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Rose 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 |
Rose Acquisition [Member] |
Acquisitions |
8 | ROSE ACQUISITION
On November 15, 2021, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”), with Rose and other parties, including the shareholders of Rose (collectively, the “Rose Sellers”), for the acquisition of a 70% interest in Rose pursuant to the terms of the Purchase Agreement (the “Acquisition”), for a total purchase price (the “Purchase Price”) of C$46.7 million, comprised of a cash purchase price of C$19.9 million and a total of 2,411,280 Common Shares of Village Farms (“Village Farms Shares”), subject to customary purchase price adjustments. The Village Farms Shares issued under the Purchase Agreement are subject to lock-up agreements, and subject to compliance with applicable securities laws, 33% of these shares will be released from lock-up restrictions four (4) months following the Closing Date, another 33% of these shares will be released from lock-up restrictions eight (8) months after the Closing Date and the remaining shares will be released from lock-up restrictions one (1) year after the Closing Date. Under the terms of the Purchase Agreement, we agreed to file a prospectus supplement under our existing shelf registration statement, on or before the date that is four (4) months following the Closing Date, to register for resale all of the Village Farms Shares issued to the Rose Sellers on the Closing Date. Put/Call Option Two of the co-founders of Rose (the “Management Shareholders”), who were among the Rose Sellers of Rose in the Acquisition, have remained in their current roles with Rose post-Acquisition and have retained a non-voting 30% interest in Rose (the “Retained Interest”). In conjunction with the Acquisition, Village Farms and the Management Shareholders have entered into a unanimous shareholders agreement (the “USA”) providing Village Farms with a call option to acquire the Retained Interest between December 31, 2024 and March 31, 2025 or upon the occurrence of certain liquidity events with respect to Village Farms (the “Call Option”). As part of the Call Option, Village Farms can also acquire 34% of the Retained Interest between December 31, 2022 and March 31, 2023. A put right has also been granted to the Management Shareholders to require Village Farms to complete the acquisition of the Retained Interest upon their death or disability or the occurrence of certain liquidity events with respect to Village Farms (the “Put Option”, and together with the Call Option, the “Put/Call Option”). The price for the Put/Call Option was set at a multiple solely based on R ose’s adjusted EBITDA performance of the applicable prior calendar year. If exercised upon a liquidity event, the Option Price is subject to a minimum amount which varies depending on the year on which it is exercised. The consideration for the acquisition of the Retained Interest may, at Village Farms’ sole discretion, be payable solely in cash or in a pre-determined combination of cash and Village Farms Shares based on a formula similar to that used for the issuance of the Village Farms Shares comprising part of the Purchase Price. Based upon preliminary estimates, the Company identified goodwill of $34,548 and a redeemable NCI classified as temporary mezzanine equity of $16,479. The goodwill was calculated as the difference between the fair value of the consideration issued for the acquisition of Rose and the estimated fair value of all assets and liabilities acquired. The goodwill has been allocated to the Canadian Cannabis reporting segment. The Company expects to recognize intangible assets but is still in the process of identifying and valuing them as well as the fair value of the Put Option identified and classified as redeemable non-controlling interest. The Company expects the accounting for the business combination to be complete by March 31, 2022. The change in goodwill between November 15, 2021, and December 31, 2021 is due to the effect of foreign currency translation.
Consideration paid |  | Shares |  |  |  | Share Price |  |  | Amount |
Cash |  |  |  |  |  |  |  |  |  |  | $ |  | 15,859 |
Village Farms common shares issued |  |  | 2,411,280 |  |  |  | $ | 9.04 |  |  |  |  | 21,798 |
Working capital adjustment |  |  |  |  |  |  |  |  |  |  |  |  | 1,055 |
Total fair value of consideration |  |  |  |  |  |  |  |  |  |  | $ |  | 38,712 |
|  | November 15, 2021 |
ASSETS |  |  |  |  |
Cash and cash equivalents |  | $ |  | 1,118 |
Trade and other receivables, net |  |  |  | 1,595 |
Inventories |  |  |  | 3,586 |
Prepaid expenses and deposits |  |  | 498 |
Property, plant and equipment |  |  |  | 16,423 |
Goodwill |  |  |  | 34,548 |
Total assets |  |  |  | 57,768 |
LIABILITIES |  |  |  |  |
Trade payables |  |  |  | 774 |
Accrued liabilities |  |  |  | 1,803 |
Total liabilities |  |  |  | 2,577 |
Mezzanine equity |  |  |  | 16,479 |
Total liabilities and mezzanine equity |  |  |  | 19,056 |
Net assets acquired |  | $ |  | 38,712 |
Pro Forma Financial Information (unaudited) The following unaudited pro forma information presents the Company’s consolidated results assuming the Rose Acquisition occurred on January 1, 2020.
|  | Year ended December 31, |
|  | 2021 |  |  | 2020 |
Sales |  | $ | 279,756 |  |  | $ | 173,214 |
Net income |  | $ | (15,972 | ) |  | $ | (608 | )

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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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