Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

The ongoing restrictions and closures experienced by retail stores in the U.S. as a result of the COVID-19 pandemic have negatively impacted sales and demand which has resulted in slower than expected revenue growth in the U.S. reporting unit for the three months ended June 30, 2020. The Company expects the revenue growth and operating results in the U.S. reporting unit to continue to be negatively impacted as the decrease in customer demand and retail closures are expected to continue as a result of the pandemic. The Company performed an interim impairment test during the three months ended June 30, 2020 on the U.S. reporting unit, which holds the Redwood goodwill, as well as the indefinite-lived intangible asset (Lord Jones™ brand) to determine whether the carrying amount of the reporting unit and intangible asset exceeded their respective fair values. The Company reassessed its estimates and forecasts during the second quarter to determine the fair values of the reporting unit and intangible asset. The fair values were determined using a discounted cash flow method on the reporting unit and the relief-from-royalty method on the Lord Jones™ brand. Based on these valuations, the carrying value exceeded the fair value resulting in an impairment on both the reporting unit as well as the Lord Jones™ brand. The Company does not believe the declines in fair values are temporary. The Company recorded $35.0 million of impairment charges on the U.S. reporting unit and $5.0 million on the Lord Jones™ brand for the three and six months ended June 30, 2020.

No impairment loss was recorded for either goodwill or intangible assets during the three and six months ended June 30, 2019.

(a)Intangible Assets

Intangible assets are comprised of the following items:


	Weighted Average Amortization Period (in years)	As of June 30, 2020
				Cost			Accumulated Amortization			Impairment charges			Net
Software ⁽ⁱ⁾	N/A	$	612		$	(298)		$	—		$	314
Enterprise Resource Planning (“ERP”) system ⁽ⁱⁱ⁾	5	2,570			—			—			2,570
Health Canada licenses	17	8,255			(1,167)			—			7,088
Lord Jones^™ brand	N/A	64,000			—			(5,000)			59,000
Trademarks	N/A	140			—			—			140
Israeli Codes ⁽ⁱⁱⁱ⁾	25	297			(10)			—			287
		$	75,874		$	(1,475)		$	(5,000)		$	69,399

⁽ⁱ⁾Software amortizes using a double declining method.

⁽ⁱⁱ⁾During the six months ended June 30, 2020, the Company capitalized costs for the ERP system. As of June 30, 2020, the system is not yet available for use, resulting in no amortization being recorded against the asset.

⁽ⁱⁱⁱ⁾The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli Codes”) were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.


	Weighted Average Amortization Period (in years)	As of December 31, 2019
				Cost		Accumulated Amortization		Net
Software ⁽ⁱ⁾	N/A	$	541	$	(202)	$	339

Health Canada licenses	17	8,627		(976)		7,651
Lord Jones^™ brand	N/A	64,000		—		64,000
Trademarks	N/A	36		—		36
Israeli Codes ⁽ⁱⁱ⁾	25	298		(4)		294
		$	73,502	$	(1,182)	$	72,320

⁽ⁱ⁾Software amortizes using a double declining method.

⁽ⁱⁱ⁾The Israeli Codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.

The aggregate amortization for the six months ended June 30, 2020 was $346 (June 30, 2019 – $301). Intangible asset additions in 2020 included the ERP system for $2,570. There was $37 related to disposals of software during the six months ended June 30, 2020.

The amortization expense for the next five years on intangible assets in use is estimated to be as follows: 2021 – $565; 2022 – $553; 2023: $536; 2024 – $520; 2025 – $506.

(b)Goodwill


	As of December 31, 2019		Additions		Impairment charges		Effect of foreign exchange		As of June 30, 2020
OGBC	$	302	$	—	$	—	$	(13)	$	289
Peace Naturals	1,078		—		—		(45)		1,033
Redwood	213,414		—		(35,000)		—		178,414
	$	214,794	$	—	$	(35,000)	$	(58)	$	179,736