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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

4. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table presents the changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2023:


	Cannabis - Canada			Cannabis - United States		Total
Balance as of December 31, 2022	$	44,886		$	21,339	$	66,225
Foreign currency translation adjustment		(107	)		—		(107	)
Balance as of September 30, 2023	$	44,779		$	21,339	$	66,118

Intangible Assets

Intangibles consisted of the following as of:


Classification	September 30, 2023			December 31, 2022
Licenses	$	17,983		$	17,691
Brand and trademarks*		12,710			12,719
Customer relationships		13,260			13,291
Computer software		1,952			1,955
Other*		144			144
Less: Accumulated amortization		(6,464	)		(4,013	)
Less: Impairments		(4,630	)		(4,630	)
Intangibles, net	$	34,955		$	37,157

* Indefinite-lived intangible assets

The expected future amortization expense for definite-lived intangible assets as of September 30, 2023 was as follows:


Fiscal period
Remainder of 2023	$	777
2024		3,107
2025		3,021
2026		2,932
2027		2,932
Thereafter		13,962
Intangibles, net	$	26,731

Assessment for Indicators of Impairment

At the end of each reporting period, the Company assesses whether events or changes in circumstances have occurred that would indicate an impairment. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment.

During the first nine months of 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S. and Canadian cannabis segments. As part of this assessment, the Company considered both external and internal factors, including overall financial performance and outlook. At September 30, 2023, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

Throughout 2022, the Company recognized macroeconomic challenges, decreases in market capitalization, decreases in transaction multiples, and continued ambiguity in federal regulations with respect to the U.S. CBD market. During the second quarter of 2022, when the Company considered these qualitative factors in assessing impairment indicators it concluded that the Company's U.S. - Cannabis segment more likely than not was impaired. The Company tested that segment’s assets, including goodwill and intangible assets for impairment.

Cannabis - U.S. - Goodwill

The recoverable amount of the reporting unit was determined based on a transaction multiple of somewhat similar CBD-based companies. Management concluded that as of June 30, 2022, the recoverable amount was lower than its carrying amount and as a result, an impairment charge to goodwill of $25,169 was allocated to the reporting unit.

The significant assumptions applied to the determination of the recoverable amount are described below:

•

Transaction multiples: A market-based revenue multiple of 1.6x was utilized to determine the recoverable amount. A decrease in the multiple of .25x, would increase the impairment to goodwill by $7,000.

Cannabis - U.S. - Brand

The recoverable amount of the brand was determined based on a discounted cash flow projection. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the recoverable amount of the brand. Management concluded that as of June 30, 2022, the recoverable amount was lower than its carrying value of $9,250 and as a result, an impairment charge to the brand intangible of $4,630 was allocated to the reporting unit.

The significant assumptions applied to the determination of the recoverable amount are described below:

•

Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 11%. An increase of 1% to the discount rate would increase the impairment by approximately $530.

•

Royalty rate: An incremental royalty rate of 4.0% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by 0.5% would increase the impairment to brand by $1,490.

•

Future revenues: A decrease in future revenues by 10% would increase the impairment by approximately $470.