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BHB Acquisition | 12 Months Ended
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Dec. 31, 2021
Acquisitions |
6 | PURE SUNFARMS ACQUISITION
On November 2, 2020, Village Farms consummated a definitive purchase and sale agreement with Emerald Health Therapeutics Inc. (“Emerald”), acquiring 36,958,500 Common Shares in the capital of Pure Sunfarms owned by Emerald, and increasing Village Farms’ ownership of Pure Sunfarms to 100%. The shares were acquired for a total purchase price of C$79.9 million (US$60.0 million), satisfied through an initial C$60.0 million (US$45.0 million) cash payment and a C$19.9 million (US$15.0 million) secured promissory note payable to Emerald, which was repaid in full on February 8, 2021. The acquisition was deemed a business combination and the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available to make fair value determinations and engaged independent valuation specialists to assist in the fair value determination of acquired intangible assets. The estimated fair value of licenses was determined using a multi-period excess earnings method. This earnings-based method considers the net present value of the licenses’ cash flows discounted at an asset specific discount rate. The net present value attributable to the licenses deducts the contributory asset charges used in connection with the licenses. The estimated fair value of the brand was determined using the relief-from-royalty method. This method assumes that the brand has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. This measure of fair value requires significant judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. Acquired property, plant and equipment and software were valued using the replacement cost method, which requires the Company to estimate the costs to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Upon the acquisition of Pure Sunfarms, the Company identified goodwill of C$30,618 (US$24,108). This goodwill was calculated as the difference between the fair value of the consideration issued for the acquisition of Pure Sunfarms and the fair value of all assets and liabilities acquired. The goodwill is attributable to the acquired workforce and potential for growth through the conversion of the Delta 1 greenhouse facility and future accretive acquisitions. The Company is required to record a deferred tax liability for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed. None of the goodwill is deductible for tax purposes. As a result of the acquisition, the Company also recognized a gain of $23.6 million due to the revaluation of its previously held investment in Pure Sunfarms to its fair value at the acquisition date. The accounting for the business combination was considered complete for the year ended December 31, 2020. The following table shows the allocation of the purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the identifiable classes of consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date:
Consideration paid |  | Shares |  |  | Share Price |  |  | Amount |
Cash |  |  |  |  |  |  |  |  |  | $ | 45,259 |
Promissory note |  |  |  |  |  |  |  |  |  |  | 15,011 |
Shareholder loan |  |  |  |  |  |  |  |  |  |  | 4,529 |
Promissory note owed to PSF from Emerald |  |  |  |  |  |  |  |  |  |  | 439 |
Due to related party |  |  |  |  |  |  |  |  |  |  | 61 |
Fair value of previously held investment shares held by Village Farms |  |  | 52,569,197 |  |  | $ | 1.767 |  |  |  | 92,881 |
Total fair value of consideration |  |  |  |  |  |  |  |  |  | $ | 158,180 |
|  | November 2, 2020 |
ASSETS |  |  |  |
Cash and cash equivalents |  | $ | 10,860 |
Trade receivables, net |  |  | 10,553 |
Inventories |  |  | 32,393 |
Prepaid expenses and deposits |  |  | 3,572 |
Property, plant and equipment |  |  | 122,831 |
Goodwill |  |  | 23,095 |
Intangibles |  |  | 16,670 |
Total assets |  |  | 219,974 |
LIABILITIES |  |  |  |
Trade payables |  | $ | 3,849 |
Accrued liabilities |  |  | 13,062 |
Income taxes payable |  |  | 2,173 |
Current maturities of long-term debt |  |  | 2,306 |
Deferred revenue |  |  | 77 |
Long-term debt |  |  | 23,903 |
Deferred tax liabilities |  |  | 16,424 |
Total liabilities |  |  | 61,794 |
Net assets acquired |  |  | 158,180 |
The change in goodwill between November 2, 2020 and December 31, 2021 is due to the effect of foreign currency translation. Prior to its acquisition on November 2, 2020, the Company accounted for its investment in Pure Sunfarms, using the equity method. The Company determined that Pure Sunfarms was a variable interest entity (“VIE”), however the Company did not consolidate Pure Sunfarms because the Company was not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its then 58.7% majority interest, the Company shared joint control of the board of directors and therefore was not the primary beneficiary. For the three and nine months ended September 30, 2020, the Company’s equity earnings from Pure Sunfarms were $1,443 and $5,437, respectively. 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 C$6.5 million (US$4.7 million). The Company recorded this amount as a gain and included it as a gain on settlement agreement on the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) for the year ended December 31, 2020. For the period January 1, 2020 to November 1, 2020, the Company’s share of the joint venture consisted of the following:
Balance, January 1, 2020 |  | $ | 41,334 |
Investments in joint venture |  |  | 16,393 |
Share of net income for the year |  |  | 4,980 |
Balance, November 1, 2020 |  | $ | 62,707 |
Balanced Health Botanicals |
Acquisitions |
7 | BHB ACQUISITION
On August 16, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”), by and among Village Farms, Balanced Health and the other parties thereto, including the members of Balanced Health (collectively, the “BHB Sellers”). The Purchase Agreement provided for the acquisition of a 100% interest in Balanced Health (the “Balanced Health Acquisition”), for a total purchase price comprised of a cash purchase price of approximately $30 million, and an aggregate of 4,707,113 of our Common Shares, with a fair value of approximately $42 million, issued to the BHB Sellers on the closing date of the Balanced Health Acquisition (the “Closing Date”). In connection with the Balanced Health Acquisition, each of the BHB Sellers entered into a lock-up agreement with us, pursuant to which each such BHB Seller has agreed not to resell the Village Farms Common Shares received as consideration in the Balanced Health Acquisition until such Common Shares cease to be “Restricted Shares” (as defined in the Purchase Agreement) (“Restricted Shares”). Under the terms of the Purchase Agreement and the lock-up agreements, such Common Shares cease to be Restricted Shares, as follows: (i) with respect to one-fourth (1/4) of such Common Shares, on the Closing Date; (ii) with respect to an additional one-fourth (1/4) of such Common Shares, on the last day of the four (4) month period following the Closing Date; (iii) with respect to an additional one-fourth (1/4) of such Common Shares, on the last day of the eight (8) month period following the Closing Date; and (iv) with respect to an additional one-fourth (1/4) of such Common Shares, on the last day of the twelve (12) month period following the Closing Date. The acquisition was deemed a business combination and the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available to make fair value determinations of acquired intangible assets. The estimated fair value of the brand was determined using the relief-from-royalty method. This method assumes that the brand has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. This measure of fair value requires significant judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. Based upon estimates, the Company identified goodwill of $60,008 and a brand intangible of $9,250. This goodwill was calculated as the difference between the fair value of the consideration issued for the acquisition of Balanced Health and the estimated fair value of all assets and liabilities acquired. The goodwill has been allocated to the U.S. Cannabis reporting segment. The accounting for the business combination was complete as of December 31, 2021. The following table shows the allocation of the purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the identifiable classes of consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date:
Consideration paid |  | Shares |  |  | Share Price |  |  | Amount |
Cash |  |  |  |  |  |  |  |  |  | $ | 30,000 |
Village Farms common shares issued |  |  | 4,707,113 |  |  | $ | 8.87 |  |  |  | 41,752 |
Working capital adjustment |  |  |  |  |  |  |  |  |  | $ | (2 | )
Total fair value of consideration |  |  |  |  |  |  |  |  |  | $ | 71,750 |
|  | August 16, 2021 |
ASSETS |  |  |  |
Cash and cash equivalents |  | $ | 4,056 |
Trade and other receivables, net |  |  | 1,030 |
Inventories |  |  | 1,796 |
Prepaid expenses and deposits |  |  | 667 |
Property, plant and equipment |  |  | 1,900 |
Right-of-use asset |  |  | 5,099 |
Goodwill |  |  | 60,008 |
Intangibles |  |  | 9,394 |
Other assets |  |  | 362 |
Total assets |  |  | 84,312 |
LIABILITIES |  |  |  |
Trade payables |  |  | 688 |
Accrued liabilities |  |  | 6,659 |
Other current liabilities |  |  | 192 |
Lease liability |  |  | 5,023 |
Total liabilities |  |  | 12,562 |
Net assets acquired |  |  | 71,750 |
Pro Forma Financial Information (unaudited) The following unaudited pro forma information presents the Company’s consolidated results assuming the Balanced Health Acquisition occurred on January 1, 2020.
|  | Year ended December 31, |
|  | 2021 |  |  | 2020 |
Sales |  | $ | 287,378 |  |  | $ | 206,901 |
Net income |  | $ | (7,564 | ) |  | $ | 3,263 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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