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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number: 001-38594

 

TILRAY, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-4310622

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

655 Madison Avenue, Suite 1900

New York, NY

10065

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (844) 845-7291

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class 2 Common Stock, $0.0001 par value per share

 

TLRY

 

The Nasdaq Stock Market LLC

 

 

 

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of October 4, 2021, the registrant had 460,658,653 shares of common stock, $0.0001 par value per share, issued and outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Statements of Financial Position (Unaudited)

1

 

Consolidated Statements of Loss and Comprehensive Loss (Unaudited)

2

 

Consolidated Statements of Stockholders' Equity (Unaudited)

3

 

Consolidated Statements of Cash Flows (Unaudited)

4

 

Notes to Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

Signatures

41

 

 


i


Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”” might,” “plan,” “project,” “will,” “would” ”seek,” or “should,” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements and forward-looking information are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements or forward-looking information. Factors that could cause or contribute to such differences include, but are not limited to, those identified in this Quarterly Report on Form 10-Q and those discussed in the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC and Canadian public filings. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events. Furthermore, such forward-looking statements or forward-looking information speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.

 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TILRAY, INC.

Consolidated Statements of Financial Position

(in thousands of United States dollars, unaudited)

 

 

 

 

August 31,

2021

 

 

May 31,

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

376,297

 

 

$

488,466

 

Accounts receivable, net

 

 

97,177

 

 

 

87,309

 

Inventory

 

 

251,507

 

 

 

256,429

 

Prepaids and other current assets

 

 

117,267

 

 

 

48,920

 

Convertible notes receivable

 

 

2,370

 

 

 

2,485

 

Total current assets

 

 

844,618

 

 

 

883,609

 

Capital assets

 

 

621,339

 

 

 

650,698

 

Right-of-use assets

 

 

17,783

 

 

 

18,267

 

Intangible assets

 

 

1,502,814

 

 

 

1,605,918

 

Goodwill

 

 

2,809,131

 

 

 

2,832,794

 

Interest in equity investees

 

 

4,062

 

 

 

8,106

 

Long-term investments

 

 

186,407

 

 

 

17,685

 

Other assets

 

 

198

 

 

 

8,285

 

Total assets

 

$

5,986,352

 

 

$

6,025,362

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Bank indebtedness

 

$

9,203

 

 

$

8,717

 

Accounts payable and accrued liabilities

 

 

190,213

 

 

 

212,813

 

Contingent consideration

 

 

61,494

 

 

 

60,657

 

Warrant liability

 

 

60,476

 

 

 

78,168

 

Escrow payable

 

 

170,799

 

 

 

 

Current portion of lease liabilities

 

 

3,808

 

 

 

4,264

 

Current portion of long-term debt

 

 

30,837

 

 

 

36,622

 

Total current liabilities

 

 

526,830

 

 

 

401,241

 

Long - term liabilities

 

 

 

 

 

 

 

 

Lease liabilities

 

 

53,331

 

 

 

53,946

 

Long-term debt

 

 

164,911

 

 

 

167,486

 

Convertible debentures

 

 

611,646

 

 

 

667,624

 

Deferred tax liability

 

 

239,373

 

 

 

265,845

 

Other liabilities

 

 

4,505

 

 

 

3,907

 

Total liabilities

 

 

1,600,596

 

 

 

1,560,049

 

Commitments and contingencies (refer to Note 16)

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Common stock

 

 

46

 

 

 

46

 

Additional paid-in capital

 

 

4,795,879

 

 

 

4,792,406

 

Accumulated other comprehensive income

 

 

51,247

 

 

 

152,668

 

Deficit

 

 

(527,699

)

 

 

(486,050

)

Total Tilray shareholders' equity

 

 

4,319,473

 

 

 

4,459,070

 

Non-controlling interests

 

 

66,283

 

 

 

6,243

 

Total shareholders' equity

 

 

4,385,756

 

 

 

4,465,313

 

Total liabilities and shareholders' equity

 

$

5,986,352

 

 

$

6,025,362

 

 

 

 

 

 

 

 

 

 

 

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

1


TILRAY, INC.

Consolidated Statements of Loss and Comprehensive Loss

(in thousands of United States dollars, except for share and per share data, unaudited)

 

 

 

Three months ended August 31,

 

 

 

2021

 

 

2020

 

Net revenue

 

$

168,023

 

 

$

117,490

 

Cost of goods sold

 

 

117,068

 

 

 

82,545

 

Gross profit

 

 

50,955

 

 

 

34,945

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

49,487

 

 

 

25,972

 

Selling

 

 

7,432

 

 

 

5,817

 

Amortization

 

 

30,739

 

 

 

4,127

 

Marketing and promotion

 

 

5,465

 

 

 

4,925

 

Research and development

 

 

785

 

 

 

120

 

Transaction costs

 

 

25,579

 

 

 

2,458

 

Total operating expenses

 

 

119,487

 

 

 

43,419

 

Operating loss

 

 

(68,532

)

 

 

(8,474

)

Finance expense, net

 

 

(10,170

)

 

 

(5,736

)

Non-operating income (expense), net

 

 

48,860

 

 

 

(13,359

)

Loss before income taxes

 

 

(29,842

)

 

 

(27,569

)

Income taxes (recovery)

 

 

4,762

 

 

 

(5,825

)

Net loss

 

$

(34,604

)

 

$

(21,744

)

Total net income (loss) attributable to:

 

 

 

 

 

 

 

 

Shareholders of Tilray Inc.

 

 

(41,649

)

 

 

(34,343

)

Non-controlling interests

 

 

7,045

 

 

 

12,599

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

 

(100,772

)

 

 

1,385

 

Unrealized loss on convertible notes receivable

 

 

(649

)

 

 

 

Total other comprehensive (loss) income, net of tax

 

 

(101,421

)

 

 

1,385

 

Comprehensive loss

 

 

(136,025

)

 

 

(20,359

)

Total comprehensive income (loss) attributable to:

 

 

 

 

 

 

 

 

Shareholders of Tilray Inc.

 

 

(143,070

)

 

 

(32,958

)

Non-controlling interests

 

 

7,045

 

 

 

12,599

 

Weighted average number of common shares - basic

 

 

449,397,822

 

 

 

241,992,864

 

Weighted average number of common shares - diluted

 

 

449,397,822

 

 

 

241,992,864

 

Loss per share - basic

 

$

(0.08

)

 

$

(0.09

)

Loss per share - diluted

 

$

(0.08

)

 

$

(0.09

)

 

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

2


TILRAY, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands of United States dollars, except for share data, unaudited)

 

 

 

Number of

common

shares

 

 

Common

stock

 

 

Additional

paid-in

capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Deficit

 

 

Non-

controlling

interests

 

 

Total

 

Balance at May 31, 2020

 

 

240,132,635

 

 

 

24

 

 

 

1,366,736

 

 

 

(5,434

)

 

 

(113,352

)

 

 

26,957

 

 

 

1,274,931

 

Share issuance - legal settlement

 

 

1,389,884

 

 

 

 

 

 

7,018

 

 

 

 

 

 

 

 

 

 

 

 

7,018

 

Share issuance - options exercised

 

 

41,065

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Share issuance - RSUs exercised

 

 

429,280

 

 

 

 

 

 

2,246

 

 

 

 

 

 

 

 

 

 

 

 

2,246

 

Share-based payments

 

 

 

 

 

 

 

 

1,233

 

 

 

 

 

 

 

 

 

 

 

 

1,233

 

Comprehensive income (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

1,385

 

 

 

(34,343

)

 

 

12,599

 

 

 

(20,359

)

Balance at August 31, 2020

 

 

241,992,864

 

 

 

24

 

 

 

1,377,237

 

 

 

(4,049

)

 

 

(147,695

)

 

 

39,556

 

 

 

1,265,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2021

 

 

446,440,641

 

 

 

46

 

 

 

4,792,406

 

 

 

152,668

 

 

 

(486,050

)

 

 

6,243

 

 

 

4,465,313

 

Third party contribution to Superhero Acquisition LP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,995

 

 

 

52,995

 

Share issuance - options exercised

 

 

417,489

 

 

 

 

 

 

2,756

 

 

 

 

 

 

 

 

 

 

 

 

2,756

 

Share issuance - RSUs exercised

 

 

3,665,337

 

 

 

 

 

 

6,661

 

 

 

 

 

 

 

 

 

 

 

 

6,661

 

Share-based payments, net

 

 

 

 

 

 

 

 

(5,944

)

 

 

 

 

 

 

 

 

 

 

 

(5,944

)

Comprehensive income (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

(101,421

)

 

 

(41,649

)

 

 

7,045

 

 

 

(136,025

)

Balance at August 31, 2021

 

 

450,523,467

 

 

$

46

 

 

$

4,795,879

 

 

$

51,247

 

 

$

(527,699

)

 

$

66,283

 

 

$

4,385,756

 

 

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

3


TILRAY, INC.

Consolidated Statements of Cash Flows

(in thousands of United States dollars, unaudited)

 

 

 

For the three months ended August 31,

 

 

 

2021

 

 

2020

 

Cash used in operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(34,604

)

 

$

(21,744

)

Adjustments for:

 

 

 

 

 

 

 

 

Deferred income tax recovery

 

 

(24,873

)

 

 

(17,984

)

Unrealized foreign exchange loss

 

 

13,192

 

 

 

15,597

 

Amortization

 

 

39,333

 

 

 

10,979

 

Loss on sale of capital assets

 

 

27

 

 

 

 

Other non-cash items

 

 

165

 

 

 

(67

)

Stock-based compensation

 

 

4,074

 

 

 

2,850

 

Loss on long-term investments & equity investments

 

 

1,144

 

 

 

1,120

 

Gain on debt instruments

 

 

(57,711

)

 

 

(340

)

Loss on contingent consideration

 

 

837

 

 

 

 

Change in non-cash working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,868

)

 

 

(21,656

)

Prepaids and other current assets

 

 

(7,265

)

 

 

(6,747

)

Inventory

 

 

4,922

 

 

 

1,231

 

Accounts payable and accrued liabilities

 

 

(22,600

)

 

 

(19,339

)

Net cash used in operating activities

 

 

(93,227

)

 

 

(56,100

)

Cash used in investing activities:

 

 

 

 

 

 

 

 

Investment in capital and intangible assets

 

 

(16,316

)

 

 

(13,955

)

Proceeds from disposal of capital and intangible assets

 

 

7,696

 

 

 

 

Promissory notes advances

 

 

 

 

 

(2,419

)

Proceeds from disposal of long-term investments and equity investees

 

 

 

 

 

2,676

 

Net cash used in investing activities

 

 

(8,620

)

 

 

(13,698

)

Cash (used in) provided by financing activities:

 

 

 

 

 

 

 

 

Share capital issued, net of cash issuance costs

 

 

 

 

 

(261

)

Proceeds from warrants and options exercised

 

 

 

 

 

4

 

Proceeds from long-term debt

 

 

 

 

 

1,887

 

Repayment of long-term debt

 

 

(8,360

)

 

 

(880

)

Repayment of lease liabilities

 

 

(154

)

 

 

31

 

Increase (decrease) in bank indebtedness

 

 

486

 

 

 

5,956

 

Net cash (used in) provided by financing activities

 

 

(8,028

)

 

 

6,737

 

Effect of foreign exchange on cash and cash equivalents

 

 

(2,294

)

 

 

9,132

 

Net decrease in cash and cash equivalents

 

 

(112,169

)

 

 

(53,929

)

Cash and cash equivalents, beginning of period

 

 

488,466

 

 

 

360,646

 

Cash and cash equivalents, end of period

 

$

376,297

 

 

$

306,717

 

 

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

 

 

4


 

 

TILRAY, INC.

Notes to Consolidated Financial Statements

Note 1. Description of business

Tilray, Inc., and its wholly owned subsidiaries (collectively “Tilray”, the “Company”, “we”, or “us”) is a leading global cannabis-lifestyle and consumer packaged goods company headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia, and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products.  A pioneer in cannabis research, cultivation and distribution, Tilray’s production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and alcoholic beverages.

On April 30, 2021, Tilray acquired all of the issued and outstanding common shares of Aphria Inc. (“Aphria”), an international organization with a focus on building a global cannabis-lifestyle consumer packaged goods company and involved in the manufacturing and distribution of beer and beer derivative products in the United States, and in the distribution of (non-Cannabis) pharmaceutical products in Germany, pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).

Note 2. Basis of presentation and summary of significant accounting policies

The accompanying unaudited consolidated financial statements (the “financial statements”) reflect the accounts of the Company. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. The information included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021 (the “Annual Financial Statements”). These financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company’s balance sheet at May 31, 2021 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.

These consolidated financial statements have been prepared on the going concern basis which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.

As a result of the April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilray and its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicable to the Arrangement. Accordingly, comparisons between the Company's first quarter 2022 results and prior periods may not be meaningful.

Information about the accounting treatment of the Arrangement including details of the transaction, determination of the total fair value consideration, and allocation of the purchase price, are included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).

The purchase price allocation for the Arrangement is open for adjustments and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date.  In the event that more information is obtained, the purchase price allocation may change. Any future adjustments to the purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.

 

Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).  

 

On August 13, 2021, the Company and other investors formed Superhero Acquisition L.P., a Delaware limited partnership, (“SH Acquisition”).  SH Acquisition was formed for the purpose of acquiring approximately $165.8 principal amount of senior secured

5


 

convertible notes (the “MM Notes”) originally issued by MedMen Enterprises Inc. (“MedMen”) and certain warrants (the “MM Warrants”) to acquire Class B subordinate voting shares of Medmen (the “MedMen Shares”) issued in connection with the original issuance of the MM Notes.  The MM Notes mature on August 17, 2028.  Pursuant to an Assignment and Assumption Agreement dated as of August 17, 2021, SH Acquisition completed its acquisition (the “MM Transaction”) of the MM Notes and MM Warrants from certain funds affiliated with Gotham Green Partners.  As partial consideration for the MM Notes and MM Warrants, on September 17, 2021, the Company issued 9,817,061 shares of its common stock. The balance of the consideration for the MM Notes and MM Warrants was paid in cash by the other partners of SH Acquisition. 

 

The Company’s interest in SH Acquisition represents its right to 68% of the MM Notes and related MM Warrants held by SH Acquisition, which are convertible into approximately 21% of the MedMen Shares outstanding upon closing of the MM Transaction. The Company’s ability to convert the MM Notes and exercise the MM Warrants is dependent upon federal laws in the United States being amended to permit the general cultivation, distribution and possession of cannabis (a “Triggering Event”) or the Company’s waiver of the need for a Triggering Event and the receipt of any additional regulatory approvals.

 

The Company is a limited partner under the SH Acquisition partnership agreement; however, material events conducted by the partnership require the approval of the Company, and, upon a Triggering Event, the Company has the ability to appoint two of the three members of the board of directors of the general partner of the partnership.  As a result, we have consolidated SH Acquisition as a subsidiary of Tilray beginning on August 17, 2021.  Additional information about the MM Transaction is included in Note 7, Long-term investments.

Long-term investments

 

Debt securities are classified as available-for-sale and are recorded at fair value and are subject to impairment testing. Other than impairment losses, unrealized gains and losses during the period, net of the related tax effect, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of shareholders’ equity until realized. Upon sale, realized gain and losses are reported in net income. Debt securities are impaired when a decline in fair value is determined to be other-than-temporary. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, and the duration and extent to which the fair value is less than cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the statements of net loss and a new cost basis for the investment is established. The Company also evaluates whether there is a plan to sell the security or it is more likely than not that the Company will be required to sell the security before recovery. If neither of the conditions exist, then only the portion of the impairment loss attributable to credit loss is recorded in the statements of net loss and the remaining amount is recorded in other comprehensive income (loss).

Investments in equity securities of entities over which the Company does not have a controlling financial interest or significant influence are accounted for at fair value. Equity investments without readily determinable fair values are measured at cost with adjustments for observable changes in price or impairments (referred to as the “measurement alternative”). In applying the measurement alternative, the Company performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are sufficient indicators that the fair value of the equity investments are less than carrying values. Changes in value are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.

Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the equity method, with the Company’s share of earnings or losses reported in earnings or losses from equity method investments on the statements of net loss and comprehensive loss. Equity method investments are recorded at cost, plus the Company’s share of undistributed earnings or losses, and impairment, if any, within “Interest in Equity Investees” on the balance sheets. The Company assesses investments in equity method investments when events or circumstances indicate that the carrying amount of the investment may be impaired. If it is determined that the current fair value of an equity method investment is less than the carrying value of the investment, the Company will assess if the shortfall is other than temporary (OTTI). Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity investee to sustain an earnings capacity that would justify the carrying amount of the investment. Once a determination is made that an OTTI exists, the investment is written down to its fair value in accordance with ASC 820 at the reporting date, which establishes a new cost basis.

New accounting pronouncements not yet adopted

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 amends and simplifies existing guidance in an effort to reduce the complexity of

6


 

accounting for convertible instruments and to provide financial statement users with more meaningful information. ASU 2020-06 is effective for the Company beginning June 1, 2022. This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. The Company is currently evaluating the effect of adopting this ASU.

In May 2021, the FASB issued ASU 2021-04, Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which amends existing guidance for earnings per share (EPS) in accordance with Topic 260. ASU 2021-04 is effective for the Company beginning June 1, 2022. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.

New accounting pronouncements recently adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The standard is effective for annual reporting periods beginning after December 15, 2021 and including interim periods within those fiscal years.  The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

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”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2020-01 did not have a material impact on our consolidated financial statements.

 

 

Note 3. Inventory

Inventory is comprised of:

 

 

 

August 31,

2021

 

 

May 31,

2021

 

Plants

 

$

19,605

 

 

$

23,083

 

Dried cannabis

 

 

113,180

 

 

 

118,269

 

Cannabis trim

 

 

3,448

 

 

 

2,931

 

Cannabis derivatives

 

 

38,613

 

 

 

24,158

 

Cannabis vapes

 

 

3,543

 

 

 

3,791

 

Packaging and other inventory items

 

 

25,595

 

 

 

31,462

 

Wellness inventory

 

 

14,042

 

 

 

15,171

 

Beverage alcohol inventory

 

 

4,796

 

 

 

5,402

 

Distribution inventory

 

 

28,685

 

 

 

32,162

 

Total

 

$

251,507

 

 

$

256,429

 

 

 

 

 

 

 

 

 

 

 

7


 

 

Note 4. Capital assets

Capital asset consisted of the following:

 

 

 

August 31, 2021

 

 

May 31, 2021

 

Land

 

$

31,467

 

 

$

28,549

 

Production facility

 

 

413,711

 

 

 

346,510

 

Equipment

 

 

231,290

 

 

 

215,408

 

Leasehold improvement

 

 

7,477

 

 

 

17,059