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Investment in Joint Ventures | 3 Months Ended
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Mar. 31, 2020
Equity Method Investments and Joint Ventures [Abstract] |
Investment in Joint Ventures |
7 | INVESTMENT IN JOINT VENTURES
Summarized Equity Earnings (Losses) from Unconsolidated Entities
|  | Equity earnings from unconsolidated entities |
|  | Three months ended March 31, |
|  | 2020 |  |  | 2019 |
Pure Sunfarms |  | $ | 3,531 |  |  | $ | 2,641 |
VF Hemp |  |  | (302 | ) |  |  | (30 | )
Total |  | $ | 3,229 |  |  | $ | 2,611 |
Pure Sunfarms Corp. On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (“Emerald”). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada. The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (ASC) 323, Equity Method and Joint Ventures (“ASC 323”), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (“VIE”), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 58.7% majority ownership interest , t he Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its involvement with Pure Sunfarms as of March 31, 2020 relates primarily to the Company’s investment of $55,607 and the recovery of the outstanding loan to Pure Sunfarms of $9,959. The Company is required to apply the hypothetical liquidation at book value (“HLBV”) method to determine its allocation of the profits and losses in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Therefore, due to the monthly escrow payments made by Emerald in 2019 in accordance with the Delta 2 Option and Escrow Agreements, the ownership changed each month in 2019 as escrow payment(s) were made. Under the hypothetical liquidation method, the Company received 57.4% and 57.6% of Pure Sunfarms’ earnings for the three months ended March 31, 2020 and 2019, respectively. In 2020, all of the escrow payments were made so the allocation of profits and losses is based on shares outstanding at the end of each month. On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets. On March 2, 2020, pursuant to the Settlement Agreement, Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The Company determined the fair value of the equity received from Emerald to be CA$6.5 million (US$4.7 million). The Company recorded this amount as a gain and it’s included as gain on nonmonetary exchange on the consolidated statement of income and comprehensive income for the three months ended March 31, 2020. As of March 31, 2020, and December 31, 2019, the total investment in Pure Sunfarms of $55.6 million and $41.3 million, respectively, was recorded in the consolidated statements of financial position. The Company’s share of the joint venture consists of the following:
Balance, January 1, 2019 |  | $ | 6,341 |
Investments in joint venture |  |  | 18,717 |
Share of net income for the year |  |  | 16,276 |
Balance, December 31, 2019 |  | $ | 41,334 |
Balance, January 1, 2020 |  | $ | 41,334 |
Investments in joint venture |  |  | 10,742 |
Share of net income for the period |  | $ | 3,531 |
Balance, March 31, 2020 |  | $ | 55,607 |
Summarized financial information of Pure Sunfarms (in USD):
|  | March 31, 2020 |  |  | December 31, 2019 |
Current assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 608 |  |  | $ | 7,356 |
Trade receivables |  |  | 12,809 |  |  |  | 8,687 |
Inventory |  |  | 29,970 |  |  |  | 21,745 |
Other current assets |  |  | 5,933 |  |  |  | 6,964 |
Non-current assets |  |  | 105,921 |  |  |  | 108,652 |
Current liabilities |  |  |  |  |  |  |  |
Trade payables |  |  | (12,288 | ) |  |  | (4,938 | )
Borrowings due to joint ventures |  |  | (10,311 | ) |  |  | (26,413 | )
Income taxes payable |  |  | (8,843 | ) |  |  | (8,489 | )
Borrowings – current |  |  | (1,341 | ) |  |  | (1,423 | )
Other current liabilities |  |  | (11,360 | ) |  |  | (5,021 | )
Non-current liabilities |  |  |  |  |  |  |  |
Borrowings – long term |  |  | (11,642 | ) |  |  | (13,089 | )
Deferred tax liabilities |  |  | (3,372 | ) |  |  | (2,473 | )
Net assets |  | $ | 96,084 |  |  | $ | 91,558 |
|  | March 31, 2020 |  |  | December 31, 2019 |
Reconciliation of net assets: |  |  |  |  |  |  |  |
Accumulated retained earnings |  | $ | 32,844 |  |  | $ | 26,679 |
Contributions from joint venture partners |  |  | 70,088 |  |  |  | 63,481 |
Currency translation adjustment |  |  | (6,848 | ) |  |  | 1,398 |
Net assets |  | $ | 96,084 |  |  | $ | 91,558 |
|  | Three Months Ended March 31, 2020 |  |  | Three Months Ended March 31, 201 9 |
Revenue |  | $ | 13,137 |  |  | $ | 10,801 |
Cost of sales* |  |  | (6,258 | ) |  |  | (3,818 | )
Gross margin |  |  | 6,879 |  |  |  | 6,983 |
Selling, general and administrative expenses |  |  | (2,434 | ) |  |  | (999 | )
Income from operations |  |  | 4,445 |  |  |  | 5,984 |
Interest expense |  |  | (217 | ) |  |  | (1 | )
Foreign exchange ( loss ) gain |  |  | (179 | ) |  |  | 39 |
Other income, net ** |  |  | 4,332 |  |  |  | 10 |
Income before taxes |  |  | 8,381 |  |  |  | 6,032 |
Provision for income taxes |  |  | (2,216 | ) |  |  | (1,629 | )
Net income |  | $ | 6,165 |  |  | $ | 4,403 |
| * | Included in cost of sales for the three months ended March 31, 2020 and 2019 is $449 and $458, respectively, of depreciation expense.
| ** | Includes gain recognized on settlement of net liabilities of $4,348 ( CA $6,044).
Village Fields Hemp USA LLC On February 27, 2019, the Company entered into a joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp for the objective of outdoor cultivation of high percentage cannabidiol (“CBD”) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend up to approximately US$15 million to VF Hemp for start-up costs and working capital. The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp. The Company’s maximum exposure to loss as a result of its involvement with VF Hemp is directly related to the recovery of the $10,946 loan outstanding to VF Hemp. The Company’s share of the joint venture consists of the following:
Balance, beginning of the period |  | $ | — |
Investments in joint venture |  |  | 7 |
Share of net loss |  |  | (2,464 | )
Losses applied against joint venture note receivable |  |  | 2,457 |
Balance, December 31, 2019 |  | $ | — |
Balance, beginning of the period |  | $ | — |
Investments in joint venture |  |  | — |
Share of net loss |  |  | (302 | )
Losses applied against joint venture note receivable |  |  | 302 |
Balance, March 31, 2020 |  | $ | — |
Summarized financial information of VF Hemp:
|  | March 31, 2020 |  |  | December 31, 2019 |
Current assets |  |  |  |  |  |  |  |
Inventory |  | $ | 9,268 |  |  | $ | 9,308 |
Other current assets |  |  | 163 |  |  |  | 546 |
Non-current assets |  |  | 1,406 |  |  |  | 1,476 |
Current liabilities |  |  | (1,386 | ) |  |  | (1,788 | )
Non-current liabilities |  |  | (13,697 | ) |  |  | (13,323 | )
Net assets |  | $ | (4,246 | ) |  | $ | (3,781 | )
Reconciliation of net assets: |  | March 31, 2020 |  |  | December 31, 2019 |
Beginning retained earnings |  | $ | (3,791 | ) |  | $ | (3,791 | )
Net loss for the three months ended March 31, 2020 |  |  | (465 | ) |  |  | — |
Contributions from joint venture partners |  |  | 10 |  |  |  | 10 |
Net assets |  | $ | (4,246 | ) |  | $ | (3,781 | )

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section S99 -Paragraph 4 -Subparagraph (SX 210.3A-04) -URI http://asc.fasb.org/extlink&oid=116822174&loc=d3e355119-122828 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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