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Note 10 - Goodwill
 12 Months Ended
May 31, 2024
Notes to Financial Statements  
Goodwill Disclosure [Text Block]

10.

Goodwill

 

The following table shows the carrying amount of goodwill:

 

  

May 31,

  

May 31,

 

Reporting Unit

 

2024

  

2023

 

Cannabis

 $2,640,669  $2,640,669 

Distribution

  4,458   4,458 

Beverage alcohol

  120,802   120,802 

Wellness

  77,470   77,470 

Effect of foreign exchange

  7,916   7,875 

Impairments

  (842,431)  (842,431)

Total

 $2,008,884  $2,008,843 

 

The Company performed the annual impairment test during the fourth quarter ended May 31, 2024, and determined that it is more likely than not, that the fair value of our reporting units was greater than their carrying amounts and thus $nil impairment expense was recognized. A reasonably possible change in any of the inputs within the determination of fair value would not result in a material change to this determination of no impairment expense recognized during the year ended May 31, 2024. 

 

For the year ended May 31, 2023, the Company recognized the non-cash impairment charges of $603,500 of cannabis goodwill and $15,000 of wellness goodwill. This impairment charge was related to the increased borrowing rates and the decline of the company’s market capitalization. The non-cash charge had no impact on the Company’s compliance with debt covenants, its cash flows or available liquidity. In the Company's cannabis goodwill assessment the Company used a discount rate of 13.50%, increased from 11.21% used in the  May 31, 2022 annual assessment, a terminal growth rate of 5% consistent with the rate used in the   May 31, 2022 annual assessment, and an average revenue growth rate of 40% over 5 years as a result of anticipated federal legalization in various countries, decreased from 46% used in the   May 31, 2022 annual assessment. A 1% increase in the discount rate would result in an additional $300,000 in impairment, a 1% decrease in the terminal growth rate would result in an additional $250,000 in impairment and a 5% decrease in the average growth rate would result in an additional $200,000 in impairment. In the Company's wellness goodwill assessment the Company used a discount rate of 11.80%, increased from 10% used in the   May 31, 2022 annual assessment, a terminal growth rate of 3% consistent with the rate used in the  May 31, 2022 annual assessment, and an average revenue growth rate of 10% over 5 years, consistent with the rate used in the   May 31, 2022 annual assessment. A 1% increase in the discount rate would result in an additional $14,000 in impairment, a 1% decrease in the terminal growth rate would result in an additional $10,000 in impairment and a 5% decrease in the average growth rate would result in an additional $5,000 in impairment.

 

For the year ended  May 31, 2022, the Company recognized impairment charges of $182,736 in cannabis goodwill. This impairment charge was related to changes in market opportunities, causing a shift in our strategic priorities, and market conditions inclusive of higher rates of borrowing and lower foreign exchange rates.