended September 30, 2021 is $ 25 and $ 43 , respectively ( three and six months ended September 30, 2020 – $( 739 ) and $( 37 ), respectively).

Amortization expense included in selling, general and administrative expenses for the three and six months ended September 30, 2021 is $ 8,763 and $ 16,761 , respectively (three and six months ended September 30, 2020 – $ 13,539 and $ 29,469 , respectively).

Amortization expense included in cost of goods sold for the three and nine months ended December 31, 2021 is $ 19 and $ 62 , respectively ( three and nine months ended December 31, 2020 – $ 99 and $ 62 , respectively).

Amortization expense included in selling, general and administrative expenses for the three and nine months ended December 31, 2021 is $ 10,639 and $ 27,400 , respectively (three and nine months ended December 31, 2020 – $ 14,034 and $ 43,503 , respectively).

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

5 unchanged sentences

Foreign currency translation adjustments

Balance, September 30, 2021

Balance, December 31, 2021

OTHER ACCRUED EXPENSES AND LIABILITIES

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

September 30,

Employee compensation

2 unchanged sentences

The components of debt are as follows:

September 30,

Maturity Date

39 unchanged sentences

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.

Prior to July 20, 2021, the Company could not redeem the Notes 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.

5 unchanged sentences

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

The overall change in fair value of the Notes during the three and six months ended September 30, 2021, was a decrease of $ 52,194 and $ 103,566 , respectively (three and six months ended September 30, 2020, an increase of $ 36,306 and $ 72,000 , respectively), which included contractual interest of $ 6,306 and $ 12,684 (three and six months ended September 30, 2020, interest of $ 6,306 and $ 12,750 , respectively).

The overall change in fair value of the Notes during the three and nine months ended December 31, 2021, was a decrease of $ 16,806 and $ 120,372 , respectively (three and nine months ended December 31, 2020, an increase of $ 105,588 and $ 177,588 , respectively), which included contractual interest of $ 6,444 and $ 19,128 (three and nine months ended December 31, 2020, interest of $ 6,588 and $ 19,338 , respectively).

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

18 unchanged sentences

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”).

On August 13, 2019, the Company, through its wholly owned subsidiary, Tweed 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.

1 unchanged sentence

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 facility expires on September 3, 2024.

The revolving debt facility with FCC is secured by a first charge on the properties in Niagara-on-the-Lake, Ontario, a corporate guarantee from the Company, and a general corporate security agreement .

1 unchanged sentence

The components of other liabilities are as follows:

As at September 30, 2021

As at December 31, 2021

As at March 31, 2021

1 unchanged sentence

Acquisition consideration

and other investment

related liabilities

1 unchanged sentence

Settlement liabilities and

On October 14, 2021, upon entering into the Wana Agreements, the Company recognized the present value of the estimated Deferred Payments associated with the Wana financial instrument within acquisition consideration and other investment related liabilities, in the amount of $ 74,160 (see Note 9).

REDEEMABLE NONCONTROLLING INTEREST

1 unchanged sentence

As at March 31, 2021

Net income (loss) attributable to redeemable noncontrolling interest

Net loss attributable to redeemable noncontrolling interest

Adjustments to redemption amount

Redemption of redeemable noncontrolling interest

As at September 30, 2021

As at December 31, 2021

As at March 31, 2020

1 unchanged sentence

Adjustments to redemption amount

As at September 30, 2020

As at December 31, 2020

SHARE CAPITAL

2 unchanged sentences

(i) Equity financings

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

There were no equity financings during the nine months ended December 31, 2021 (nine months ended December 31, 2020 - no ne).

(ii) Other issuances of common shares

During the six months ended September 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:

During the nine months ended December 31, 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

2 unchanged sentences

Other issuances

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

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:

Number of shares

5 unchanged sentences

Expiry of warrants

Balance outstanding at September 30, 2021 1

Balance outstanding at December 31, 2021 1

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

2 unchanged sentences

Expiry of warrants

Balance outstanding at September 30, 2020 1

Balance outstanding at December 31, 2020 1

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

6 unchanged sentences

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 39,338,306 at September 30, 2021.

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

The maximum number of common shares reserved for Awards is 39,415,800 at December 31, 2021.

As of December 31, 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 (the “CGC&N Committee”) which establishes exercise prices, at not less than the market price at the date of grant, and expiry dates.

2 unchanged sentences

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 and six months ended September 30, 2021, 61,103 common shares were issued under the Purchase Plan.

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

For the three and nine months ended December 31, 2021, 61,103 common shares were issued under the Purchase Plan.

The following is a summary of the changes in the Options outstanding during the nine months ended December 31, 2021:

exercise price

4 unchanged sentences

Options forfeited

Balance outstanding at September 30, 2021

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

Balance outstanding at December 31, 2021

The following is a summary of the Options as at December 31, 2021:

Options Outstanding

7 unchanged sentences

Range of Exercise Prices

September 30, 2021

December 31, 2021

$0.06 - $24.62

3 unchanged sentences

$42.85 - $171.54

At September 30, 2021, the weighted average exercise price of Options outstanding and Options exercisable was $ 36.46 and $ 38.07 , respectively (March 31, 2021 – $ 36.79 and $ 36.97 , respectively).

The Company recorded $ 10,298 and $ 18,342 , respectively, in share-based compensation expense related to Options and Purchase Plan shares issued to employees and contractors for the three and six months ended September 30, 2021 (three and six months ended September 30, 2020 – $ 15,525 and $ 37,853 , respectively).

The share-based compensation expense for the six months ended September 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 six months ended September 30, 2020 – 2,060,068 ).

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

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

September 30,

At December 31, 2021, the weighted average exercise price of Options outstanding and Options exercisable was $ 34.17 and $ 38.05 , respectively (March 31, 2021 – $ 36.79 and $ 36.97 , respectively).

The Company recorded $ 3,696 and $ 22,038 , respectively, in share-based compensation expense related to Options and Purchase Plan shares issued to employees and contractors for the three and nine months ended December 31, 2021 (three and nine months ended December 31, 2020 – $ 16,663 and $ 54,516 , respectively).

The share-based compensation expense for the nine months ended December 31, 2021 includes an amount related to 1,559,413 Options being provided in exchange for services which are subject to performance conditions (for the nine months ended December 31, 2020 – 2,112,745 ).

The Company issued replacement options to employees in relation to the acquisition of Supreme Cannabis (Note 26) and during the three and nine months ended December 31, 2021, recorded share-based compensation expense of $nil and $ 823 , respectively.

The Company uses the Black-Scholes option pricing model to establish the fair value of Options granted during the three months ended December 31, 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 six months ended September 30, 2021, 332,105 Options were exercised ranging in price from $ 0.06 to $ 36.34 for gross proceeds of $ 4,886 (for the six months ended September 30, 2020 – 1,431,880 Options were exercised ranging in price from $ 0.06 to $ 27.99 for gross proceeds of $ 10,756 ).

For the three and six months ended September 30, 2021, the Company recorded $ 3,690 and $ 5,985 , respectively, in share-based compensation expense related to RSUs and PSUs (for the three and six months ended September 30, 2020 – $ 2,343 and $ 6,185 , respectively).

The following is a summary of the changes in the Company’s RSUs and PSUs during the six months ended September 30, 2021:

During the nine months ended December 31, 2021, 421,476 Options were exercised ranging in price from $ 0.06 to $ 36.34 for gross proceeds of $ 5,455 (for 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 three and nine months ended December 31, 2021, the Company recorded $ 1,950 and $ 7,935 , respectively, in share-based compensation expense related to RSUs and PSUs (for the three and nine months ended December 31, 2020 – $ 2,685 and $ 8,870 , respectively).

The following is a summary of the changes in the Company’s RSUs and PSUs during the nine months ended December 31, 2021:

Number of RSUs and PSUs

3 unchanged sentences

RSUs and PSUs cancelled and forfeited

Balance outstanding at September 30, 2021

During the three and six months ended September 30, 2021, the Company recorded $1,706 and $3,405, respectively, in share-based compensation expense related to acquisition milestones (for the three and six months ended September 30, 2020 – $2,908 and $9,114, respectively).

During the three and six months ended September 30, 2021, 59,258 and 9,948,059 , common shares, respectively, were released on completion of acquisition milestones (during the three and six months ended September 30, 2020 – 397,164 and 1,149,086 , respectively).

At September 30, 2021, there were up to 656,709 common shares to be issued on the completion of acquisition and asset purchase milestones.

Balance outstanding at December 31, 2021

During the three and nine months ended December 31, 2021, the Company recorded $971 and $4,376, respectively, in share-based compensation expense (recovery) related to acquisition milestones (for the three and nine months ended December 31, 2020 – $(21) and $5,857, respectively).

During the three and nine months ended December 31, 2021, 419,884 and 1,295,285 , common shares, respectively, were released on completion of acquisition milestones (during the three and nine months ended December 31, 2020 – nil and 1,149,086 , respectively).

At December 31, 2021, there were up to 256,057 common shares to be issued on the completion of acquisition and asset purchase milestones.

In certain cases, the number of common shares to be issued is based on the volume weighted average share price at the time the milestones are met.

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

The number of common shares has been estimated assuming the milestones were met at December 31, 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.

5 unchanged sentences

BioSteel has a stock option plan under which non-transferable options to purchase common shares of BioSteel may be granted to directors, officers, employees, or independent contractors of the BioSteel.

As at September 30, 2021, BioSteel had 1,537,800 (March 31, 2021 – 1,581,000 ) options outstanding which vest in equal tranches over a 5-year period.

As at December 31, 2021, BioSteel had 1,545,300 (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 $ 259 and $ 524 of share-based compensation expense related to the BioSteel options during the three and six months ended September 30, 2021, respectively, with a corresponding increase in noncontrolling interest (three and six months ended September 30, 2020 – $ 418 and $ 662 , respectively).

The Company recorded $ 160 and $ 684 of share-based compensation expense related to the BioSteel options during the three and nine months ended December 31, 2021, respectively, with a corresponding increase in noncontrolling interest (three and nine months ended December 31, 2020 – $ 256 and $ 918 , respectively).

RIV Capital Inc.

(“RIV Capital”) share-based payments

For the three and six months ended September 30, 2020, the Company recorded $ 790 and $ 2,091 , respectively, in share-based compensation expense related to its former subsidiary, RIV Capital.

For the three and nine months ended December 31, 2020, the Company recorded $ 381 and $ 2,471 , respectively, 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.

6 unchanged sentences

Other comprehensive income (loss)

As at September 30, 2021

As at December 31, 2021

Foreign currency translation adjustments

3 unchanged sentences

Other comprehensive loss

As at September 30, 2020

As at December 31, 2020

NONCONTROLLING INTERESTS

1 unchanged sentence

As at March 31, 2021

Comprehensive income (loss)

Net (income) loss attributable to redeemable noncontrolling interest

Comprehensive loss

Net loss attributable to redeemable noncontrolling interest

Share-based compensation

As at September 30, 2021

As at December 31, 2021

As at March 31, 2020

4 unchanged sentences

Ownership changes

As at September 30, 2020

As at December 31, 2020

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 unchanged sentences

Quoted prices

September 30, 2021

December 31, 2021

Short-term investments

59 unchanged sentences

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

Wana financial instrument

Monte Carlo simulation model

Probability of US legalization

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

Volatility of Wana

Increase or decrease in volatility will result in an increase or decrease in fair value

Warrant derivative liability

14 unchanged sentences

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

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

During the nine months ended December 31, 2021 and December 31, 2020, there were no transfers of amounts between levels .

Revenue is dissaggregated as follows:

Three months ended

Six months ended

September 30,

Nine months ended

Canadian recreational cannabis net revenue

7 unchanged sentences

Other consumer products revenue

1 Canadian recreational business-to-business net revenue during the three and six months ended September 30, 2021 reflects excise taxes of $ 12,913 and $ 30,747 , respectively (three and six months ended September 30, 2020 – $ 14,200 and $ 21,446 , respectively).

2 Canadian medical cannabis net revenue for the three and six months ended September 30, 2021 reflects excise taxes of $ 1,361 and $ 2,741 , respectively (three and six months ended September 30, 2020 – $ 1,362 and $ 2,788 , respectively).

1 Canadian recreational business-to-business net revenue during the three and nine months ended December 31, 2021 reflects excise taxes of $ 12,754 and $ 43,501 , respectively (three and nine months ended December 31, 2020 – $ 15,977 and $ 37,423 , respectively).

2 Canadian medical cannabis net revenue for the three and nine months ended December 31, 2021 reflects excise taxes of $ 1,298 and $ 4,039 , respectively (three and nine months ended December 31, 2020 – $ 1,402 and $ 4,190 , respectively).

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 $nil and $ 3,000 for the three and six months ended September 30, 2021, respectively (three and six months ended September 30, 2020 – $ 3,750 and $ 7,150 , respectively).

As of September 30, 2021, the liability for estimated returns and price adjustments was $ 7,146 (March 31, 2021 – $ 6,441 ).

Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $ 1,000 and $ 4,000 for the three and nine months ended December 31, 2021, respectively (three and nine months ended December 31, 2020 – $ 3,750 and $ 10,900 , respectively).

As of December 31, 2021, the liability for estimated returns and price adjustments was $ 6,046 (March 31, 2021 – $ 6,441 ).

OTHER INCOME (EXPENSE), NET

1 unchanged sentence

Three months ended

Six months ended

September 30,

Nine months ended

Fair value changes on other financial assets

1 unchanged sentence

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 warrant derivative liability

Fair value changes on acquisition related contingent

consideration and other

Interest income

1 unchanged sentence

Foreign currency gain (loss)

Gain/(loss) on disposal of consolidated entity

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 six months ended September 30, 2021.

There have been no material changes to income tax matters in connection with normal course operations during the nine months ended December 31, 2021.

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

7 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

Basic (loss) earnings per share computation

9 unchanged sentences

Removal of fair value changes on convertible senior notes

Adjustment to interest expense on Supreme convertible

Net (loss) income used in the computation of diluted (loss)

12 unchanged sentences

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 six months ended September 30, 2021:

The following table summarizes the consolidated balance sheet impact at acquisition of the Company’s business combinations that occurred in the nine months ended December 31, 2021:

Cash and cash equivalents

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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.

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 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;

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

At September 30, 2021, the right and the obligation (the “Acreage financial instrument”) to acquire the Fixed Shares represents a financial liability of $ 162,000 (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 $ 288,000 and $ 438,000 were recognized in other income (expense), net in the three and six months ended September 30, 2021, respectively (three and six months ended September 30, 2020 – $ 88,151 and $ 53,151 , respectively) (see Note 23).

At December 31, 2021, the right and the obligation (the “Acreage financial instrument”) to acquire the Fixed Shares represents a financial liability of $ 103,000 (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 $ 59,000 and $ 497,000 were recognized in other income (expense), net in the three and nine months ended December 31, 2021, respectively (three and nine months ended December 31, 2020 – $( 303,000 ) and $( 249,849 ), respectively) (see Note 23).

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

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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 September 30, 2021, the estimated fair value of the Debenture issued to an affiliate of the Company by Acreage Hempco was $ 26,565 (March 31, 2021 – $ 27,448 ), measured using a discounted cash flow model (see Note 23).

Refer to Note 9 for details on fair value changes, foreign currency translation adjustment, and interest received during the six months ended September 30, 2021.

At December 31, 2021, the estimated fair value of the Debenture issued to an affiliate of the Company by Acreage Hempco was $ 27,801 (March 31, 2021 – $ 27,448 ), measured using a discounted cash flow model (see Note 21).

Refer to Note 9 for details on fair value changes, foreign currency translation adjustment, and interest received during the nine months ended December 31, 2021.

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

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and (ii) common shares with a value of $ 1.583 billion, during the period commencing on April 18, 2019 and ending on the date that is 24 months after the date that CBI exercises all of the Tranche A Warrants.

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

The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at December 31, 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”).

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

At September 30, 2021, the fair value of the warrant derivative liability was $ 104,773 (March 31, 2021 – $ 615,575 ), and fair value changes of $ 194,545 and $ 510,802 have been recognized in other income (expense), net in the three and six months ended September 30, 2021, respectively (three and six months ended September 30, 2020 – gain of $ 65,174 and $ 100,543 , respectively) (see Note 23).

At December 31, 2021, the fair value of the warrant derivative liability was $ 37,491 (March 31, 2021 – $ 615,575 ), and fair value changes of $ 67,282 and $ 578,084 have been recognized in other income (expense), net in the three and nine months ended December 31, 2021, respectively (three and nine months ended December 31, 2020 – loss of $ 193,998 and $ 93,455 , respectively) (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 September 30, 2021.

The Tranche C Warrants are accounted for as derivative instruments, with the fair value continuing to be $nil at December 31, 2021.

SEGMENT INFORMATION

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

BioSteel sports nutrition beverages, mixes, protein, gum and mints;

(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.

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.

Three months ended

Six months ended

September 30,

Nine months ended

Segmented net revenue

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Other income (expense), net

Net income (loss) before incomes taxes

Net (loss) income 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.

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Three months ended

Six months ended

September 30,

Nine months ended

United States

Disaggregation of property, plant and equipment by geographic area:

September 30,

United States

For the three months ended September 30, 2021, no customer represented more than 10% of the Company’s net revenue (three months ended September 30, 2020 – none ).

For the six months ended September 30, 2021, one customer represented more than 10% of the Company’s net revenue (six months ended September 30, 2020 – none ).

For the three months ended December 31, 2021, no customer represented more than 10% of the Company’s net revenue (three months ended December 31, 2020 – one ).

For the nine months ended December 31, 2021, one customer represented more than 10% of the Company’s net revenue (nine months ended December 31, 2020 – one ).

SUBSEQUENT EVENTS

Plan to Acquire Wana

On October 14, 2021, the Company and Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana” and each, a “Wana Entity”) announced that they have entered into definitive agreements (the “Wana Agreements”) providing the Company with the right, upon the occurrence or waiver (at the discretion of the Company) of the

Triggering Event , to acquire 100 % of the outstanding membership interests of Wana .

Wana manufactures and sells gummies in the U.S.

state of Colorado and licenses its intellectual property to partners, who manufacture, distribute, and sell Wana -branded gummies across the United States, including in California, Arizona, Illinois, Michigan and Florida .

This gives Wana a total footprint of 12 U.S.

states currently, and across Canada.

The Wana Agreements are structured as three separate option agreements whereby the Company has a call option to acquire 100 % of the membership interests in each Wana Entity.

As consideration for entering into the Wana Agreements, the Company made an upfront cash payment (the “Upfront Payment”) in the aggregate amount of US$ 297,500 .

Upon exercise of the right to acquire each Wana Entity, the Company will make a payment equal to 15 % of the fair market value of such Wana Entity at the time the option is exercised (the “Call Option Payments”).

As additional consideration for the right to acquire each Wana Entity, the Company may make additional deferred payments (the “Deferred Payments”) in respect of each Wana Entity as of the 2.5 and 5-year anniversary of the Upfront Payment, less certain deductions.

At the Company’s option, the Call Option Payments and the Deferred Payments may be satisfied in cash, common shares or a combination thereof at the Company’s sole discretion.

Until such time as the Company exercises its right to acquire each Wana Entity, the Company will have no economic or voting interest in Wana, the Company will not control Wana, and the Company and Wana will continue to operate independently.

Divestiture of C 3 Cannabinoid Compound Company

On December 15, 2021, the Company entered into an agreement to divest all of its interest in C 3 Cannabinoid Compound Company GmbH (“C 3 ”) to a European pharmaceutical company headquartered in Germany.

C 3 develops and manufactures cannabinoid-based pharmaceutical products for distribution in Germany and certain other European countries.

The divestiture was completed on January 31, 2022, pursuant to which the Company received a cash payment of $ 128,316 (€ 88,698 ), inclusive of cash, working capital and debt adjustments .

The Company will also be entitled to an earnout payment of up to € 42,600 , subject to the achievement of certain milestones by C 3 .

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