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Intangible Assets and Goodwill | 12 Months Ended
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Jun. 30, 2020
Intangible assets and goodwill [abstract] |
Intangible Assets and Goodwill | Intangible Assets and Goodwill
Accounting Policy Intangible assets Intangible assets are recorded at cost less accumulated amortization and any impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is calculated on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any, over the following terms:
| Customer relationships Health Canada licenses Other operating licenses Patents IP and Know-how ERP Software | 2 - 8 years Useful life of the facility 8 - 18 years 10 years 5 - 10 years 5 years
The estimated useful lives, residual values and amortization methods are reviewed annually and any changes in estimates are accounted for prospectively. Intangible assets with an indefinite life or not yet available for use are not subject to amortization. Research costs are expensed as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development to use or sell the asset. Other development expenditures are recognized as research and development expenses on the consolidated statement of comprehensive loss as incurred. Capitalized deferred development costs are internally generated intangible assets. Goodwill Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the cash generating unit (“CGU”) or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization. Impairment of intangible assets and goodwill Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment. Goodwill and indefinite life intangible assets are tested annually at June 30 for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment. The Company’s goodwill is allocated to the cannabis operating segment and the U.S. CBD CGU, which represents the lowest level at which management monitors goodwill. The allocation of goodwill to the CGUs or group of CGUs requires the use of judgment. An impairment loss is recognized for the amount by which the CGU’s carrying amount exceeds it recoverable amount. The recoverable amounts of the CGUs’ assets have been determined based on either fair value less costs of disposal or value-in-use method. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified. A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior period. Impairment losses on goodwill are not subsequently reversed.
The following is a continuity schedule of intangible assets and goodwill:
| June 30, 2020 | June 30, 2019
| Cost |  | Accumulated amortization |  | Impairment |  | Net book value |  | Cost |  | Accumulated amortization |  | Net book value |
Definite life intangible assets: |  |  |  |  |  |  |
Customer relationships and distribution network | 104,807 |  | (29,209 | ) | (4,203 | ) | 71,395 |  | 86,278 |  | (14,710 | ) | 71,568 |
Permits and licenses | 216,220 |  | (29,260 | ) | (105,345 | ) | 81,615 |  | 227,916 |  | (18,588 | ) | 209,328 |
Patents | 1,895 |  | (477 | ) | — |  | 1,418 |  | 1,895 |  | (293 | ) | 1,602 |
Intellectual property and know-how | 82,500 |  | (25,308 | ) | (4,401 | ) | 52,791 |  | 82,500 |  | (12,386 | ) | 70,114 |
Software | 35,137 |  | (3,472 | ) | — |  | 31,665 |  | 17,824 |  | (1,172 | ) | 16,652 |
Indefinite life intangible assets: |  |  |  |  |  |  |
Brand | 148,399 |  | — |  | (1,700 | ) | 146,699 |  | 148,399 |  | — |  | 148,399 |
Permits and licenses | 170,098 |  | — |  | (143,414 | ) | 26,684 |  | 170,703 |  | — |  | 170,703 |
Total intangible assets | 759,056 |  | (87,726 | ) | (259,063 | ) | 412,267 |  | 735,515 |  | (47,149 | ) | 688,366 |
Goodwill | 3,213,513 |  | — |  | (2,285,081 | ) | 928,432 |  | 3,172,550 |  | — |  | 3,172,550 |
Total | 3,972,569 |  | (87,726 | ) | (2,544,144 | ) | 1,340,699 |  | 3,908,065 |  | (47,149 | ) | 3,860,916 |
The following summarizes the changes in the net book value of intangible assets and goodwill for the periods presented:
| Balance, June 30, 2019 |  | Additions (2) |  | Disposals |  | Amortization |  | Impairment |  | Foreign currency translation |  | Balance, June 30, 2020 |
Definite life intangible assets: |  |  |  |  |  |  |
Customer relationships and distribution network | 71,568 |  | 18,529 |  | — |  | (14,499 | ) | (4,203 | ) | — |  | 71,395 |
Permits and licenses | 209,328 |  | 493 |  | (12,189 | ) | (10,672 | ) | (105,345 | ) | — |  | 81,615 |
Patents | 1,602 |  | — |  | — |  | (184 | ) | — |  | — |  | 1,418 |
Intellectual property and know-how | 70,114 |  | — |  | — |  | (12,922 | ) | (4,401 | ) | — |  | 52,791 |
Software | 16,652 |  | 17,313 |  | — |  | (2,300 | ) | — |  | — |  | 31,665 |
Indefinite life intangible assets: |  |  |  |  |  |  |
Brand | 148,399 |  | — |  | — |  | — |  | (1,700 | ) | — |  | 146,699 |
Permits and licenses (1) | 170,703 |  | — |  | — |  | — |  | (143,414 | ) | (605 | ) | 26,684 |
Total intangible assets | 688,366 |  | 36,335 |  | (12,189 | ) | (40,577 | ) | (259,063 | ) | (605 | ) | 412,267 |
Goodwill | 3,172,550 |  | 38,178 |  | — |  | — |  | (2,285,081 | ) | 2,785 |  | 928,432 |
Total | 3,860,916 |  | 74,513 |  | (12,189 | ) | (40,577 | ) | (2,544,144 | ) | 2,180 |  | 1,340,699 |
(1) | Indefinite life permits and licenses are predominantly held by the Company’s foreign subsidiaries. Given that these permits and licenses are connected to the subsidiary rather than a specific asset, there is no foreseeable limit to the period over which these assets are expected to generate future cash inflows for the Company.
(2) | Included in the $74.5 million additions is (i) a $13.5 million distribution network intangible asset and $38.2 million goodwill from the acquisition of Reliva (Note 12(a)(i)); (ii) $17.3 million from capitalized ERP costs; and (iii) $5.0 million from the acquisition of a customer list purchased through the issuance of common shares (Note 17(b)(i)).
| Balance, June 30, 2018 (2) |  | Additions from acquisitions |  | Additions (4) |  | Amortization |  | Impairment |  | Foreign currency translation |  | Balance, June 30, 2019 |
Definite life intangible assets: |  |  |  |  |  |  |
Customer relationships | 9,331 |  | 69,400 |  | 5,362 |  | (12,486 | ) | (39 | ) | — |  | 71,568 |
Permits and licenses | 95,471 |  | 111,300 |  | 19,202 |  | (16,645 | ) | — |  | — |  | 209,328 |
Patents | 2,132 |  | 130 |  | — |  | (204 | ) | (456 | ) | — |  | 1,602 |
Intellectual property and know-how | — |  | 82,500 |  | — |  | (12,386 | ) | — |  | — |  | 70,114 |
Software (1) | — |  | — |  | 17,824 |  | (1,172 | ) | — |  | — |  | 16,652 |
Indefinite life intangible assets (3): |  |  |  |  |  |  |
Brand | 70,854 |  | 78,200 |  | — |  | — |  | (655 | ) | — |  | 148,399 |
Permits and licenses | 22,544 |  | 153,702 |  | — |  | — |  | (3,962 | ) | (1,581 | ) | 170,703 |
Total intangible assets | 200,332 |  | 495,232 |  | 42,388 |  | (42,893 | ) | (5,112 | ) | (1,581 | ) | 688,366 |
Goodwill | 760,744 |  | 2,416,940 |  | — |  | — |  | (3,890 | ) | (1,244 | ) | 3,172,550 |
Total | 961,076 |  | 2,912,172 |  | 42,388 |  | (42,893 | ) | (9,002 | ) | (2,825 | ) | 3,860,916 |
(1) | During the year ended June 30, 2019, capitalized ERP costs with a net book value of $2.1 million were reclassified in accordance with IAS 38 - Intangible Assets from computer software & equipment in property, plant and equipment owned assets (Note 10) to intangible assets.
(2) | In accordance with IFRS 3 - Business Combinations, acquisition date fair values assigned to intangible assets have been adjusted, within the applicable measurement period, where new information is obtained about facts and circumstances that existed at the acquisition date (Note 12). Related amortization amounts have also been adjusted to reflect the outcomes of the finalized business combination purchase price allocations.
(3) | Indefinite life permits and licenses are predominantly held by the Company’s foreign subsidiaries. Given that these permits and licenses are connected to the subsidiary rather than a specific asset, there is no foreseeable limit to the period over which these assets are expected to generate future cash inflows for the Company.
(4) | Included in the $42.4 million additions are $4.5 million and $5.4 million for the acquisition of an operating license and customer list, respectively, purchased through the issuance of common shares (Note 17(b)(i)).
As of June 30, 2020, all of the $173.4 million (June 30, 2019 – $319.1 million) indefinite life intangibles are allocated to the group of CGUs that comprise the cannabis operating segment. As of June 30, 2020, $890.3 million (June 30, 2019 – $3.2 billion) goodwill was allocated to the cannabis operating segment and $38.2 million (June 30, 2019 - nil) was allocated to the U.S CBD CGU. At the end of each reporting period, the Company assesses whether there were events or changes in circumstances that would indicate that a CGU or group of CGUs were impaired. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessmen t. Asset Specific Impairments During the year ended June 30, 2020, the Company initiated a plan to close operations at certain production facilities (Note 1 and 3) which adversely impacts the intended use of the related operating permits and licenses and certain property, plant and equipment (Note 10). The recoverable amount of the permits and licenses are estimated using a FVLCD approach which resulted in a nominal value. As a result, the Company recognized a $100.4 million impairment loss relating to these intangible assets for the year ended June 30, 2020 (June 30, 2019 – $4.0 million). These permits and licenses, and the corresponding impairment loss, is allocated to the cannabis operating segment (Note 26). CGU and Goodwill Impairments As at June 30, 2020, the Company performed its annual impairment test on its indefinite life intangible assets and goodwill. The recoverable amount of the operating segments to which goodwill is allocated and the CGUs to which indefinite life intangibles are allocated were determined based on FVLCD using Level 3 inputs in a DCF analysis. As the cannabis operating segment is comprised of various CGUs, management tested the individual CGUs, which contain the indefinite life intangibles, for impairment before the cannabis operating segment which contains the associated goodwill. Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate discounted cash flow results. The significant assumptions applied in the determination of the recoverable amount are described below:
i. | Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. Estimated cash flows are primarily driven by sales volumes, selling prices and operating costs. The forecasts are extended to a total of five years (and a terminal year thereafter);
ii. | Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators, and projected industry growth;
iii. | Post-tax discount rate: The post-tax discount rate is reflective of the CGUs Weighted Average Cost of Capital (“WACC”). The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields; and
iv. | Tax rate: The tax rates used in determining the future cash flows were those substantively enacted at the respective valuation date.
The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at June 30, 2020 and June 30, 2019:
| Indefinite Life Intangible Impairment Testing |  |  | Goodwill Impairment Testing |
| Canadian Cannabis CGU |  | European Cannabis CGU |  | Latin American CGU |  |  | Cannabis Operating Segment |  | U.S CBD CGU(1) |
June 30, 2020 |  |  |  |  |  |
Terminal value growth rate | 3.0 | % | 3.0 | % | n/a |  |  | 3.0 | % | 3.0 | %
Discount rate | 16.1 | % | 16.0 | % | n/a |  |  | 16.1 | % | 20.3 | %
Budgeted revenue growth rate (average of next five years) | 44.9 | % | 75.0 | % | n/a |  |  | 45.4 | % | 212.4 | %
Fair value less cost to dispose |  | $1,956,844 |  |  | $113,703 |  | n/a |  |  |  | $2,188,056 |  |  | $54,367 |
June 30, 2019 |  |  |  |  |  |
Terminal value growth rate | 3.0 | % | 3.0 | % | 1.9 | % |  | 3.0 | % | n/a |
Discount rate | 11.5 | % | 18.5 | % | 28.4 | % |  | 13.5 | % | n/a |
Budgeted revenue growth rate (average of next five years) | 69.5 | % | 88.7 | % | 60.5 | % |  | 78.6 | % | n/a |
Fair value less cost to dispose |  | $4,287,265 |  |  | $50,707 |  |  | $299,012 |  |  |  | $6,037,423 |  | n/a |
(1) | Goodwill is a result of the Company’s acquisition of Reliva (Note 12(a)(i)) on May 28, 2020; no comparative period information is presented.
CGU impairments As at December 31, 2019, management performed an indicator-based test as there were events or changes in circumstances that indicated that a CGU or group of CGUs were impaired. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment. As at December 31, 2019, the following factors were identified as impairment indicators:
i. | Revenue decline - Constraints in the provincial retail distribution network, including a slower than expected roll-out of retail stores across Canada, has resulted in a decrease of expected sales and profitability as compared to outcomes initially forecasted by management;
ii. | Change in strategic plans - Halting of construction at Aurora’s Nordic Sky Facility and deferral of the majority of final construction and commissioning activities at its Aurora Sun Facility;
iii. | Decline in stock price and market capitalization - As at December 31, 2019, the carrying amount of the Company’s total net assets exceeded the Company’s market capitalization.
Key assumptions used in calculating the recoverable amount for each CGU tested for impairment as at December 31, 2019 is outlined in the following table:
| Canadian Cannabis CGU |  | Latin American CGU |  | European Hemp CGU |  | Analytical Testing CGU |
Terminal value growth rate | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | %
Discount Rate | 11.5 | % | 31.8 | % | 15.0 | % | 14.0 | %
Budgeted Revenue growth rate (average of next five years) | 50.6 | % | 3.0 | % | 13.5 | % | 12.5 | %
Fair Value Less Cost to Dispose |  | $3,712,967 |  |  | $12,386 |  |  | $11,572 |  |  | $8,064 |
Canadian Cannabis CGU The Company’s Canadian Cannabis CGU represents its operations dedicated to the cultivation and sale of cannabis products within Canada and forms part of the Company’s cannabis operating segment. Management concluded that the recoverable amount was higher than the carrying value as at June 30, 2020 and as at December 31, 2019, and no impairment was recognized within the Canadian Cannabis CGU (June 30, 2019 - nil). European Cannabis CGU The Company’s European Cannabis CGU represents its operations dedicated to the cultivation and sale of cannabis products within Europe and forms part of the Company’s cannabis operating segment. Management concluded that the recoverable amount was higher than the carrying value as at June 30, 2020, and no impairment was recognized within the European Cannabis CGU (June 30, 2019 - nil). Latin American (“LATAM”) CGU The Company’s LATAM CGU represents its operations dedicated to the cultivation and sale of cannabis and hemp products within LATAM. This CGU is attributed to the Company’s cannabis operating segment. As a result of the impairment test, management concluded that the carrying value was higher than the recoverable amount and recorded impairment losses of $152.3 million during the three months ended December 31, 2019. Management allocated the impairment loss based on the relative carrying amounts of the CGU’s assets at the impairment date, with no individual asset being reduced below its recoverable amount. Management allocated $143.4 million of impairment losses to the CGU’s indefinite life permits and licenses and $8.8 million of impairment losses to property, plant and equipment (Note 10). European Hemp CGU The Company’s European Hemp CGU represents its operations dedicated to the cultivation and sale of hemp products within Europe. This CGU is attributed to the Company’s cannabis operating segment. As a result of the impairment test, management concluded that the carrying value was higher than the recoverable amount and recorded impairment losses of $7.0 million during the three months ended December 31, 2019. Management allocated the impairment loss based on the relative carrying amounts of the CGU’s assets at the impairment date, with no individual asset being reduced below its recoverable amount. The impairment loss was fully allocated to property, plant and equipment (Note 10). Analytical Testing CGU The Company’s Analytical Testing CGU represents its operations dedicated to analytical and quality control testing of cannabis. This CGU is attributed to the Company’s cannabis operating segment. As a result of the impairment test, management concluded that the carrying value was higher than the recoverable amount and recorded impairment losses of $12.8 million during the three months ended December 31, 2019. Management allocated the impairment loss based on the relative carrying amounts of the CGU’s assets at the impairment date, with no individual asset being reduced below its recoverable amount. The impairment loss was allocated among intangible assets including customer relationships, definite life permits and licenses, know-how and brand. Patient Counseling CGU The Company’s Patient Counseling CGU represents its operations dedicated to patient counseling and educational operations. This CGU is attributed to the Company’s cannabis operating segment. The recoverable amount of $0.5 million was determined using a FVLCD method by discounting the most recent expected future net cash flows to the Company from the investment. Management concluded that the estimated recoverable amount of the investment is nominal and as a result, recorded impairment losses of $2.5 million during the three months ended December 31, 2019. Management allocated the impairment loss based on the relative carrying amounts of the CGU’s assets at the impairment date, with no individual asset being reduced below its recoverable amount. The impairment loss was allocated to the customer relationship intangible asset. Operating segment impairments Horizontally Integrated Businesses Operating Segment As at March 31, 2019, the Company recognized recognized impairment losses of $3.9 million and $1.1 million for goodwill and intangible assets, respectively. Management estimated the recoverable amount using the value-in-use method which resulted in an immaterial recoverable amount. Cannabis Operating Segment (Goodwill) During the year ended June 30, 2020, the company recorded a total goodwill impairment loss of $2.3 billion. As a result of the impairment test as at June 30, 2020 and as at December 31, 2019, management concluded that the carrying value of the cannabis operating segment was higher than the $3.7 billion and $4.7 billion recoverable amount, respectively, and recorded impairment losses of $1.52 billion and $762.2 million during the three months ended June 30, 2020 and the three months ended December 31, 2019. The impairment was allocated entirely to reduce goodwill for the cannabis operating segment. The impairment loss was recognized due to a change in overall industry and market conditions, a change in management’s forecasted sales and profitability outlook, and a realignment and refocus of strategic plans to meet market demand. U.S CBD CGU (Goodwill) The Company’s U.S. CBD CGU represents its operations dedicated to the sale of hemp-derived CBD products in the U.S. As a result of the impairment test as at June 30, 2020, management concluded that the recoverable amount of the U.S CBD CGU was higher than the carrying value and no impairment was recognized.

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