What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-02-09 · 240 added, 292 removed, 594 unchanged (47% of the section changed)

43 unchanged sentences

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

Three months ended December 31,

Nine months ended December 31,

Three months ended June 30,

Cost of goods sold

2 unchanged sentences

Share-based compensation

Expected credit losses on financial assets and related charges

Asset impairment and restructuring costs

4 unchanged sentences

(Loss) income before income taxes

Income tax recovery

Income tax expense

Net (loss) income

Net (loss) income attributable to noncontrolling interests and

Net loss attributable to noncontrolling interests and

redeemable noncontrolling interest

4 unchanged sentences

Diluted weighted average common shares outstanding

Comprehensive income (loss):

Comprehensive (loss) income:

Net (loss) income

3 unchanged sentences

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

Comprehensive income (loss)

Comprehensive income (loss) attributable to noncontrolling interests

and redeemable noncontrolling interest

Comprehensive income (loss) attributable to Canopy Growth

Comprehensive (loss) income

Comprehensive loss attributable to noncontrolling interests and

redeemable noncontrolling interest

Comprehensive (loss) income attributable to Canopy Growth Corporation

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

10 unchanged sentences

Balance at March 31, 2022

Cumulative effect from adoption

of ASU 2020-06

Other issuances of common

shares and warrants

Replacement equity instruments

from the acquisition of Supreme

Exercise of Omnibus Plan stock

5 unchanged sentences

noncontrolling interests

Redemption of redeemable

noncontrolling interest

Settlement of convertible

Comprehensive income (loss)

Balance at December 31, 2021

Balance at June 30, 2022

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

12 unchanged sentences

shares and warrants

Exercise of warrants

Replacement equity instruments

from the acquisition of Supreme

Exercise of Omnibus Plan stock

5 unchanged sentences

noncontrolling interests

Comprehensive income (loss)

Balance at December 31, 2020

Comprehensive (loss) income

Balance at June 30, 2021

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

2 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Nine months ended December 31,

Three months ended June 30,

Cash flows from operating activities:

Net income (loss)

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

Net (loss) income

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

Depreciation of property, plant and equipment

3 unchanged sentences

Asset impairment and restructuring costs

Expected credit losses on financial assets and related charges

Income tax recovery

Non-cash fair value adjustments

Income tax expense

Non-cash fair value adjustments and charges related to

settlement of convertible senior notes

Change in operating assets and liabilities, net of effects from

8 unchanged sentences

Purchases of intangible assets

Proceeds on sale of property, plant and equipment

Proceeds on sale of intangible assets

(Purchases) redemption of short-term investments

Net cash proceeds on sale of subsidiaries

Sale of equity method investments

Redemption (purchases) of short-term investments

Net cash proceeds (outflows) on sale of subsidiaries

Sale of (investments in) equity method investments

Investment in other financial assets

Investment in Acreage Arrangement

Loan advanced to Acreage Hempco

Net cash outflow on acquisition of subsidiaries

Other investing activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from issuance of common shares and warrants

Proceeds from exercise of stock options

Proceeds from exercise of warrants

Repayment of long-term debt

9 unchanged sentences

(in thousands of Canadian dollars, unaudited)

Nine months ended December 31,

Three months ended June 30,

Supplemental disclosure of cash flow information

35 unchanged sentences

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim

period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The Company adopted ASU 2019-12 as of April 1, 2021.

There was no material 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.

models for convertible debt instruments and convertible preferred stock with (1) cash conversion features, and (2) beneficial conversion features.

In addition, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share 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.

The Company adopted the guidance on April 1, 2022, using the modified retrospective approach with the cumulative effect recognized as an adjustment to the opening deficit balance, and, accordingly, prior period balances and disclosures have not been restated.

Upon adoption of ASU 2020-06, the Supreme Debentures (as defined below) will be accounted for under the separation model for a substantial premium instead of a beneficial conversion feature resulting in an increased debt discount to be amortized over the life of the instrument.

The adoption of this guidance resulted in increased additional paid-in capital by $ 4,452 , decreased long-term debt by $ 3,723 , and decreased accumulated deficit by $ 729 for non-cash accretion expense prior to April 1, 2022.

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 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 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.

In the three months ended June 30, 2022, the Company performed a quantitative goodwill impairment assessment for the cannabis operations reporting unit in the global cannabis segment, and recognized impairment losses totaling $ 1,725,368 .

Refer to Note 12 for further details.

Additionally, in the three months ended June 30, 2022, the Company recognized incremental costs primarily associated with the restructuring actions completed in the year ended March 31, 2022, including the closure of certain of its Canadian production facilities, and other operational changes initiated in the three months ended March 31, 2022 to (i) implement cultivation-related efficiencies and improvements in the Canadian recreational cannabis business, and (ii) implement a flexible manufacturing platform, including contract manufacturing for certain product formats.

As a result, in the three months ended June 30, 2022, the Company recognized asset impairment and restructuring costs of $ 1,727,985 (three months ended June 30, 2021 – $ 89,249 ).

CASH AND CASH EQUIVALENTS

7 unchanged sentences

Commercial paper and other

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

The amortized cost of short-term investments at June 30, 2022 is $ 447,689 (March 31, 2022 – $ 599,862 ).

AMOUNTS RECEIVABLE, NET

4 unchanged sentences

Other receivables

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 ) .

Included in the accounts receivable, net balance at June 30, 2022 is an allowance for doubtful accounts of $ 3,121 (March 31, 2022 – $ 4,764 ) .

The components of inventory are as follows:

2 unchanged sentences

Finished goods

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 ).

In the three months ended June 30, 2022, the Company recorded write-downs related to inventory in cost of goods sold of $ 12,181 (three months ended June 30, 2021 – $ 6,014 ).

PREPAID EXPENSES AND OTHER ASSETS

20 unchanged sentences

Loan receivable

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;

1 See Note 26 for information regarding the Acreage Arrangement and Acreage Hempco .

On May 17, 2022, the Company and Lemurian, Inc.

(“Jetty”) entered into definitive agreements (the “Jetty Agreements”) providing the Company with the right to acquire up to 100 % of the outstanding equity interests in Jetty (i) upon the occurrence 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;

or (ii) an earlier date at the Company’s sole discretion (the “Jetty Triggering Event”).

Jetty is a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.

The Jetty Agreements are structured as two separate option agreements whereby the Company has the right to acquire up to 100 % of the equity interests in Jetty.

As consideration for entering into the Jetty Agreements, the Company (i) made an upfront cash payment in the amount of $ 29,226 (US$ 22,911 ), and (ii) issued 8,426,539 common shares with a fair value on closing of $ 59,123 (US$ 45,928 ), for total consideration of $ 88,349 (collectively, the “Upfront Payment”).

The first option agreement is exercisable in two tranches, with the first tranche providing the Company with the option to acquire 52.78 % of Jetty’s equity interests, exercisable following the occurrence of the Jetty Triggering Event.

The second tranche provides the Company with the option to acquire 25 % of Jetty’s equity interests for their fair market value, subject to certain adjustments.

Additionally, the Company expects to make deferred payments (the “Deferred Payments”) computed based on a pre-determined contractual formula.

The second option agreement provides the Company with the option to acquire 22.22 % of Jetty’s equity interests, exercisable following the occurrence of the Jetty Triggering Event.

Until such time as the Company elects to exercise its rights to acquire Jetty, the Company will have no direct or indirect economic or voting interests in Jetty, the Company will not directly or indirectly control Jetty, and the Company and Jetty will continue to operate independently of one another.

Upon initial recognition, the Company estimated the fair value of the Jetty financial instrument to be $ 90,120 , consisting of (i) the Upfront Payment as noted above;

and (ii) the present value of the estimated Deferred Payments, totaling $ 1,771 (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.

Any subsequent changes in estimated fair value will be recognized in other income (expense), net.

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

PROPERTY, PLANT AND EQUIPMENT

10 unchanged sentences

Accumulated depreciation

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).

Depreciation expense included in cost of goods sold for the three months ended June 30, 2022 is $ 11,074 (three months ended June 30, 2021 – $ 10,462 ).

Depreciation expense included in selling, general and administrative expenses for the three months ended June 30, 2022 is $ 4,055 (three months ended June 30, 2021 – $ 6,654 ).

INTANGIBLE ASSETS

The components of intangible assets are as follows:

December 31, 2021

June 30, 2022

March 31, 2022

2 unchanged sentences

Distribution channel

Software and domain names

Operating licenses

Software and domain names

Amortizable intangibles in process

3 unchanged sentences

Total intangible assets

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).

Amortization expense included in cost of goods sold for the three months ended June 30, 2022 is $ 14 ( three months ended June 30, 2021 – $ 18 ).

Amortization expense included in selling, general and administrative expenses for the three months ended June 30, 2022 is $ 6,708 (three months ended June 30, 2021 – $ 7,998 ).

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

Balance, March 31, 2021

Purchase accounting allocations

Disposal of consolidated entities

Impairment losses

Foreign currency translation adjustments

Balance, March 31, 2022

Purchase accounting allocations

Disposal of consolidated entities

Impairment losses

Foreign currency translation adjustments

Balance, December 31, 2021

Balance, June 30, 2022

As a result of the continued decline in the price of the Company’s common shares in the three months ended June 30, 2022, the Company determined there to be an indicator of impairment for the cannabis operations reporting unit in the global cannabis segment.

As a result, the Company performed a quantitative interim goodwill impairment assessment for the cannabis operations reporting unit as of June 30, 2022.

The Company concluded that the carrying value of the cannabis operations reporting unit was higher than its estimated fair value, and a goodwill impairment loss totaling $ 1,725,368 was recognized in the three months ended June 30, 2022, representing the entirety of the goodwill assigned to the cannabis operations reporting unit.

The estimated fair value of the cannabis operations reporting unit was determined using the market valuation method, which is consistent with the methodology used by the Company for its annual impairment test conducted at March 31, 2022.

The most significant assumptions used in applying this method were (i) the price of the Company’s common shares;

and (ii) the estimated control premium associated with ownership of the Company’s common shares.

For the remaining reporting units, the Company does not believe that an event occurred or circumstances changed during the three months ended June 30, 2022 that would, more likely than not, reduce the fair value of these reporting units below their carrying value.

Therefore, the Company concluded that the quantitative goodwill impairment assessment was not required.

The carrying value of goodwill associated with all other reporting units was $ 138,419 at June 30, 2022.

The Company is required to perform its next annual goodwill impairment analysis on March 31, 2023, or earlier should there be an event that occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

OTHER ACCRUED EXPENSES AND LIABILITIES

1 unchanged sentence

Employee compensation

Taxes and government fees

Professional fees

Taxes and government fees

The components of debt are as follows:

Maturity Date

Convertible senior notes at 4.25 % interest with

semi-annual interest payments

Convertible senior notes at 4.25 % interest with semi-annual interest payments

July 15, 2023

22 unchanged sentences

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 .

1 unchanged sentence

The Notes will mature on July 15, 2023 .

The Notes are subordinated in right of payment to any existing and future senior indebtedness, including any indebtedness under the revolving debt facility with FCC (as defined below).

The Notes are subordinated in right of payment to any existing and

future senior indebtedness.

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 (a “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.

On June 29, 2022 and June 30, 2022, the Company entered into privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders of the Notes including Greenstar Canada Investment Limited Partnership (“GCILP”), a wholly-owned subsidiary of Constellation Brands, Inc.

(“CBI”) (collectively, the “Noteholders”).

Pursuant to the Exchange Agreements, the Company agreed to acquire and cancel approximately $ 262,620 of aggregate principal amount of the Notes from the Noteholders (the “Exchange Transaction”) for an aggregate purchase price (excluding $ 5,383 paid to the Noteholders in cash for accrued and unpaid interest) of $ 259,994 (the “Purchase Price”), which was payable in the Company’s common shares.

On initial closings, 35,662,420 common shares were to be issued to the Noteholders, other than GCILP, based on a price equal to US$ 3.50 per common share, which was the closing price of the common shares on the Nasdaq Global Select Market (“Nasdaq”) on June 29, 2022.

The Company satisfied the Purchase Price as follows:

On June 30, 2022, 14,069,353 common shares were issued to Noteholders, representing the Company’s acquisition and cancellation of an aggregate principal amount of Notes of $ 63,098 which were recorded at a fair value of $ 50,866 .

In July 2022, 21,593,067 common shares were issued to Noteholders, representing an aggregate principal amount of Notes of $ 99,522 which were recorded at a fair value of $ 80,231 at June 30, 2022.

In addition, on the final closing on July 18, 2022 (the “Final Closing”), 11,896,536 common shares were issued to Noteholders other than GCILP, based on the volume-weighted average trading price of the common shares on the Nasdaq for the 10 consecutive trading days beginning on, and including, June 30, 2022, being US$ 2.6245 (the “Averaging Price”).

In addition, on the Final Closing on July 18, 2022, 29,245,456 common shares were issued to GCILP based on a price per common share equal to the Averaging Price.

Pursuant to the Exchange Transaction, the Company agreed to acquire and cancel $ 100,000 in aggregate principal amount, which were recorded at a fair value of $ 98,925 at June 30, 2022.

Prior to the Exchange Transaction, GCILP held $ 200,000 in aggregate principal amount of the Notes.

The Notes were issued pursuant to an indenture dated June 20, 2018, as supplemented on April 30, 2019 and June 29, 2022 (collectively, the “Indenture”).

As a result of a supplement to the Indenture dated June 29, 2022 (the “Second Supplemental Indenture”), the Company irrevocably surrendered its right to settle the conversion of any Note with its common shares.

As a result, all conversions of Notes following the execution of the Second Supplemental Indenture will be settled entirely in cash.

The Noteholders may convert the Notes at their option at any time from January 15, 2023 to the maturity date.

In addition, the holder has the right to redeem the Notes from September 30, 2018 to January 15, 2023, if (i) the market price of the Company’s 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 (a “Fundamental Change”).

A Fundamental Change occurred upon completion of the investment by the CBI Group in the Company in November 2018, and no holders of Notes surrendered any portion of their Notes in connection therewith .

Under the terms of the Indenture, if a Fundamental Change occurs and a holder elects to redeem 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, upon conversion by the holder, will settle in cash, subject to certain circumstances.

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.

On or after July 20, 2021 , the Company can 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 initial 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 Notes were initially recognized at fair value on the balance sheet and continue to be recorded at fair value.

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 (expense), net.

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

The overall change in fair value of the Notes during the three and nine months ended December 31, 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).

During the three months ended June 30, 2022, the Company acquired and cancelled an aggregate principal amount of Notes of $ 63,098 which resulted in a release of accumulated other comprehensive income into other income (expense), net of $ 7,090 .

Refer to Note 19.

The overall change in fair value of the Notes during the three months ended June 30, 2022, was a decrease of $ 69,542 (three months ended June 30, 2021, a decrease of $ 51,372 ), which included contractual interest of $ 6,047 (three months ended June 30, 2021 – $ 6,378 ) and principal redemption of $ 63,098 .

Upon redemption, the principal redeemed had a fair value of $ 50,866 .

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

In connection with the Exchange Transaction, in the three months ended June 30, 2022, the Company recognized a derivative liability of $ 26,594 in connection with the incremental common shares that were potentially issuable to Noteholders, other than GCILP, as at June 30, 2022 at the Averaging Price on the Final Closing.

The derivative liability was recorded through other income (expense), net in the three months ended June 30, 2022.

Refer to Note 15.

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 October 19, 2018, The Supreme Cannabis Company, Inc.

(“Supreme Cannabis”) 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:

5 unchanged sentences

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

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

convertible into Supreme Shares (as defined below) .

The Accretion Debentures are payable in cash, but do not bear cash interest and are not convertible into the common shares of Supreme Cannabis (the “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 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.

As a result of the completion of an arrangement, on June 22, 2021, by the Company and Supreme Cannabis, pursuant to which the Company acquired 100 % of the issued and outstanding Supreme Shares (the “Supreme Arrangement”), 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 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.

3 unchanged sentences

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 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 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 .

OTHER LIABILITIES

The components of other liabilities are as follows:

As at December 31, 2021

As at June 30, 2022

As at March 31, 2022

Lease liabilities

Derivative liability related

to settlement of

convertible senior notes

Acquisition consideration

3 unchanged sentences

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).

On May 17, 2022, upon entering into the Jetty Agreements, the Company recognized the estimated Deferred Payments associated with the Jetty financial instrument within acquisition consideration and other investment related liabilities, in the amount of $ 1,771 (see Note 9).

The estimated deferred payments associated with the Wana financial instrument within acquisition consideration and other investment related liabilities at June 30, 2022 is $ 30,522 (March 31, 2022 – $ 70,066 ).

REDEEMABLE NONCONTROLLING INTEREST

1 unchanged sentence

As at March 31, 2022

Net loss attributable to redeemable noncontrolling interest

Net income (loss) attributable to redeemable noncontrolling interest

Adjustments to redemption amount

Redemption of redeemable noncontrolling interest

As at December 31, 2021

As at June 30, 2022

As at March 31, 2021

Net loss attributable to redeemable noncontrolling interest

Net income (loss) attributable to redeemable noncontrolling interest

Adjustments to redemption amount

As at December 31, 2020

As at June 30, 2021

SHARE CAPITAL

2 unchanged sentences

(i) Equity financings

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

There were no equity financings during the three months ended June 30, 2022 (three months ended June 30, 2021 - no ne).

(ii) Other issuances of common shares

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

During the three months ended June 30, 2022, the Company issued the following common shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

Number of common shares

Jetty Agreements

During the three months ended June 30, 2021, the Company issued the following common shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

Number of common shares

Acquisition of Supreme Cannabis

Completion of acquisition milestones

Other issuances

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

Completion of acquisition milestones

Other issuances

(iii) Warrants

Balance outstanding at March 31, 2022 1

Supreme Cannabis warrants

Expiry of warrants

Balance outstanding at December 31, 2021 1

Balance outstanding at June 30, 2022 1

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

Balance outstanding at March 31, 2021 1

Exercise of warrants

Supreme Cannabis warrants

Expiry of warrants

Balance outstanding at December 31, 2020 1

Balance outstanding at June 30, 2021 1

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

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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 39,415,800 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.

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.

The maximum number of common shares reserved for Awards is 41,721,761 at June 30, 2022.

As of June 30, 2022, 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 Board of Directors 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.

Awards under the Omnibus Plan generally vest in increments with 1/3 vesting 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 discretion of the CGC&N Committee pursuant to the Omnibus Plan to provide for an alternative expiry date or vesting period in an award agreement for the grant of Awards, 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 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:

For the three months ended June 30, 2022, no common shares were issued under the Purchase Plan (three months ended June 30, 2021 – nil ).

The following is a summary of the changes in the Options outstanding during the three months ended June 30, 2022:

exercise price

1 unchanged sentence

Options granted

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

Options exercised

Options forfeited

Balance outstanding at December 31, 2021

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

Balance outstanding at June 30, 2022

The following is a summary of the Options outstanding as at June 30, 2022:

Options Outstanding

7 unchanged sentences

Range of Exercise Prices

December 31, 2021

June 30, 2022

$0.06 - $24.62

3 unchanged sentences

$42.85 - $67.64

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:

At June 30, 2022, the weighted average exercise price of Options outstanding and Options exercisable was $ 29.46 and $ 38.42 , respectively (March 31, 2022 – $ 33.89 and $ 38.33 , respectively).

The Company recorded $ 377 in share-based compensation expense related to Options and Purchase Plan shares issued to employees and contractors for the three months ended June 30, 2022 (three months ended June 30, 2021 – $ 8,044 ).

The share-based compensation expense for the three months ended June 30, 2022 includes an amount related to 1,173,866 Options being provided in exchange for services which are subject to performance conditions (for the three months ended June 30, 2021 – 1,559,413 ).

During the three months ended June 30, 2021, the Company issued replacement options to employees in relation to the acquisition of Supreme Cannabis 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, 2022 and 2021, on their measurement date by applying the following assumptions:

Risk-free interest rate

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The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the Options.

During the nine months ended December 31, 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

During the three months ended June 30, 2022, 54,570 Options were exercised ranging in price from $ 2.68 to $ 8.18 for gross proceeds of $ 210 (for 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, 2022, the Company recorded $ 4,888 in share-based compensation expense related to RSUs and PSUs (for the three months ended June 30, 2021 – $ 2,295 ).

The following is a summary of the changes in the Company’s RSUs and PSUs during the three months ended June 30, 2022:

Number of RSUs

Balance outstanding at March 31, 2022

2 unchanged sentences

RSUs and PSUs cancelled and forfeited

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.

Balance outstanding at June 30, 2022

During the three months ended June 30, 2022, the Company recorded $nil in share-based compensation expense related to acquisition milestones (for the three months ended June 30, 2021 – $ 1,699 ).

During the three months ended June 30, 2022, no common shares were released on completion of acquisition milestones (during the three months ended June 30, 2021 – 9,888,801 ).

At June 30, 2022, there were up to 349,572 common shares to be issued on the completion of acquisition and asset purchase milestones.

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

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

The number of common shares has been estimated assuming the milestones were met at June 30, 2022.

BioSteel share-based payments

2 unchanged sentences

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

As at December 31, 2021, BioSteel had 1,545,300 (March 31, 2021 – 1,581,000 ) options outstanding which vest in equal tranches over a 5 -year period.

As at June 30, 2022, BioSteel had 1,565,300 (March 31, 2022 – 1,565,300 ) 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 $ 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 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.

The Company recorded $ 174 of share-based compensation expense related to the BioSteel options during the three months ended June 30, 2022 with a corresponding increase in noncontrolling interest (three months ended June 30, 2021 – $ 265 ).

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

4 unchanged sentences

As at March 31, 2022

Other comprehensive income (loss)

As at December 31, 2021

Settlement of convertible senior notes

Other comprehensive income

As at June 30, 2022

Foreign currency translation adjustments

2 unchanged sentences

As at March 31, 2021

Other comprehensive loss

As at December 31, 2020

Other comprehensive (loss) income

As at June 30, 2021

NONCONTROLLING INTERESTS

1 unchanged sentence

As at March 31, 2022

Comprehensive loss

Net loss attributable to redeemable noncontrolling interest

Comprehensive income (loss)

Net (income) loss attributable to redeemable noncontrolling

Share-based compensation

As at December 31, 2021

As at June 30, 2022

As at March 31, 2021

Comprehensive loss

Net loss attributable to redeemable

noncontrolling interest

Comprehensive income (loss)

Net (income) loss attributable to redeemable noncontrolling

Share-based compensation

Ownership changes

As at December 31, 2020

As at June 30, 2021

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 unchanged sentences

Quoted prices

December 31, 2021

June 30, 2022

Short-term investments

2 unchanged sentences

Convertible senior notes

Liability arising from Acreage Arrangement

Warrant derivative liability

Other liabilities

March 31, 2022

5 unchanged sentences

Warrant derivative liability

Other liabilities

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 2 financial instruments:

46 unchanged sentences

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

Wana financial instrument

Wana financial instrument - Call

Discounted cash flow

Expected future Wana cash flows

Increase or decrease in expected future Wana cash flows will result in an increase or decrease in fair value

Discount rate

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

Wana financial instrument - Deferred Payments

Monte Carlo simulation model

Probability of US legalization

Probability and timing of US legalization

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

Volatility of Wana

Volatility of Wana equity

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

Jetty financial instrument -

Discounted cash flow

Expected future Jetty cash flows

Increase or decrease in expected future Jetty cash flows will result in an increase or decrease in fair value

Discount rate

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

Jetty financial instrument - Deferred

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

Volatility of Jetty equity and revenue

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

Warrant derivative liability

2 unchanged sentences

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

BioSteel redeemable NCI

BioSteel redeemable noncontrolling interest

Discounted cash flow

1 unchanged sentence

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

Expected future BioSteel cash flows

Increase or decrease in expected future BioSteel cash flows will result in an increase or decrease in fair value

Vert Mirabel redeemable

Discounted cash flow

1 unchanged sentence

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

noncontrolling interest

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 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

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 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).

1 Canadian recreational business-to-business net revenue during the three months ended June 30, 2022 reflects excise taxes of $ 11,591 (three months ended June 30, 2021 – $ 17,834 ).

2 Canadian medical cannabis net revenue for the three months ended June 30, 2022 reflects excise taxes of $ 1,156 (three months ended June 30, 2021 – $ 1,380 ).

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 $ 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 ).

Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $ 2,898 for the three months ended June 30, 2022 (three months ended June 30, 2021 – $ 5,314 ).

As of June 30, 2022, the liability for estimated returns and price adjustments was $ 2,788 (March 31, 2022 – $ 3,437 ).

OTHER INCOME (EXPENSE), NET

1 unchanged sentence

Three months ended

Nine months ended

Fair value changes on other financial assets

2 unchanged sentences

Fair value changes on warrant derivative liability

Fair value changes on acquisition related contingent

consideration and other

Fair value changes on acquisition related contingent consideration and other

Charges related to settlement of convertible senior notes

Interest income

1 unchanged sentence

Foreign currency gain (loss)

Loss on disposal of consolidated entity

Gain (loss) on disposal/acquisition 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 nine months ended December 31, 2021.

There have been no material changes to income tax matters in connection with normal course operations during the three months ended June 30, 2022.

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

7 unchanged sentences

Three months ended

Nine months ended

Basic (loss) earnings per share computation

Net (loss) income attributable to common shareholders

of Canopy Growth

Net (loss) income attributable to common shareholders of Canopy Growth

Weighted average number of common shares outstanding

1 unchanged sentence

Diluted (loss) earnings per share computation

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

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

Numerator adjustments for diluted (loss) earnings per share:

Adjustment to net loss attributable to noncontrolling interests

and redeemable noncontrolling interest

Adjustment to net loss attributable to noncontrolling interests and redeemable

noncontrolling interest

Removal of fair value changes on convertible senior notes

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

earnings per share

Weighted average number of common shares outstanding used in the

computation of basic (loss) earnings per share

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

Weighted average number of common shares outstanding used in the computation

of basic (loss) earnings per share

Denominator adjustments for diluted (loss) earnings per share:

4 unchanged sentences

Other securities

Weighted average number of common shares for computation of

diluted (loss) earnings per share

Weighted average number of common shares for computation of diluted (loss)

earnings per share

Diluted (loss) earnings per share 1

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

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

Cash and cash equivalents

Other current assets

Property, plant and equipment

Intangible assets

Distribution channel

Operating licenses

Accounts payable and other accrued expenses and liabilities

Debt and other liabilities

Deferred income tax liabilities

Net assets acquired

Consideration paid in cash

Consideration paid in shares

Replacement options

Replacement warrants

Other consideration

Total consideration

Consideration paid in cash

Cash and cash equivalents acquired

Net cash outflow (inflow)

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

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

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

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

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

(i) Ace Valley

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

(“Ace Valley”), and the shareholders of Ace Valley (the “AV Vendors”) pursuant to which the Company indirectly acquired 100 % of the issued and outstanding shares of Ace Valley for cash consideration of $ 51,836 .

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

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

This represents liability-classified contingent consideration.

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

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

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

(ii) Supreme Cannabis

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

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

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

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

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

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

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

On June 22, 2021, Supreme Cannabis had convertible debentures outstanding with a principal amount of $ 27,045 which were convertible into 94,895,649 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 $ 36,593 , of which $ 4,937 was allocated to the conversion feature and $ 31,656 to the debt component.

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

ACREAGE ARRANGEMENT AND AMENDMENTS TO CBI INVESTOR RIGHTS AGREEMENT AND WARRANTS

1 unchanged sentence

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”).

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

In connection with the Acreage Amending Agreement, the Company and Acreage implemented an amended and restated plan of arrangement (the “Acreage Amended Arrangement”) on September 23, 2020.

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

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

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

8 unchanged sentences

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

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).

At June 30, 2022, the right and the obligation (the “Acreage financial instrument”) to acquire the Fixed Shares represents a financial asset of $ 60,000 (March 31, 2022 – $ 47,000 liability), as the estimated fair value of the Acreage business is more than the estimated fair value of the consideration to be provided upon the exercise of the Acreage financial instrument.

Fair value changes on the Acreage financial instrument are recognized in other income (expense), net;

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

1 unchanged sentence

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

In connection with the 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 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.

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 (“Hempco Debenture”).

In accordance with the terms of the Hempco Debenture, the funds advanced to Acreage Hempco 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 Hempco Debenture bears interest at a rate of 6.1 % per annum and matures on September 23, 2030, or such earlier date in accordance with the terms of the Hempco Debenture.

All interest payments made pursuant to the Hempco Debenture are payable in cash by Acreage Hempco.

The Hempco Debenture is not convertible and is not guaranteed by Acreage.

The amount advanced on September 23, 2020 pursuant to the Hempco 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, 2022, the estimated fair value of the Hempco Debenture issued to an affiliate of the Company by Acreage Hempco was $ 27,419 (March 31, 2022 – $ 28,824 ), 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.

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

Amendment to the CBI Investor Rights Agreement and warrants

6 unchanged sentences

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

The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at December 31, 2021.

The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at June 30, 2022.

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 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.

The Tranche B Warrants are accounted for as derivative instruments (the “warrant derivative liability”) measured at fair value in accordance with ASC 815.

At June 30, 2022, the fair value of the warrant derivative liability was $ 1,555 (March 31, 2022 – $ 26,920 ), and fair value changes are recognized in other income (expense), net;

See Note 21 for additional details on how the fair value of the warrant derivative liability is calculated on a recurring basis.

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

The Tranche C Warrants are accounted for as derivative instruments, with the fair value continuing to be $nil at June 30, 2022.

SEGMENT INFORMATION

8 unchanged sentences

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.

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

Nine months ended

Segmented net revenue

6 unchanged sentences

Share-based compensation

Expected credit losses on financial assets and relates charges

Asset impairment and restructuring costs

2 unchanged sentences

Other income (expense), net

Net (loss) income before incomes taxes

(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.

2 unchanged sentences

Three months ended

Nine months ended

United States

Disaggregation of property, plant and equipment by geographic area:

United States

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 ).

For the three months ended June 30, 2022, no customer represented more than 10% of the Company’s net revenue (three months ended June 30, 2021 – one ).

SUBSEQUENT EVENTS

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 .

Completion of Exchange Transaction

On July 18, 2022, the Company completed the Exchange Transaction whereby 62,735,059 common shares were issued in July 2022 and aggregate principal amount of Notes of $ 199,522 were acquired and cancelled.

In total, 76,804,412 common shares, including the 14,069,353 common shares issued on June 30, 2022, were issued and $ 262,620 of aggregate principal amount of the Notes under the Exchange Transaction were acquired and cancelled.

Refer to Note 14.

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