In determining the fair value of options and related costs, management estimates the expected life of the option, the expected volatility of the Company’s share price, the risk-free interest rate, and the rate of forfeitures. Refer to Note 13 for further information.
On May 25, 2023, the Company entered into a secured convertible loan agreement (the "Secured Convertible Loan Agreement") with Phylos Bioscience Inc. ("Phylos"), a cannabis genetics company and provider of production ready seeds, based in Portland, Oregon. Under the terms of this agreement, the Company will advance up to US$8 million to Phylos in three tranches structured as a secured convertible loan. The Company advanced Phylos an initial US$3.25 million ($4,429) on the closing date of the first tranche of the secured convertible loan and is committed to fund up to an additional US$4.75 million over two tranches within 12 and 24 months from the initial closing date, subject to the completion of certain milestones. The secured convertible loan will accrue paid-in-kind interest (“PIK”) at a rate of the U.S. Prime Rate + 3.5% (with an overall cap of 11%) subject to certain conditions. The maturity date of the secured convertible loan will be on the fifth anniversary of the initial closing date subject to one-year extensions at the Company's discretion and certain other conditions stipulated in the Secured Convertible Loan Agreement. The secured convertible loan (principal and PIK outstanding) is convertible into common share equity of Phylos under certain circumstances.
In November 2023 and May 2024, Phylos met the first and second milestone, respectively, under the Secured Convertible Loan Agreement and the Company funded the second tranche of US$2.75 million ($3,746) and partial third tranche of
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 27
US$1 million ($1,357). The initial recognition of these tranches were adjusted against the value of the derivative liability that was already recognized as part of the overall transaction at the time of initial recognition of the first tranche of the secured convertible loan. Refer to Note 11 (iii) for further information.
As at September 30, 2024, the secured convertible loan had a total fair value of $9,285 (September 30, 2023 – $3,092). During the year ended September 30, 2024, the Company recognized an increase in fair value of $3,227 (September 30, 2023 – $52) in the consolidated statements of operations and comprehensive loss.
iii.Steady State LLC (d/b/a Open Book Extracts)
In March 2024, the Company made its first investment from the Jupiter Pool (as defined in Note 13) and invested US$2 million ($2,717) in Open Book Extracts (“OBX”) in the form of a convertible promissory note. U.S. based OBX specializes in legal cannabinoid ingredient production and serves as a one-stop formulation and finished goods manufacturer, simplifying its clients’ supply chains. This convertible promissory note accrues simple interest at the Bank of England base rate plus 8%, capped to a maximum of 15%. All accrued interest is due and payable in full upon maturity, conversion, or prepayment of the convertible promissory note. Unless converted earlier, the principal amount and all accrued interest will be due and payable on October 16, 2026 (the “Maturity Date”). Upon maturity of the convertible promissory note, the principal amount and unpaid accrued interest may be converted, at the Company’s option, into shares of OBX. The Company incurred transaction costs of $286 this was recognized as an expense in the consolidated statements of operations and comprehensive loss
As at September 30, 2024, the convertible promissory note had a total fair value of $2,881. During the year ended September 30, 2024, the Company recognized an increase in fair value of $164 in the consolidated statements of operations and comprehensive loss.
iv.Sanity Group GmbH
In June 2024, the Company entered into an arrangement with Sanity Group GmbH (“Sanity Group”), a cannabis company based in Berlin, Germany. As per the arrangement, the Company agreed to acquire a minority stake in Sanity Group by purchasing equity interests from existing Sanity Group founders and shareholders for €2.5 million, and to advance €11.5 million to Sanity Group by way of an unsecured convertible note ("Convertible Note") for a total initial investment of €14 million (C$21 million).
On June 27, 2024, the Company advanced a first tranche of the Convertible Note of €11.5 million ($16,900), with an option to advance a further €3 million in the future subject to the satisfaction of certain conditions. This Convertible Note accrues simple interest of 10% per annum and has a fixed term of 36 months from the closing date of first tranche of June 27, 2024, being the maturity date. On the maturity date, unless converted earlier due to certain events, the Company will have three options (i) repay the principal amount and all accrued interest; (ii) extend the maturity date by 12 months; or (iii) convert the note into the most senior class of shares. As at September 30, 2024, the Convertible Note had a total fair value of $19,153. During the year ended September 30, 2024, the Company recognized an increase in fair value of $2,253 in the consolidated statements of operations and comprehensive loss.
On July 4, 2024, the Company completed the purchase of equity interests for €2.5 million ($3,720). As at September 30, 2024, the company revalued its equity interests in Sanity Group and recognized an increase in fair value of $247 in the consolidated statements of operations and comprehensive loss. The Company incurred transaction costs of $243 and this was recognized as an expense in the consolidated statements of operations and comprehensive loss
The Company made the aforementioned investments in Sanity Group from the Jupiter Pool (as hereinafter defined).
10. OTHER LIABILITIES
The Company’s other liabilities include the following balances as of September 30, 2024 and September 30, 2023:
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Contingent share consideration (Note 25)
—
49
Current portion lease liability (Note 14)
1,026
1,013
Provisions
—
90
Current portion of long-term debt
60
76
$
1,086
$
1,228
11. DERIVATIVE LIABILITIES
i.Warrants
Unit offering 2024
On April 2, 2024, the Company closed the unit offering (the "Offering") for gross proceeds of $28.8 million. The Company sold 8,901,000 units (each a "Unit") at a price of $3.23 per Unit, which included 1,161,000 Units sold pursuant to the exercise in full of the underwriters’ over-allotment option. Each Unit is comprised of one Common Share of the Company and one-half of one
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 28
Warrant. Each Warrant is exercisable to acquire one Warrant Share for a period of four years following the closing date of the Offering at an exercise price of $3.65 per Warrant Share, subject to adjustment in certain events. The holders of the Warrants issued pursuant to the Offering may elect, if the Company does not have an effective registration statement under the United States Securities Act of 1933, as amended, or the prospectus contained therein is not available for the offer and sale of the Common Shares to the Warrant holder, in lieu of exercising the Warrants for cash, a cashless exercise option to receive Common Shares equal to the fair value of the gain implied by the Warrants at the time of exercise. The fair value is determined by multiplying the number of Warrants to be exercised by the weighted average market price less the exercise price with the difference being divided by the weighted average market price. If a Warrant holder exercises this option, there will be variability in the number of shares issued per Warrant.
In accordance with IAS 32 Financial Instruments: Presentation, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the statement of operations and comprehensive loss at each reporting period. The derivative warrant liabilities are expected to ultimately be converted into the Company’s equity (Common Shares) when the Warrants are exercised or will be extinguished on the expiry of the outstanding Warrants and will not result in the outlay of any cash by the Company.
At initial recognition on April 2, 2024, the Company recorded derivative liabilities of $7,798 based on the estimated fair value of the Warrants at that date using the Black-Scholes option pricing model. Share issuance costs of $668 were recognized as costs allocated to derivative liabilities based on a pro-rata allocation of total issuance costs based on the relative fair value of the Warrants and the Common Shares issued as part of the Offering.
As at September 30, 2024, the Company revalued the remaining derivative liabilities to an estimated fair value of $7,772. The Company recorded a decrease in the estimated fair value change of the derivative liabilities for the year ended September 30, 2024 of $26.
The following inputs were used to estimate the fair value of the Warrants at September 30, 2024:
SEPTEMBER 30, 2024
Risk free interest rate
2.70
%
Life of Warrants (years)
3.51
Market price of Common Shares
$
2.45
Expected future volatility of Common Shares
123.00
%
Fair value per Warrant
$
1.75
Unit offering 2020
No warrants were exercised during the year ended September 30, 2024 (September 30, 2023 - Nil warrants). The warrants expired on November 12, 2023 and as at September 30, 2024 there were no warrants outstanding.
ii. Top-up Rights
On March 10, 2021, through the strategic investment from a wholly-owned subsidiary of British American Tobacco P.L.C. (together "BAT"), the Company issued 14,584,098 Common Shares, resulting in BAT's beneficial ownership in the Company of approximately 19.9%.
Pursuant to the Investor Rights Agreement (the "IRA") between the Company and BAT, the Company granted BAT certain rights, including pre-emptive rights, to participate in distributions of Common Shares to maintain its proportionate ownership in certain circumstances, as well as other rights ("Top-up Rights") to subscribe for additional Common Shares in specified circumstances where the pre-emptive rights are not applicable (referred to in the Amended IRA as "Exempt Distributions") and in specified circumstances where pre-emptive rights were not exercised (referred to in the IRA as “bought deal Distributions”).
The price per Common Share to be paid by BAT pursuant to the exercise of its Top-up Rights will equal the price paid by other participants in the Exempt Distribution or bought deal Distribution, subject to certain restrictions (including, if such price is not permitted pursuant to applicable securities laws, at the lowest price permitted thereunder).
The Company has classified the Top-up Rights as a derivative liability, and pursuant to the exercise of stock options, restricted share units, performance share units and warrants that were outstanding at initial recognition on March 10, 2021 (the date of the IRA), the Company recorded a derivative liability of $2,740 based on the estimated fair value of the Top-up Rights at this date using a Monte Carlo pricing model.
In connection with the closing of the first tranche of the Follow-on BAT Investment (as hereinafter defined), the Company and BAT entered into an amended and restated investor rights agreement (the "Amended and Restated IRA") that has superseded the earlier investor rights agreement. Refer to Note 13 for further information.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 29
As at September 30, 2024, the Company revalued the Top-up Rights of BAT pursuant to the Amended IRA to an estimated fair value of $6,338 (September 30, 2023 – $130). The Company recorded an increase in the estimated fair value of the Top-up Rights for the year ended September 30, 2024 of $6,208 (September 30, 2023 - $605).
The following inputs were used to estimate the fair value of the Top-up Rights as at September 30, 2024, and September 30, 2023:
SEPTEMBER 30, 2024
STOCK OPTIONS
WARRANTS
PSUs
RSUs
TOP-UP OPTIONS
Average exercise price(1)
$1.20 - $45.08
$2.50
$—
$—
$1.20 - $2.23
Risk free interest rate
2.78% - 2.89%
2.79%
2.83%
2.87%
3.10%
Expected future volatility of Common Shares
75.00% - 85.00%
75.00%
75.00%
75.00%
60.00%
Expected life(1)
2.14 - 4.40
0.12
5.92
5.18
1.41
Forfeiture rate
10%
—%
25%
6%
—%
SEPTEMBER 30, 2023
STOCK OPTIONS
WARRANTS
PSUs
RSUs
Average exercise price(1)
$1.20 - $45.08
$2.50
$—
$—
Risk free interest rate
4.11% - 4.54%
3.59%
3.65%
3.78%
Expected future volatility of Common Shares
70.00% - 90.00%
90.00%
85.00%
85.00%
Expected life(1)
1.34 - 5.12
0.12
5.92
5.18
Forfeiture rate
10%
—%
25%
6%
(1)Exercise price and expected life for stock options were determined using the range of exercise prices disclosed in Note 13(iv).
iii. Secured Convertible Loan Agreement
On May 25, 2023, the Company entered into the Secured Convertible Loan Agreement with Phylos. Under the terms of this agreement, upon the completion of certain milestones the Company has a commitment to fund US $4.75 million over two tranches within 12 and 24 months from the initial closing date. This commitment meets the definition of a derivative and the value of such derivative was considered as part of the overall transaction price in the initial recognition of the secured convertible loan and intangible assets. At initial recognition, the Company recorded a derivative liability of $1,424 based on the estimated fair value of the secured convertible loan.
In November, 2023, the Company funded the second tranche of US$2.75 million and a derivative liability of $1,385 was derecognized. Thereafter, in July 2024, the company also funded US$1 million for the third tranche and a derivative liability of $752 was derecognized. As at September 30, 2024, the Company revalued the commitment to fund remaining third tranche at an estimated fair value of $368 (September 30, 2023 – $1,743) and recorded a change in fair value of $762 (September 30, 2023 – $319) for the year ended September 30, 2024. The derivative liability is included in the current derivative liabilities on the consolidated statements of financial position.
iv. Non-voting Class A convertible preferred shares
In relation to the Follow-on BAT Investment, the Company is required to issue non-voting Class A convertible preferred shares ("Preferred Shares"). The Preferred Shares to be issued as part of future tranches represent an obligation for the Company to deliver a variable number of its own Common Shares and hence meet the definition of an instrument classified as a derivative financial instrument as per IAS 32 Financial Instruments: Presentation. The Company measured the derivative at fair value on initial recognition. The derivative financial instrument is classified as a derivative asset or a derivative liability depending partly on whether the fair value of the Company's Preferred Shares is above or below the $3.2203 subscription price. At initial recognition, the derivative financial instrument was recognized as a derivative financial liability with a fair value of $1,921. Refer to Note 12 and 13 (iii) for further information regarding the Follow-on BAT Investment.
In August 2024, the Company closed the second tranche of the Follow-on BAT Investment and issued 8,463,435 Preferred Shares. The fair value of the derivative liability that was derecognized on closing of the second tranche was $4,339. As at September 30, 2024, the Company revalued the derivative liability for the third tranche to an estimated fair value of $4,771. Accordingly, the Company recognized a total fair value loss of $7,189 in the consolidated statements of operations and comprehensive loss. The derivative liability is included in the current derivative liabilities on the consolidated statements of financial position.
12. PREFERRED SHARES
On August 30, 2024, in relation to the Follow-on BAT Investment (as hereinafter defined), the Company issued 8,463,435 Preferred Shares of the Company. The Preferred Shares are eligible for conversion into Common Shares at BAT’s option, provided that such conversion would not result in BAT’s voting interest in the Company exceeding 30%. Each Preferred Share shall be economically equivalent to a Common Share and will be convertible into Common Shares without payment of any additional consideration. The conversion ratio shall initially be one-for-one, and post-issuance shall increase at a rate of 7.5%
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 30
per annum, compounded annually, until such time as the Preferred Shares are converted into Common Shares or the aggregate equity interest of BAT in the Company (inclusive of both the Common Shares and Preferred Shares as if converted into Common Shares) reaches 49%. The Preferred Shares are not entitled to vote until they are converted into Common Shares. BAT shall be periodically required to convert Preferred Shares to the extent that it holds less than 30% of the Common Shares outstanding. Refer to Note 13 (iii) for further information regarding Follow-on BAT Investment.
The number of shares that will be issued on conversion is not fixed and therefore, Preferred Shares are classified as liabilities. These liabilities are measured at FVTPL. The conversion feature is considered to be an embedded derivative that qualifies for bifurcation. However, the Company has elected to account for the entire instrument as FVTPL after determining under IFRS 9 that the Preferred Shares qualify to be accounted for under such FVTPL method.
On initial recognition, the Preferred Shares were measured at a fair value of $31,594. At the time of closing of the first tranche Follow-on BAT Investment, the Company incurred transaction cost of $1,259and $410 was recognized as prepaid expenses and deposits for the closing of second tranche. Out of total of $410, $269 was allocated to Preferred Shares and was recognized as an expense in the consolidated statements of operations and comprehensive loss. Refer to Note 13 (iii) for further details.
As at September 30, 2024, the Preferred Shares had an estimated fair value of $31,070, resulting in a fair value gain of $524 which was recognized in the consolidated statements of operations and comprehensive loss.
13. SHARE CAPITAL
i. Authorized share capital
The authorized share capital of the Company is an unlimited number of Common Shares without par value and an unlimited number of preferred shares without par value.
ii. Issued share capital
As at September 30, 2024, the Company’s issued and outstanding share capital consisted of 108,585,492 (September 30, 2023 – 81,161,630) Common Shares with a carrying value of $852,891 (September 30, 2023 - $776,906).
iii. Issuances of share capital
Private Placement
In November 2023, the Company entered into a subscription agreement (the "Subscription Agreement") with BAT for a $124.6 million follow-on investment (the "Follow-on BAT Investment"), whereby BAT, acting through its wholly owned subsidiary BT DE Investments Inc., agreed to subscribe for a total of 38,679,525 shares at a price of $3.2203 per share through three tranches, subject to the receipt of shareholder approval, certain regulatory approvals and other conditions. At each tranche closing, BAT will be issued Common Shares in the Company insofar as the aggregate number of Common Shares owned or controlled by BAT does not exceed 30% of the aggregate number of the Company's Common Shares issued and outstanding. To the extent that BAT would otherwise acquire in excess of 30% of the issued and outstanding Common Shares, it will be issued Preferred Shares.
In January 2024, the Company obtained shareholder and other regulatory approvals and closed the first of three tranches of the Follow-on BAT Investment. Pursuant to the first tranche closing, BAT acquired 12,893,175 Common Shares of the Company at a price of $3.2203 per share for gross proceeds of $41,520. Considering at the time of closing of first tranche, it was estimated that the Company will be issuing the Preferred Shares as part of future tranches, which represented an obligation for the Company to deliver a variable number of its own Common Shares and hence met the definition of an instrument classified as a derivative financial instrument as per IAS 32 Financial Instruments: Presentation. IFRS 9 requires the value of such derivative to be recognized as part of closing of the first tranche and therefore, the carrying amount of the Common Shares issued in the first tranche on initial recognition was measured at the gross proceeds of $41,520 received from BAT for the first tranche minus transaction costs of $420 and the fair value of the derivative of $1,921.Refer to Note 11 (iv) for further details.
At the time of closing of the first tranche, the Company incurred total transaction cost of $1,259 in the form of listing fees, regulatory fees, and legal and professional fees. Out of this total cost, $420 was allocated to the Common Shares that were issued on closing of the first tranche of the Follow-on BAT Investment. Of the remaining costs, $19 were allocated to the derivative liability and recognized as an expense in the consolidated statements of operations and comprehensive loss and $820 was recognized as prepaid expenses and deposits related to a future issuance of shares through the second and third tranche.
On August 30, 2024, the Company closed the second of three tranches and issued 4,429,740 Common Shares and 8,463,435 Preferred Shares of the Company at a price of $3.2203 per share for gross proceeds of $41,582. On initial recognition, the Company recognized the total consideration for the second tranche, which consisted of the recognition of gross proceeds of $41,582 and derecognized the derivative financial liability of $4,339 for the second tranche. The carrying amount of the Common Shares issued in the second tranche was measured as the residual of the total consideration for the second tranche and the fair value of the Preferred Shares of $31,594. In addition, transaction costs of $141 in relation to the issuance of the
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 31
Common Shares were deducted from the carrying amount of the Common Shares and the remaining second tranche transaction cost of $269 was allocated to Preferred Shares and was recognized as an expense in the consolidated statements of operations and comprehensive loss. Refer to Note 11 (iv) for further details.
The remaining 12,893,175 shares are due to be subscribed in the third and final tranche on or around February 28, 2025, subject to certain customary conditions.
Pursuant to the Subscription Agreement, one-half of each of the first tranche subscription proceeds and the second tranche subscription proceeds, and all of the third tranche subscription proceeds, is required to be segregated from the Company's regular cash in order to fund a strategic investment pool (the "Jupiter Pool") that is designed to expand the Company's geographic footprint and capitalize on emerging growth opportunities. In accordance with the requirement of the Subscription Agreement, one-half of the first and second tranche gross proceeds of $83,102 was segregated from the Company's regular cash and was classified as restricted cash on the consolidated statements of financial position.
In connection with the closing of the first tranche, the Company and BAT also entered the Amended and Restated IRA, pursuant to which BAT is eligible to appoint up to 30% of the Board of Directors. Furthermore, the Amended and Restated IRA extends the period within which BAT is eligible to exercise certain Top-Up Rights to 12 months after the closing date of the final tranche of the Follow-on BAT Investment.
Unit offering
On April 2, 2024, the Company closed the Offering for gross proceeds of $28.8 million. The Company sold 8,901,000 units (each a "Unit") at a price of $3.23 per Unit, which included 1,161,000 Units sold pursuant to the exercise in full of the underwriters’ over-allotment option. Each Unit is comprised of one Common Share of the Company and one-half of one Warrant. Each Warrant is exercisable to acquire one Warrant Share for a period of four years following the closing date of the Offering at an exercise price of $3.65 per Warrant Share, subject to adjustment in certain events. As described in Note 9, $7,798 of the gross proceeds was allocated to derivative liabilities with the residual, $20,953, which represents the value allocated to the Common Shares, being recorded in share capital. Share issuance costs were $2,464 which included a 4.7% cash commission of $1,366 paid to placement agents with the balance related to filing, legal, and other professional fees directly related to the Offering. Of the total, $668 of the share issuance costs were allocated to the derivative liabilities and expensed in the consolidated statements of operations and comprehensive loss and the balance of $1,796 was allocated to the Common Shares recorded in share capital.
The Edibles and Infusions Corporation acquisition
During the year ended September 30, 2023, the Company issued 2,621,370 Common Shares on EIC's achievement of the second milestone earnout set in the EIC share purchase agreement for share consideration of $6,500, less share issuance costs of $19 (Note 25).
Exercise of stock options
During the year ended September 30, 2024, 3,942 (September 30, 2023 – 26,300) share options were exercised at an average exercise price of $1.49 (September 30, 2023 - $1.47) for cash proceeds of $39 (September 30, 2023 - $74) and an increase of $11 (September 30, 2023 - $69) to share capital and a decrease to equity reserves of $5 (September 30, 2023 - $30).
Exercise of RSU
During the year ended September 30, 2024, 1,193,789 (September 30, 2023 – 59,138) RSUs were exercised for an increase of $3,430 (September 30, 2023 - $621) to share capital and a decrease to equity reserves of $3,430 (September 30, 2023 - $621).
Exercise of PSU
During the year ended September 30, 2024, 2,216 (September 30, 2023 – 948) PSUs were exercised for an increase of $22 (September 30, 2023 - $10) to share capital and a decrease to equity reserves of $22 (September 30, 2023 - $10).
Exercise of warrants
During the year ended September 30, 2024, Nil (September 30, 2023- Nil) warrants were exercised.
iv. Share-based compensation
During the year ended September 30, 2024, the Company recognized total share-based compensation charges, including those related to production employees that are charged to biological assets and inventory, of $7,182 (September 30, 2023 – $5,727).
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 32
Stock options
The following table summarizes changes in the Company’s outstanding stock options for the year ended September 30, 2024:
NUMBER
WEIGHTED AVERAGE EXERCISE PRICE
Balance - September 30, 2023
2,829,676
$
9.94
Granted
62,000
$
5.60
Exercised
(3,942)
$
1.49
Cancelled / Forfeited
(70,813)
$
10.26
Expired
(125,585)
$
9.02
Balance - September 30, 2024
2,691,336
$
9.89
The following is a summary of the outstanding stock options as at September 30, 2024:
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
Range of Exercise Prices
Quantity Outstanding
Weighted Average Remaining Contractual Life (years)
Quantity Exercisable
$1.20 - $3.00
71,865
4.0
61,665
$3.01 - $5.00
217,087
7.5
213,687
$5.01 - $10.00
1,539,917
7.4
1,514,150
$10.01 - $20.00
650,642
4.9
650,642
$20.01 - $30.00
96,825
4.1
96,825
$30.01 - $45.08
115,000
4.4
115,000
2,691,336
7.3
2,651,969
Total share-based compensation expenses, including those related to production employees that are charged to biological assets and inventory for the year ended September 30, 2024 were $974 (September 30, 2023 – $3,376) related to the Company’s stock option plan. The fair value of options granted during the year ended September 30, 2024 was $123 (September 30, 2023 - $1,075). These options are measured at fair value at the date of grant and are expensed over the option’s vesting period, which is typically a three year term with options vesting in annual tranches evenly over this time period. The Company used the Black-Scholes option pricing model to estimate the fair value of options granted.
The following inputs were used to fair value the options that were granted during the year ended September 30, 2024 and the thirteen months ended September 30, 2023:
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Risk free interest rate
3.57% - 3.60%
3.03% - 3.47%
Expected life of options
5.0 - 5.7 years
5.0 - 6.0 years
Expected annualized volatility
87.72% - 89.09%
83.68% - 87.51%
Expected dividend yield
—
—
Forfeiture rate
10.4%
11.3% - 11.7%
Expected volatility was estimated by using the weighted average historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk free rate is based on Government of Canada bonds with a remaining term equal to the expected life of the options. The forfeiture rate is calculated based on historical experience.
Equity Incentive Plan
During the year ended September 30, 2024, the Company has granted both RSUs and PSUs under the 2017 Equity Incentive Plan and under the 2020 New Equity Incentive Plan. The grant price of any RSU or PSU was determined based on the market price calculated in accordance with TSX rules at the time of grant and with respect to PSUs, adjusted for any non-market and market performance vesting conditions in accordance with IFRS 2 Share-based Payment.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 33
The following table summarizes the movements in the Company’s outstanding RSUs:
NUMBER
Balance - September 30, 2023
881,149
Granted
3,440,578
Exercised
(1,193,789)
Cancelled / Forfeited
(154,295)
Balance - September 30, 2024
2,973,643
The estimated fair value of the equity settled RSUs granted during the year ended September 30, 2024 was $6,869 (September 30, 2023 - $1,828), which was based on the Company’s share price at the grant date and will be recognized as an expense over the vesting period of the RSUs, which is over a period of three years for most grants. For the year ended September 30, 2024, $5,676 (September 30, 2023 - $2,192) has been recognized as share-based compensation expense.
The following table summarizes the movements in the Company’s outstanding PSUs:
NUMBER
Balance - September 30, 2023
260,713
Granted
911,213
Exercised
(2,216)
Cancelled / Forfeited
(52,492)
Balance - September 30, 2024
1,117,218
The estimated fair value of the equity settled PSUs granted during the year ended September 30, 2024 was $846 (September 30, 2023 - $1,042), which was based on the Company’s share price at the grant date, adjusted for an estimate of likelihood of forfeiture, and will be recognized as an expense over the vesting period of the PSUs, which is three years for most grants. For the year ended September 30, 2024, $532 (September 30, 2023 - $159) has been recognized as share-based compensation expense.
v. Loss per share
Basic and diluted loss per share represents net loss attributable to common shareholders divided by the weighted average number of Common Shares outstanding during the year.
The weighted average number of Common Shares, used in the calculation of basic and diluted loss per share for the year ended September 30, 2024 was 95,293,899 (September 30, 2023 - 81,292,869).
14. LEASE LIABILITIES
The Company records its leases in accordance with IFRS 16, and as a result recognizes the right-of-use (“ROU”) assets and corresponding lease liabilities. ROU assets are recorded under property, plant, and equipment (Note 7) with current and long-term portion of lease liabilities recorded under other liabilities.
The changes in the carrying value of current and non-current lease liabilities are as follows:
SEPTEMBER 30, 2024
Balance, September 30, 2023
$
4,564
Lease additions
1,384
Lease payments
(1,240)
Lease disposal
(590)
Interest expense on lease liabilities
252
Balance, September 30, 2024
4,370
Current portion (included in other liabilities)
(1,026)
Long-term portion
$
3,344
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 34
The undiscounted contractual payments relating to the current and future lease liabilities is:
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Less than 1 year
$
1,266
$
1,251
1 to 2 years
691
1,081
2 to 3 years
648
503
3 to 4 years
661
459
4 to 5 years
618
461
Thereafter
1,531
1,944
Total
$
5,415
$
5,699
15. INVESTMENTS IN ASSOCIATES
The carrying value of investments in associates consists of:
ALPHA-CANNABIS PHARMA GMBH (3)
EVIANA HEALTH CORPORATION (4)
HYASYNTH BIOLOGICALS INC.
TOTAL
Participating share (1)
25.0
%
19.9
%
48.3
%
Balance, September 30, 2023
$
—
$
—
$
5,284
$
5,284
Share of net loss (2)
—
—
(511)
(511)
Impairment loss
—
—
(4,773)
(4,773)
Balance, September 30, 2024
$
—
$
—
$
—
$
—
(1) % Interest includes the potential ownership interest that could result from the conversion of debentures and exercise of warrants.
(2) The Company utilizes the most recently issued financial statements of its associates in its results with a two-month lag since the Company does not have the same reporting date as its associates (for the year ended September 30, 2024, the Company utilized its associates’ results for the year ended July 31, 2024).
(3) During the year ended August 31, 2021, the Company identified indicators of impairment with respect to its investment in ALPHA-CANNABIS PHARMA GMBH, resulting in impairment which reduced the carrying value of the investment to $nil.
(4) During the year ended August 31, 2020, the Company identified indicators of impairment with respect to its investment in Eviana Health Corporation, resulting in impairment which reduced the carrying value of the investment to $nil.
a.Hyasynth Biologicals Inc.
On September 12, 2018, the Company invested in Hyasynth Biologicals Inc. (“Hyasynth”) by way of convertible secured debentures, to be purchased in three tranches and valued in the aggregate amount of $10,000. The first tranche ("Tranche 1") was issued on September 12, 2018, the second tranche (“Tranche 2”) was issued on October 23, 2020 (as described below), and the third tranche ("Tranche 3") was issued on December 22, 2021 (as described below).
Hyasynth is a privately held biotechnology company based in Montreal, Quebec, specializing in cannabinoid science and biosynthesis. The Company’s investment is in the form of convertible debentures, which provide a potential ownership interest of up to 49.9% based on the cumulative investment from Tranche 1, Tranche 2 and Tranche 3.
Concurrent with the Company’s investment in Hyasynth, the parties entered into a CBD supply agreement, whereby the Company has the ability to purchase up to 100% of Hyasynth’s annual cannabinoid or cannabinoid-related production at a 10% discount to the agreed upon wholesale market price for a period of 10 years from the date Hyasynth commences commercial production.
Tranche 1 of the convertible debentures has a face value of $5,000, bears interest at 8.0% per annum, is secured, and matures on the earlier of August 31, 2023 or the closing date of a qualified sale transaction, unless an automatic or optional conversion has occurred. Tranche 1 of the convertible debentures is convertible at the option of the holder at any time at a price of $40 per share, or into 125,000 common shares. Conversion of the debentures may be automatically triggered based on the completion of a qualified transaction or Hyasynth’s facility reaching a pre-defined production capacity.
On October 23, 2020, the Company advanced an additional $2,500 to Hyasynth by way of convertible debentures as a result of Hyasynth’s achievement of the contractual production-related milestone for Tranche 2 of the convertible debentures.
On December 22, 2021, the previously issued debenture agreement was amended to waive the milestone requirement for the Tranche 3 convertible debenture. Subsequently, the Company advanced an additional $2,500 (plus transaction costs of $124) to Hyasynth for the Tranche 3 convertible debentures bringing the Company's total investment in Hyasynth to $10,000, which provides the Company with a potential ownership interest of up to 49.9% on a fully diluted basis.
In addition to the ownership interest, the Company also considered various qualitative factors to conclude that significant influence exists, including representation on Hyasynth’s board of directors. Based on this assessment, the Company concluded that the equity method of accounting is appropriate. The Company has appointed two directors to the board of Hyasynth.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 35
Following the original maturity date of the debentures, the Company entered into two amendments which amended the maturity date initially to March 15, 2024 and then, subsequently to June 30, 2025. On the amended maturity date, the Company has the right to give Hyasynth 30 days prior written notice to convert the debentures to common equity or demand repayment of the outstanding balance of the debentures. As at September 30, 2024, the Company's potential ownership interest was reduced to 48.3% on a fully diluted basis.
As at September 30, 2024, the Company determined that there are indicators of impairment related to its investment in Hyasynth. The Company determined the recoverable amount to be approximately $Nil. An impairment loss of $4,773 was recognized in the consolidated statement of operations and comprehensive loss for the year ended September 30, 2024.
16. RELATED PARTY TRANSACTIONS
Key management personnel are those persons having the authority and responsibility for planning, directing, and controlling activities of the Company, directly or indirectly. The key management personnel of the Company are the members of the Company’s executive management team and Board of Directors.
Management and Board compensation
For the year ended September 30, 2024 and the thirteen months ended September 30, 2023, the Company’s expenses included the following management and Board of Directors compensation:
YEAR ENDED
THIRTEEN MONTHS ENDED
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Salaries, bonus and consulting fees
$
7,155
$
4,737
Share-based compensation
4,620
3,525
Total key management compensation
$
11,775
$
8,262
During the year ended September 30, 2024, 62,000 stock options (September 30, 2023 – 206,250) were granted to key management personnel with an aggregate fair value of $123 (September 30, 2023 – $665). In addition, during the year ended September 30, 2024, 2,175,879 RSUs (September 30, 2023 – 285,191), were granted to key management personnel with an aggregate fair value of $4,373 (September 30, 2023 – $1,325). For the year ended September 30, 2024, 678,717 PSUs, (September 30, 2023 – 136,920) were issued to key management personnel with an aggregate fair value of $543 (September 30, 2023 – $305).
Significant Transactions with Associates and Joint Operations
The Company has transactions with related parties, as defined in IAS 24 Related Party Disclosures, all of which are undertaken in the normal course of business.
For the year ended September 30, 2024, under the Product Development Collaboration Agreement between the Company and BAT dated March 10, 2021, BAT incurred $3,708 (September 30, 2023 – $3,134) of direct expenses and the Company incurred $9,623 (September 30, 2023 – $10,638) of direct expenses and capital expenditures of $96 (September 30, 2023 – $1,768) related to the Center of Excellence ("CoE"). The Company recorded, in the year ended September 30, 2024, $6,666 (September 30, 2023 – $6,886) of these expenditures within research and development expense in the consolidated statement of operations and comprehensive loss. For the year ended September 30, 2024, the Company recorded $49 (September 30, 2023 – $884) of capital expenditures which are included in the consolidated statement of financial position.
During the year ended September 30, 2024, BAT exercised nil (September 30, 2023 – nil) Top-up Rights. As at September 30, 2024, there is a balance receivable from BAT of $3,169 (September 30, 2023 – $167).
In November 2023, the Company entered into a subscription agreement with BAT in relation to the Follow-on BAT Investment. Refer to Note 13(iii) for further information.
17. CAPITAL MANAGEMENT
The Company's capital consists of long-term debt (including current portion), derivative liabilities, share capital, equity reserves, accumulated other comprehensive loss, and accumulated deficit, which as at September 30, 2024 is $325,263 (September 30, 2023 - $273,651). Equity reserves is comprised of any amounts recorded with respect to the recognition of share-based compensation expense (options, RSUs, or PSUs) or the fair value of warrants issued. Accumulated other comprehensive loss is entirely comprised of fair value changes recorded on the Company’s investment in WHC.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 36
The Company manages its capital structure and adjusts it based on funds available to the Company, in order to fund its growth. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative stage of the Company, is reasonable. There were no changes to the Company's approach to capital management during the year.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
i.Fair value of financial instruments
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest-level input significant to the fair value measurement in its entirety.
The three levels of the fair value hierarchy are described as follows:
•Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
•Level 2 inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
•Level 3 inputs are unobservable inputs for the asset or liability.
The fair values of cash, short-term investments, accounts and other receivables, accounts payable and accrued liabilities and restricted cash approximate their carrying amounts due to their short-term nature. The fair value of long-term debt approximates $25 (September 30, 2023 – $155), which is its carrying value.
The fair value of the investment in WHC is primarily based on Level 3 unobservable inputs and is determined using a market-based approach, based on revenue multiples for comparable companies.
In determining the impairment loss, the FVLCD of property, plant and equipment was determined based on a third-party appraisal using market and replacement cost approaches. Consideration is given to information from historical data and industry standards which constitute both observable and unobservable inputs (level 2 and level 3).
The fair value of the convertible promissory note issued to OBX was determined using the binomial lattice model. The key assumptions used in the model are OBX stock price, dividend yield, expected future volatility of OBX stock, credit risk-adjusted discounting rate, risk-free rate, and probability and timing of certain qualified events. The credit risk-adjusted discounting rate and the expected equity volatility are based on unobservable inputs and are categorized as Level 3 in the fair value hierarchy.
The fair value of the Secured Convertible Loan advanced to Phylos was determined using the binomial lattice model and has been classified as level 3 in the fair value hierarchy. The fair value of the Secured Convertible Loan was based on certain assumptions, including likelihood, and timing of the federal legalization or decriminalization of cannabis in the United States. Similarly, the fair value of the commitment to fund an additional US $1 million was based on certain assumptions, including the probability of Phylos meeting certain required milestones.
The fair value of the Laurentian contingent share consideration is primarily based on Level 3 unobservable inputs in a Monte Carlo pricing model. The determination of the fair value of this liability is primarily driven by the Company’s expectations of Laurentian achieving its business objectives. The key assumptions used in the model are the expected future sales volumes and selling prices used in determining Laurentian's future adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") and WACC.
The fair value of the Convertible Note advanced to Sanity Group was determined using the binomial lattice model. The key assumptions used in the Model for are Sanity Group stock price, dividend yield, expected future volatility of Sanity Group stock, credit risk-adjusted discounting rate, risk-free rate, and probability and timing of certain qualified and non-qualified events. The credit risk-adjusted discounting rate and the expected equity volatility are based on unobservable inputs and are categorized as Level 3 in the fair value hierarchy.
The fair value of equity interest in the Sanity Group was determined using the option pricing model wherein the current value of the Sanity Group was allocated to the various types of shares based on their rights and preferences. The current value of the Sanity Group was determined using the backsolve approach which benchmarks the original issue price of the Sanity Group's latest funding transaction.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 37
The fair value of derivative warrant liabilities is based on Level 1 and 2 inputs utilized in a Black-Scholes option pricing model to estimate the fair value of such Warrants. The key assumption used in the model is the expected future volatility in the price of the Company’s Common Shares. If the expected future volatility in the common share price of the Company increased by 10%, the estimated fair value of the derivative warrant liability and net loss would increase by $456, or if it decreased by 10%, the estimated fair value of the derivative warrant liability and net loss would decrease by $508.
The fair value of the Top-up Rights is based on Level 3 inputs utilized in a Monte Carlo pricing model to estimate the fair value of such Top-up Rights. The key assumptions used in the model are the expected future price of the Company’s Common Shares, the weighted average expected life of the instruments and the expected future volatility in the price of Common Shares. A sensitivity analysis for changes in key inputs was not presented as it was deemed that the impact of reasonable changes in key inputs would not be significant.
The fair value of the contractual commitment to issue Preferred Shares in the future is based on level 1, level 2 and level 3 inputs and is determined based on estimated fair value of the Preferred Shares and the present value of the share price agreed with BAT. The fair value of the Preferred Shares was estimated using certain assumptions, including tenure of BAT's common shares and potential shareholding meeting 30% and 49% thresholds, respectively, market price and volatility of the Company's Common Shares, risk free rate and discount for lack of marketability.
The fair value of Preferred Shares is based on level 1, level 2 and level 3 inputs and is determined based on market price and volatility of the Company's Common Shares, risk free rate and discount for lack of marketability.
During the year, there were no transfers of amounts between Levels 1, 2 and 3.
ii.Financial risk factors
The Company is exposed to various risks through its financial instruments, as follows:
(a) Credit risk arises from deposits with banks, short-term investments, outstanding trade and other receivables, restricted cash and other financial assets. For trade receivables, the Company does not hold any collateral as security but mitigates this risk by dealing only with what management believes to be financially sound counterparties and, accordingly, does not anticipate significant loss for non-performance, except potentially from outstanding receivable from one of our international customers. For certain trade and other receivables, management generally obtains guarantees or general security agreements, where applicable. The maximum exposure to credit risk of cash, short-term investments, restricted cash, other financial assets and accounts receivable and other receivables on the consolidated statements of financial position as at September 30, 2024 approximates $211,306 (September 30, 2023 - $90,351).
As of September 30, 2024 and September 30, 2023, the Company’s aging of trade receivables was as follows:
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
0-60 days
$
32,349
$
22,946
61-120 days
5,502
5,845
Gross trade receivables
$
37,851
$
28,791
Less: Expected credit losses and reserve for product returns and price adjustments
(5,196)
(1,334)
$
32,655
$
27,457
(b) Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by reviewing on an ongoing basis its capital requirements. As at September 30, 2024, the Company had $106,745 (September 30, 2023 – $33,864) of cash and working capital of $208,897 (September 30, 2023 - $133,545). Further, the Company may potentially access equity capital through the capital markets if required.
The Company is obligated to the following contractual maturities relating to their undiscounted cash flows as at September 30, 2024:
Carrying Amount
Contractual Cash Flows
Less than 1 year
1 to 3 years
3 to 5 years
More than 5 years
Accounts payable and accrued liabilities
$
47,097
$
47,097
$
47,097
$
—
$
—
$
—
Long-term debt
25
85
60
25
—
—
$
47,122
$
47,182
$
47,157
$
25
$
—
$
—
The contractual maturities noted above are based on contractual due dates of the respective financial liabilities.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 38
In connection with the Company’s facilities, the Company is contractually committed to approximately $1,676 of capital expenditures.
(c) Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk for the Company is comprised of:
(d) Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt obligations with a floating interest rate. The Company has determined that a 1% change in rates would not have a material impact on the consolidated financial statements.
19. REVENUE
Net revenue for the Company is defined as gross revenue, which is net of any customer discounts, rebates, and sales returns and recoveries, less excise taxes.
Revenue for the year ended September 30, 2024 and thirteen months ended September 30, 2023 is disaggregated as follows:
YEAR ENDED
THIRTEEN MONTHS ENDED
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Recreational wholesale revenue (Canadian)
$
230,387
$
209,001
Direct to patient medical and medical wholesale revenue (Canadian)
1,732
3,584
International wholesale (business to business)
9,651
18,874
Wholesale to licensed producers (Canadian)
5,310
2,129
Other revenue
97
59
Gross revenue
$
247,177
$
233,647
Excise taxes
(87,336)
(72,008)
Net revenue
$
159,841
$
161,639
Recreational revenue is primarily comprised of provincial government bodies and large retailers that sell cannabis through their respective distribution models, whereas international and domestic wholesale revenue is comprised of wholesale shipments to other cannabis companies, including licensed producers, for further processing and sales onto their end customers.
During the year ended September 30, 2024, the Company had four customers (September 30, 2023 – three customers), that individually represented more than 10% of the Company’s net revenue.
20. COST OF SALES
Cost of sales is comprised of the cost of inventories sold during the year, shipping expenses, the production cost of late-stage biological assets that are disposed of, provisions for inventory that do not pass the Company’s quality assurance standards and obsolete products and packaging, and other production overhead.
During the year ended September 30, 2024, the Company recorded provisions in relation to excess and unsaleable inventories and biological assets as well as adjustments to net realizable value totaling $5,483 (September 30, 2023 - $15,012), which are detailed in Note 6.
During the year ended September 30, 2024, the Company recorded $nil (September 30, 2023 - $nil) in charges for unabsorbed fixed overhead related to reduced production volumes.
21. CONTINGENCIES
The Company recognizes loss contingency provisions for probable losses when management can reasonably estimate the loss. When the estimated loss lies within a range, the Company records a loss contingency provision based on its best estimate of the probable loss. If no particular amount within that range is a better estimate than any other amount, the mid-point of the range is used. As information becomes known a loss contingency provision is recorded when a reasonable estimate can be made. The estimates are reviewed at each reporting date and the estimates are changed when expectations are revised. An outcome that deviates from the Company’s estimate may result in an additional expense or release in a future accounting period.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 39
22. GENERAL AND ADMINISTRATIVE EXPENSES BY NATURE
YEAR ENDED
THIRTEEN MONTHS ENDED
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Office and general
$
19,109
$
18,355
Wages and benefits
15,414
14,379
Professional fees
6,287
13,271
Depreciation and amortization
3,851
5,639
Travel and accommodation
628
788
Utilities
581
598
Total general and administrative expenses
$
45,870
$
53,030
During the year ended September 30, 2024, the Company recognized a provision for expected credit losses of $4,222, included in the office and general category above.
23. INCOME TAXES
Components of income tax recovery are as follows:
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Current tax
Current expense
$
—
$
30
Prior year adjustments
—
(225)
$
—
$
(195)
Deferred tax
Origination and reversal of temporary differences
$
(7,052)
(57,438)
Change in unrecognized temporary differences
4,666
48,344
Prior year adjustments
2,386
5,477
$
—
$
(3,617)
Total income tax recovery
$
—
$
(3,812)
A reconciliation of income tax recovery at the statutory rate to amounts recorded in the consolidated financial statements is provided below:
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Loss before income taxes
$
(45,440)
$
(252,413)
Statutory income tax rate
29.0
%
29.0
%
Tax calculated at statutory rate
(13,178)
(73,200)
Non-deductible (non-taxable) items
5,614
11,489
Change in unrecognized temporary differences
4,666
48,495
Tax rate differences and tax rate changes
512
4,152
Prior year tax adjustments
2,386
5,252
Income tax recovery
$
—
$
(3,812)
Recognized deferred tax assets and liabilities consist of the following:
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 40
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Deferred tax assets are attributable to the following:
Non-capital losses
$
10,485
$
12,136
Property, plant and equipment
—
475
Other
—
114
Lease liabilities
985
1,041
Deferred tax assets
11,470
13,766
Set-off of tax
(11,470)
(13,766)
Net deferred tax asset
$
—
$
—
Deferred tax liabilities are attributable to the following:
Property, plant and equipment
$
(375)
$
(1,300)
Intangible assets
(1,773)
(2,137)
Biological assets
(2,499)
(2,832)
Inventories
(5,859)
(6,422)
Right-of-use assets
(927)
(731)
Net investment in sublease
(13)
(316)
Other
(24)
(27)
Deferred tax liabilities
(11,470)
(13,765)
Set-off of tax
11,470
13,765
Net deferred tax liability
$
—
$
—
The changes in temporary differences during the year ended and thirteen months ended September 30, 2024 and September 30, 2023, respectively, were as follows:
NET BALANCE AT SEPTEMBER 30, 2023
RECOGNIZED IN PROFIT OR LOSS
NET BALANCE AT SEPTEMBER 30, 2024
Non-capital losses
$
12,136
$
10,485
$
22,621
Property, plant and equipment
(1,557)
(1,302)
(2,859)
Intangible assets
(2,117)
(1,773)
(3,890)
Biological assets
(2,832)
(2,499)
(5,331)
Inventories
(6,328)
(5,859)
(12,187)
Lease liabilities
1,041
985
2,026
Net investment in sublease
(316)
(13)
(329)
Other
(27)
(24)
(51)
Net tax liabilities
$
—
$
—
$
—
NET BALANCE AT AUGUST 31, 2022
RECOGNIZED IN PROFIT OR LOSS
RECOGNIZED DIRECTLY IN EQUITY & OCI
NET BALANCE AT SEPTEMBER 30, 2023
Non-capital losses
$
6,479
$
5,657
$
—
$
12,136
Property, plant and equipment
(1,131)
(426)
—
(1,557)
Intangibles
(3,719)
1,602
—
(2,117)
Biological assets
(2,628)
(204)
—
(2,832)
Inventories
(3,165)
(3,163)
—
(6,328)
Lease liabilities
862
179
—
1,041
Net investment in sublease
(315)
(1)
—
(316)
Other
—
(27)
—
(27)
Net tax (liabilities) assets
$
(3,617)
$
3,617
$
—
$
—
As at September 30, 2024, the Company has $397,826 (September 30, 2023 - $313,727)non-capital loss carryforwards available to offset future taxable income in Canada, which begin to expire in 2035.
The Company recognizes tax benefits on losses or other deductible amounts where the probable criteria for the recognition of deferred tax assets has been met. The Company's unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consist of the following amounts:
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 41
SEPTEMBER 30, 2024
SEPTEMBER 30, 2023
Deductible temporary differences
$
93,950
$
166,739
Tax losses
362,311
273,774
$
456,261
$
440,513
24. PRODUCT DEVELOPMENT COLLABORATION
On March 10, 2021, in conjunction with the strategic investment received as described herein, the Company and BAT entered into a PDC Agreement pursuant to which the CoE was established to focus on developing the next generation of cannabis products with an initial focus on CBD. The CoE is located at the Company’s Moncton Campus, which holds the Health Canada licenses required to conduct research and development (“R&D”) activities with cannabis products. Both companies are contributing scientists, researchers, and product developers to the CoE and it is supervised by a steering committee consisting of an equal number of senior members from both companies. Under the terms of the PDC Agreement, both the Company and BAT have access to certain of each other’s intellectual property (“IP”) and, subject to certain limitations, have the right to independently, globally commercialize the products, technologies and IP created by the CoE pursuant to the PDC Agreement.
Pursuant to the terms of the PDC Agreement, $31,109 of the investment proceeds were reserved as restricted cash in order to satisfy certain of the Company’s future obligations under the PDC Agreement, including the Company’s portion of its funding obligations under a mutually agreed initial budget for the CoE. Costs relating to the CoE are funded equally by the Company and BAT. Balances are transferred from restricted cash to the Company's general operating account as CoE related expenditures are periodically reconciled and approved. The balance in restricted cash as at September 30, 2024 is $8,175 (September 30, 2023 - $17,893).
The CoE is accounted for as a joint operation, with the Company and BAT each paying 50% of the costs incurred by the CoE. The Company recognized its share of the expenses incurred by the CoE in the statements of operations and comprehensive loss under Research and development. For the year ended September 30, 2024, $6,666(September 30, 2023 - $6,886) of expenses have been recorded in the statements of operations and comprehensive loss.
25. ACQUISITION OF SUBSIDIARIES
i.Laurentian Organic Inc.
On December 21, 2021, the Company acquired 100% of the shares and voting interests of the non-listed Laurentian for $36,000, consisting of $10,000 in cash consideration, $7,000 on closing and $3,000 held back, with the remaining $26,000 in share consideration at the acquisition date. The Company agreed to provide the seller additional share consideration based on Laurentian's future adjusted EBITDA over a period of two years, which were as follows (all capitalized terms used below not otherwise defined herein have the respective meanings described to them in the Company’s agreement to acquire Laurentian):
a) First Year Earnout calculated for the period January 1, 2022 to December 31, 2022, as the greater of (i) zero and (ii) the difference obtained when the sum of $2,000 and 50% of the agreed capital expenditures is subtracted from 30% of the First Year adjusted EBITDA Multiple, payable in Common Shares, provided that, the sum of the Initial Consideration and the First Year Earnout Amount shall not exceed the First Year adjusted EBITDA Multiple; and
b) Second Year Earnout calculated for the period January 1, 2023 to December 31, 2023, as 19% of the Second Year adjusted EBITDA Multiple less the remaining balance of the agreed capital expenditures, payable in Common Shares, provided that, the sum of the Initial Consideration, the First Year Earnout Amount and the Second Year Earnout Amount shall not exceed the Second Year EBITDA Multiple.
Earnout payments paid in Common Shares were to be priced based on the five-day volume-weighted average price of the Company’s Common Shares on the TSX as of the day prior to settlement. As at the acquisition date, the fair value of the contingent consideration was estimated to be $6,996 and subsequently as at August 31, 2022 adjusted to $2,913, to reflect changes in estimates.
The first year earnout milestone was not met and during the thirteen months ended September 30, 2023, the Company recognized a fair valuation gain of $2,864 in the statements of operations and comprehensive loss.
The second year earnout milestone was also not met and during the year ended September 30, 2024, the Company recognized a fair valuation gain of $50 in the statements of operations and comprehensive loss.
In July 2024, the Company received a dispute notice from the Laurentian vendors purporting to cover the first year and second year earnout. The Company and the Laurentian vendors have entered into an engagement letter appointing BDO Canada LLP as neutral accountant to review the items in the dispute notice in accordance with the share purchase agreement dated December 21, 2021.
ii.The Edibles and Infusions Corporation
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 42
On April 6, 2021, the Company acquired 100% of the shares and voting interests of the non-listed EIC, including SUHM Investments Inc. and Quality Confections Corporation who collectively owned 100% of EIC for $22,000 of share consideration at the acquisition date. The Company has agreed to provide the seller additional share consideration of $13,000 should EIC achieve its milestones.
Contingent share consideration
The acquisition included contingent share consideration based on various milestones as follows:
i) $3,500 to be paid in Common Shares upon the first listing of EIC or Organigram-branded product, manufactured at the EIC facility, in the Ontario or Alberta recreational markets prior to December 31, 2021. This was achieved in the year ended August 31, 2021 and subsequently settled on September 8, 2021;
ii) $7,000 to be paid in Common Shares on the generation of $15 million in net revenue during the 12 months ended December 31, 2022. This was achieved during the thirteen months ended September 30, 2023 and the Company issued 2,621,370 Common Shares as consideration to the former shareholders of EIC, for a total value of $6,500. The remaining $500 has been irrevocably disclaimed and waived as part of a negotiated settlement and the Company recorded it as a change in fair value of contingent share consideration during the thirteen months ended September 30, 2023; and
iii) $2,500 to be paid in Common Shares on the generation of $7 million in adjusted EBITDA for the 12 months ended December 31, 2022. The third milestone, calculated based on the adjusted EBITDA for the 12 months ended December 31, 2022, was not met.
26. OPERATING SEGMENTS
An operating segment is a component of the Company for which discrete financial information is available and whose operating results are regularly reviewed by the Company's chief operating decision maker, to make decisions about resources to be allocated to the segment and assess its performance, and that engages in business activities from which it may earn revenue and incur expenses. The Company only has one operating segment.
27. SUBSEQUENT EVENTS
On December 6, 2024, the Company acquired 100% of the issued and outstanding shares of Motif Labs Ltd. (“Motif”), a Canadian leader in the vape and infused pre-roll categories backed by a portfolio of strong owned brands, for upfront consideration of $90 million, consisting of $50 million in cash and $40 million of the Company's common shares priced based on the 30 day trading volume-weighted average price ("VWAP") of $2.3210. In addition, Motif shareholders are entitled to receive an additional contingent consideration of $10 million payable in Company's common shares (“Contingent Consideration”), conditional on the Company achieving a price per share exceeding $3.2203 per share, based on the rolling 30-trading day VWAP on the Toronto Stock Exchange, within 12 months of the date of the transaction. The Contingent Consideration shall be priced at $3.22031 per share. The Company believes that this acquisition will bring economies of scale and by leveraging the combined competitive advantages and respective market positions, the Company will continue to grow in Canada and internationally.
CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED SEPTEMBER 30, 2024 AND THIRTEEN MONTHS ENDED SEPTEMBER 30, 2023 43
