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Goodwill and Intangibles Assets
 12 Months Ended
Dec. 31, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangibles Assets

6. GOODWILL AND INTANGIBLES ASSETS

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. Throughout 2023 and 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 years ended December 31, 2023 and 2022, 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.

Year Ended December 31, 2023

As of December 31, 2023, when the Company considered 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 fair value of the reporting unit was determined based on a discounted cash flow projection from budgets approved by senior management for 2024 to 2029 with an average revenue growth rate of 8% over 6 years, followed by terminal growth rate of 4.1%. Management concluded that as of December 31, 2023, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $11,300 was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value 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 $1,700.
•
Terminal growth rate: A decrease of 0.5% in the terminal growth rate would increase the impairment by approximately $700.
•
Future cash flows: A decrease in future cash flows by 10% would increase the impairment by approximately $1,300.

Cannabis – U.S. – Brand

The fair value 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 fair value of the brand. An average revenue growth rate of 8% was used over 6 years, followed by terminal growth rate of 4.1%. Management concluded that as of December 31, 2023, the fair value value was lower than its carrying amount and as a result, an impairment charge to the brand intangible of $2,720 was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value 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 $200.
•
Royalty rate: An incremental royalty rate of 3.5% 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 $1,600.
•
Future revenues: A decrease in future revenues by 10% would increase the impairment by approximately $200.

Cannabis – Canada – Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projection from budgets approved for 2024, which was extended to 2027 with a compound annual revenue growth rate of 16% from 2024 to 2027, followed by terminal growth rate of 4%. Management concluded that the fair value was higher than its carrying amount by approximately $2,565 as of December 31, 2023 and therefore no impairment to goodwill was required.

The significant assumptions applied to the determination of the fair value are described below:

•
Post-tax discount rate: An increase of approximately 0.07% in the discount rate would result in the fair value being equal to the carrying value, and each additional 0.5% increase would result in an additional impairment of approximately $18,858.
•
Terminal growth rate: A decrease in approximately 0.1% in the terminal growth rate would result in the fair value being equal to the carrying value, and each additional 0.5% decrease would result in an additional impairment of approximately $17,350.
•
Future cash flows: A decrease in the future cash flows before net working capital by approximately 1.0% would result in the fair value being equal to the carrying value, and each additional 5% decrease would result in an additional impairment of approximately $16,595.
•
Net working capital: Net working capital ranges between 40% and 45% of revenue. An increase of 6% in net working capital investment would result in the fair value being equal to the carrying value, and each additional 5% increase would result in an additional impairment of approximately $3,017.

Cannabis – Canada – Brand

The fair value of the brand was determined based on a discounted cash flow projection, covering a four-year period. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that the fair value was higher than its carrying value of $3,545 by approximately $453 as of December 31, 2023 and therefore, no impairment to brand was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•
Post-tax discount rate: An increase in the discount rate by 1% would result in the fair value being equal to the carrying value, and each additional 1% increase in the discount rate would result in an impairment of approximately $302.
•
Royalty rate: An incremental royalty rate of 3.5% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by 0.12% would result in the recoverable amount being equal to the carrying value.
•
Future revenues: A decrease in future revenues by 12% would result in the fair value being equal to the carrying value, and each additional 10% decrease in the future revenues would result in an impairment of approximately $317.

Year Ended December 31, 2022

As of June 30, 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 fair value 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 fair value 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 fair value are described below:

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

Cannabis – U.S. - Brand

The fair value 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 fair value of the brand. Management concluded that as of June 30, 2022, the fair value 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 fair value 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.

Cannabis – Canada – Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projection from budgets approved by senior management covering a three-year period. Management concluded that the fair value was higher than its carrying amount by approximately $17,196 as of December 31, 2022 and therefore no impairment to goodwill was required.

The significant assumptions applied to the determination of the fair value are described below:

•
Post-tax discount rate: An increase in 0.5% in the discount rate would result in the fair value being equal to the carrying value, and each additional 1% increase would result in an additional impairment of approximately $29,299.
•
Terminal growth rate: A decrease in 0.7% in the terminal growth rate would result in the fair value being equal to the carrying value, and each additional 1% decrease would result in an additional impairment of approximately $18,229.
•
Future cash flows: A decrease in the future cash flows by 5.5% would result in the fair value being equal to the carrying value, and each additional 5.0% decrease would result in an additional impairment of approximately $15,126.

Cannabis – Canada – Brand

The fair value of the brand was determined based on a discounted cash flow projection, covering a three-year period Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that the fair value was higher than its carrying value of $3,420 by approximately $1,033 as of December 31, 2022 and therefore, no impairment to brand was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•
Post-tax discount rate: An increase in the discount rate by 2% would result in the fair value being equal to the carrying value, and each additional 1% increase in the discount rate would result in an impairment of approximately $308.
•
Royalty rate: An incremental royalty rate of 3.5% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by 0.5% would result in an impairment of approximately $3,469.
•
Future revenues: A decrease in future revenues by 20% would result in the fair value being equal to the carrying value. Any further decreases to future revenues would result in the value of the brand being written down to $nil.

Cannabis – Canada – Definite-Lived Intangible

At December 31, 2022, the Company also evaluated the recoverability of its definite-lived intangible assets which includes customer relationship and license intangibles. The Company concluded the undiscounted cash flows of the asset group exceeded its carrying value of $24,969 at December 31, 2022 and therefore no impairment to the definite-lived intangibles was required.

Cannabis – U.S. - Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projection from budgets approved by senior management covering a three-year period. Management concluded that as of December 31, 2022, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $13,500 was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•
Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 10%, which reflects market participant assumptions. An increase of 1% to the discount rate, would increase the impairment to goodwill by $4,100.
•
Terminal growth rate: The forecast cash flows beyond a three-year period are extrapolated using a 4.1% growth rate. A decline of 1% in the terminal growth rate, would increase the impairment to goodwill by $2,900.
•
Future cash flows: A decrease in future cash flows by 10% would increase the impairment by approximately $2,500.

U.S. Cannabis - Brand

The fair value 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 fair value of the brand. Management concluded the fair value was higher than its carrying value of $4,620 by approximately $380 as of December 31, 2022, and therefore, no impairment charge to the brand was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•
Royalty rate: An increase to the incremental royalty rate of 0.05% would result in the fair value being equal to the carrying value, and each additional 0.5% decrease would result in an additional impairment of approximately $3,320.
•
Future revenues: A decrease in future revenues by 8% would result in the fair value being equal to the carrying value, and each additional decrease of 5% would result in an impairment of $220.
•
Post-tax discount rate: An increase in the discount rate of 0.5% would result in the fair value being equal to the carrying value, and each increase of 0.5% would result in an additional impairment of $420.

Goodwill

The following table presents the changes in the carrying value of goodwill by reportable segment:

 

 

Cannabis - Canada

 

 

Cannabis - United States

 

 

Total

 

Balance as of January 1, 2022

$

57,525

 

 

$

60,008

 

 

$

117,533

 

Purchase price adjustment

 

3,755

 

 

 

—

 

 

 

3,755

 

Reclassification to intangible assets

 

(14,170

)

 

 

—

 

 

 

(14,170

)

Foreign currency translation adjustment

 

(2,224

)

 

 

—

 

 

 

(2,224

)

Impairments

 

—

 

 

 

(38,669

)

 

 

(38,669

)

Balance as of December 31, 2022

$

44,886

 

 

$

21,339

 

 

$

66,225

 

Foreign currency translation adjustment

 

993

 

 

 

—

 

 

 

993

 

Impairments

 

—

 

 

 

(11,300

)

 

 

(11,300

)

Balance as of December 31, 2023

$

45,879

 

 

$

10,039

 

 

$

55,918

 

Intangible Assets

Intangibles consisted of the following:

 

Classification

 

December 31, 2023

 

 

December 31, 2022

 

Licenses

 

$

18,540

 

 

$

17,691

 

Brand and trademarks*

 

 

12,795

 

 

 

12,719

 

Customer relationships

 

 

13,586

 

 

 

13,291

 

Computer software

 

 

1,974

 

 

 

1,955

 

Other*

 

 

144

 

 

 

144

 

Less: Accumulated amortization

 

 

(7,414

)

 

 

(4,013

)

Less: Impairments

 

 

(7,350

)

 

 

(4,630

)

Intangibles, net

 

$

32,275

 

 

$

37,157

 

 

 

*Indefinite-lived intangible assets.

 

The expected future amortization expense for definite-lived intangible assets as of December 31, 2023 is as follows:

 

Fiscal period

 

 

 

2024

 

$

3,386

 

2025

 

 

3,297

 

2026

 

 

3,206

 

2027

 

 

3,206

 

2028

 

 

1,921

 

Thereafter

 

 

11,670

 

Intangibles, net

 

$

26,686

 

 

Amortization expense for intangibles for the years ended December 31, 2023, 2022 and 2021 were $3,141, $2,259 and $916, respectively.