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Table of Contents

Exhibit 99.2

 

Graphic

 

Ayr Wellness Inc.

(Formerly Ayr Strategies Inc.)

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

(EXPRESSED IN UNITED STATES DOLLARS)

Table of Contents

Ayr Wellness Inc.

(Formerly Ayr Strategies Inc.)

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

Report of Independent Registered Public Accounting Firm

    

1

Consolidated Balance Sheets
(“Balance Sheets”)

2

Consolidated Statements of Operations
(“Statements of Operations”)

3

Consolidated Statements of Shareholders’ Equity
(“Statements of Shareholders’ Equity”)

4

Consolidated Statements of Cash Flows
(“Statements of Cash Flows”)

5

Notes to the Consolidated Financial Statements

6 - 50

(“Financial Statements”)

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ayr Wellness Inc. (formerly Ayr Strategies Inc.) (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2021.

New York, NY

March 17, 2022

1

Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Consolidated Balance Sheets

(Expressed in United States Dollars, Except Number of Shares)

Year Ended

    

December 31, 2021

    

December 31, 2020

ASSETS

  

  

Current

 

  

 

  

Cash

$

154,342,201

$

127,238,165

Accounts receivable, net

 

7,412,906

 

3,464,401

Due from related parties

 

 

135,000

Inventory, net

 

93,362,985

 

22,919,605

Prepaid expenses, deposits, & other current assets

 

10,949,349

 

5,270,381

$

266,067,441

$

159,027,552

Non-current

 

  

 

  

Property, plant, & equipment, net

 

275,222,166

 

69,104,080

Intangible assets, net

 

978,915,457

 

252,357,677

Right-of-use assets - operating

 

88,720,082

 

22,546,256

Right-of-use assets - finance, net

17,527,126

877,310

Goodwill

 

229,909,562

 

57,963,360

Equity investments

 

 

503,509

Deposits & other assets

 

3,550,039

 

2,540,674

Total assets

$

1,859,911,873

$

564,920,418

LIABILITIES & SHAREHOLDERS' EQUITY

 

  

 

  

Liabilities

Current

 

  

 

  

Trade payables

$

26,983,181

$

8,899,786

Accrued liabilities

 

32,723,734

 

8,706,813

Lease liabilities - operating - current portion

 

4,195,672

 

740,864

Lease liabilities - finance - current portion

3,185,460

125,440

Contingent consideration - current portion

39,868,080

Purchase consideration payable

 

811,586

 

9,053,057

Income tax payable

 

28,914,949

 

21,379,351

Debts payable - current portion

 

8,111,723

 

8,644,633

Accrued interest payable - current portion

7,541,634

$

152,336,019

$

57,549,944

Non-current

 

 

Deferred tax liabilities

70,081,319

14,677,991

Lease liabilities - operating - non-current portion

 

87,767,033

 

23,474,726

Lease liabilities - finance - non-current portion

 

9,406,202

 

446,585

Contingent consideration - non-current portion

 

145,653,870

 

22,961,411

Debts payable - non-current portion

 

125,745,888

 

53,587,948

Senior secured notes, net of debt issuance costs - non-current portion

 

245,407,822

 

103,652,963

Accrued interest payable - non-current portion

 

3,451,016

 

3,301,155

Total liabilities

$

839,849,169

$

279,652,723

Commitments and contingencies

Shareholders' equity

 

  

 

  

Multiple Voting Shares: no par value, unlimited authorized. Issued & outstanding - 3,696,486 shares

 

 

Subordinate, Restricted, & Limited Voting Shares: no par value, unlimited authorized. Issued & outstanding - 56,337,175 & 28,873,641 shares, respectively

 

 

Exchangeable Shares: no par value, unlimited authorized. Issued & outstanding - 7,368,285 & 2,127,543 shares, respectively

 

 

Additional paid-in capital

1,289,827,092

530,808,494

Treasury stock - 568,300 & 63,800 shares, respectively

(7,828,037)

(556,899)

Accumulated other comprehensive income

 

3,265,610

 

3,265,610

Deficit

 

(265,201,961)

 

(248,249,510)

Total shareholders' equity

$

1,020,062,704

$

285,267,695

Total liabilities & shareholders' equity

$

1,859,911,873

$

564,920,418

The accompanying notes are an integral part of these consolidated financial statements.

2

Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Consolidated Statements of Operations

(Expressed in United States Dollars, Except Number of Shares)

Year Ended

    

December 31, 2021

    

December 31, 2020

Revenues, net of discounts

$

357,608,311

    

$

155,114,454

Cost of goods sold excluding fair value items

 

175,646,346

 

66,355,014

Incremental costs to acquire cannabis inventory in a business combination

 

43,863,688

 

Cost of goods sold

$

219,510,034

$

66,355,014

Gross profit

$

138,098,277

$

88,759,440

Operating expenses

 

  

 

  

General and administrative

 

136,744,916

 

69,583,293

Sales and marketing

 

7,699,986

 

2,150,536

Depreciation and amortization

 

1,997,185

 

829,745

Amortization on intangible assets

 

38,661,734

 

12,024,715

Acquisition expense

 

9,001,683

 

2,945,194

Total operating expenses

$

194,105,504

$

87,533,483

(Loss) income from operations

$

(56,007,227)

$

1,225,957

Other income (expense)

 

  

 

  

Share of loss on equity investments

 

(31,670)

 

(33,591)

Foreign exchange

 

(62,714)

 

(7,783)

Fair value gain (loss) on financial liabilities

 

83,759,057

 

(529,555)

Interest expense, net

 

(16,549,836)

 

(3,203,097)

Interest income

 

203,587

 

10,112

Other, net

 

997,263

 

19,971

Total other income (expense)

$

68,315,687

$

(3,743,943)

Income (Loss) before taxes

$

12,308,460

$

(2,517,986)

Income Taxes

Current tax provision

 

(45,820,250)

 

(21,770,590)

Deferred tax benefit (provision)

 

16,559,339

 

(316,873)

Total income taxes

$

(29,260,911)

$

(22,087,463)

Net loss

$

(16,952,451)

$

(24,605,449)

Basic and diluted loss per share

$

(0.30)

$

(0.88)

Weighted average number of shares outstanding (basic and diluted)

 

57,329,350

 

27,892,441

The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Consolidated Statements of Shareholders’ Equity

(Expressed in United States Dollars, Except Number of Shares)

Subordinate,

Accumulated other

Multiple

Restricted, and Limited

Exchangeable

Additional paid-

Treasury Stock

 comprehensive

 

 

Voting Shares

Voting Shares

 

Shares

 

in capital

Number

 

Amount

  income

Deficit

Total

    

#

    

#

    

#

    

$

    

#

    

$

    

$

    

$

    

$

Balance, December 31, 2019

    

3,696,486

 

14,824,485

 

8,373,792

 

420,337,575

(29,500)

 

(245,469)

 

3,265,610

 

(223,644,061)

 

199,713,655

Stock-based compensation

 

 

 

 

31,156,759

 

 

 

 

31,156,759

Exercise of Rights

 

 

175,640

 

 

 

 

 

 

Exercise of Warrants

 

 

5,574,446

 

 

48,489,148

 

 

 

 

48,489,148

Conversion of Exchangeable Shares

 

 

8,170,805

 

(8,170,805)

 

 

 

 

 

Share issuance - make-whole

 

 

 

614,515

 

3,765,927

 

 

 

 

3,765,927

Share issuance - business combination and asset acquisition

 

 

128,265

 

1,310,041

 

27,059,085

 

 

 

 

27,059,085

Repurchase of Subordinate Voting Shares

 

 

 

 

(34,300)

 

(311,430)

 

 

 

(311,430)

Net loss

 

 

 

 

 

 

 

(24,605,449)

 

(24,605,449)

Balance, December 31, 2020

 

3,696,486

 

28,873,641

 

2,127,543

 

530,808,494

(63,800)

 

(556,899)

 

3,265,610

 

(248,249,510)

 

285,267,695

Subordinate,

Accumulated other

Multiple

Restricted, and Limited

Exchangeable

Additional paid-

Treasury Stock

 comprehensive

 

 

Voting Shares

Voting Shares

 

Shares

 

in capital

Number

 

Amount

  income

Deficit

Total

    

#

    

#

    

#

    

$

    

#

    

$

    

$

    

$

    

$

Balance, December 31, 2020

 

3,696,486

 

28,873,641

2,127,543

 

530,808,494

(63,800)

(556,899)

3,265,610

 

(248,249,510)

 

285,267,695

Stock-based compensation

 

 

1,916,045

 

27,155,214

 

 

27,155,214

Tax withholding on stock-based compensation awards

 

 

(990,854)

 

(28,536,340)

 

 

(28,536,340)

Exercise of Rights

 

 

134,782

 

 

 

Exercise of Warrants

 

 

7,203,452

 

55,691,685

 

 

55,691,685

Conversion of Exchangeable Shares

 

 

841,026

(841,026)

 

 

 

Share issuance - business combinations, asset acquisition, and equity investment

 

 

13,571,090

6,081,768

 

576,195,758

 

 

576,195,758

Replacement options issued - business combinations

 

 

 

4,452,917

 

 

4,452,917

Equity offering

 

 

4,600,000

 

118,052,400

 

 

118,052,400

Exercise of options, net of options sold to cover income taxes

37,234

314,915

314,915

Conversion of convertible debt

232,259

7,429,389

7,429,389

Repurchase of Subordinate Shares

 

 

(81,500)

 

(1,737,340)

(504,500)

 

(7,271,138)

 

 

(9,008,478)

Net loss

 

 

 

 

 

 

 

(16,952,451)

 

(16,952,451)

Balance, December 31, 2021

 

3,696,486

 

56,337,175

 

7,368,285

 

1,289,827,092

(568,300)

 

(7,828,037)

 

3,265,610

 

(265,201,961)

 

1,020,062,704

The accompanying notes are an integral part of these consolidated financial statements

4

Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Consolidated Statements of Cash Flows

(Expressed in United States Dollars)

Year Ended

December 31, 

December 31, 

    

2021

    

2020

Operating activities

  

  

Net loss

$

(16,952,451)

$

(24,605,449)

Adjustments for:

 

  

 

  

Net fair value (gain) loss on financial liabilities

 

(83,759,057)

 

529,555

Stock-based compensation

 

27,155,214

 

31,156,759

Depreciation and amortization

 

8,125,151

 

2,812,028

Amortization on intangible assets

 

50,708,958

 

13,716,502

Share of loss on equity investments

 

31,670

 

33,591

Gain on disposal of equity investments

(177,926)

Incremental costs to acquire cannabis inventory in a business combination

 

43,863,688

 

Loss on disposal of property, plant, and equipment

50,483

Deferred tax (benefit) expense

 

(16,559,339)

 

316,873

Amortization on financing costs

 

1,744,520

 

90,858

Amortization on financing premium

(402,376)

Changes in operating assets and liabilities, net of business acquisition:

 

  

 

Accounts receivable

 

(3,916,018)

 

(843,162)

Inventory

 

(50,956,053)

 

(8,876,748)

Prepaid expenses and other current assets

 

(2,325,897)

 

(2,529,211)

Trade payables

 

(1,429,713)

 

1,616,253

Accrued liabilities

 

7,942,658

 

3,274,488

Interest accrued

1,446,358

2,214,061

Lease liabilities - operating

1,911,974

200,913

Income tax payable

 

5,717,078

 

16,176,408

Cash (used in) provided by operating activities

 

(27,781,078)

 

35,283,719

Investing activities

 

  

 

  

Purchase of property, plant, and equipment

 

(100,002,729)

 

(14,367,690)

Purchases of intangible assets

 

 

(400,000)

Cash paid for business combinations and asset acquisitions, net of cash acquired

 

(92,270,242)

 

(35,174,880)

Cash paid for business combinations and asset acquisitions, bridge financing

 

(22,750,176)

 

(8,040,804)

Cash paid for business combinations and asset acquisitions, working capital

 

(4,359,040)

 

(2,354,375)

Payments for interests in equity accounted investments

 

(81,609)

 

(109,700)

Cash received in disposal of equity investment

1,000,000

Payments made by (advances to) related corporation

 

135,000

 

(50,000)

Cash paid for bridge financing

(1,200,000)

Deposits for business combinations

 

(100,000)

 

(1,750,000)

Cash used in investing activities

 

(219,628,796)

 

(62,247,449)

Financing activities

 

  

 

  

Proceeds from exercise of Warrants

 

55,691,685

 

48,489,148

Proceeds from exercise of options

314,915

Proceeds from equity offering, net of expenses

118,052,400

Proceeds from senior secured notes, net of financing costs

148,647,037

103,571,105

Payments of financing costs

(2,142,242)

Tax withholding on stock-based compensation awards

(28,536,340)

Repayments of debts payable

 

(8,749,327)

 

(5,615,225)

Repayments of lease liabilities - finance (principal portion)

 

(6,948,895)

 

(334,899)

Repurchase of Subordinate Shares

 

(1,815,323)

 

(311,430)

Cash provided by financing activities

 

274,513,910

 

145,798,699

Net increase in cash

 

27,104,036

 

118,834,969

Cash, beginning of the period

 

127,238,165

 

8,403,196

Cash, end of the period

 

154,342,201

 

127,238,165

Supplemental disclosure of cash flow information:

 

  

 

  

Interest paid during the period

 

14,243,886

 

1,102,193

Income taxes paid during the period

 

41,303,039

 

5,594,182

Non-cash investing and financing activities:

Recognition of right-of-use assets for operating leases

68,577,580

12,295,919

Recognition of right-of-use assets for finance leases

18,576,445

906,924

Issuance of Subordinate Shares related to business combinations, asset acquisitions, and make-whole provision

576,195,758

30,825,012

Issuance of Subordinate Shares related to equity component of debt

7,429,389

Repurchase of Subordinate Shares

7,193,155

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

1. NATURE OF OPERATIONS

Ayr Wellness Inc. (formerly Ayr Strategies Inc.) (“Ayr” or the “Company”) is a vertically integrated cannabis multi-state operator in the U.S., with cannabis operations in Massachusetts, Nevada, Pennsylvania, Florida, Arizona, New Jersey, and Ohio as of December 31, 2021. Through its operating companies, Ayr is a leading cultivator, manufacturer, and retailer of cannabis products and branded cannabis packaged goods. The Company prepares its segment reporting on the same basis that its chief operating decision maker manages the business and makes operating decisions. The Company has one operating segment, cannabis sales. The Company’s segment analysis is analyzed regularly and will be re-evaluated when circumstances change.

The Company is a reporting issuer in the United States and Canada. The Company’s subordinate, restricted, and limited voting shares (“Subordinate Shares”) are trading on the Canadian Stock Exchange (the “CSE”), under the symbol “AYR.A”. The Company’s Subordinate Shares are also trading on the Over-the-Counter Market (“OTC”) in the United States under the symbol “AYRWF”. The Company originally traded on the OTC under the symbol “AYRSF”, however, that changed on December 4, 2020 to “AYRWF”. The Company’s warrants (“Warrants”) and rights (“Rights”) were trading on the CSE under the symbols “AYR.WT” and “AYR.RT”, however, they stopped trading on September 30, 2021 and May 24, 2021, respectively.

History of the Company

The Company was incorporated on July 31, 2017 under the Business Corporations Act (Ontario) and continued on May 24, 2019 into British Columbia under the Business Corporations Act (British Columbia) in connection with its Qualifying Transaction, as defined below. The registered office of the Company is located at 666 Burrard Street, Suite 1700, Vancouver, British Columbia V6C 2X8. The head office of the Company is located at 2601 South Bayshore Drive, Suite 900, Miami, FL, 33133.

On September 12, 2018, the Company incorporated a wholly-owned subsidiary in Nevada, United States, named CSAC Holdings Inc., to facilitate the proposed Qualifying Transaction. On September 17, 2018, CSAC Holdings Inc. incorporated a wholly-owned subsidiary in Nevada, United States, named CSAC Acquisition Inc. (“CSAC AcquisitionCo”).

On May 24, 2019, the Company acquired Washoe Wellness, LLC (“Washoe”), The Canopy NV, LLC (“Canopy”), Sira Naturals, Inc. (“Sira”), LivFree Wellness, LLC (“LivFree”) and CannaPunch of Nevada LLC (“CannaPunch”), which collectively constituted its Qualifying Transaction (collectively, the “Qualifying Transaction”). The Company was deemed the accounting acquirer in control of the business of the Qualifying Transaction.

2. BASIS OF PRESENTATION

2.1 Statement of compliance

On March 1, 2021, the United States Securities and Exchange Commission (“SEC”) declared effective the Company’s Registration Statement (No. 333-253466) on Form F-10 (“the Registration Statement”) filed on February 24, 2021. The Registration Statement was made by a foreign issuer that is permitted, under the U.S. / Canada Multijurisdictional Disclosure System (“MJDS”) adopted by the United States, to prepare the Registration Statement in accordance with the disclosure requirements of Canadian issuers. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and in accordance with the rules and regulations of Canadian securities regulators and the SEC.

The financial statements are presented in United States dollars (“US$” or “$”) which, following the close of the Qualifying Transaction, became the Company’s presentation currency. The functional currency of each entity is determined separately in accordance with Accounting Standards Codification (ASC) 830 – Foreign Currency Matters and is measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of Ayr is US$.

6

Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of consolidation

The financial statements for the years ended December 31, 2021 and 2020 include the accounts of the Company, its wholly-owned subsidiaries, and entities over which the Company has a controlling interest. Entities over which the Company has control are presented on a consolidated basis from the date control commences until the date control ceases. Equity investments where the Company does not exert a controlling interest are not consolidated. All intercompany balances and transactions involving controlled entities are eliminated on consolidation. The Company’s consolidated subsidiaries, many of which were created in connection with the business combinations described in Note 4 and elsewhere in these financial statements, are listed below, and are owned 100% by the Company unless otherwise noted:

Subsidiaries

    

State of operation

    

Purpose

 

Ayr Wellness Inc.

British Columbia, CA

Parent Company

Ayr Wellness Holdings LLC

NV

Corporate - Holding Company

CSAC Holdings Inc.

NV

Corporate - Holding Company

CSAC Acquisition Inc.

NV

Corporate - Holding Company

CSAC Acquisition MA Corp

NV

Corporate - Holding Company

CSAC Acquisition MA II Corp.

NV

Corporate - Holding Company

CSAC Acquisition FL Corp (“CSAC FL”)

NV

Corporate - Holding Company

CSAC Acquisition PA Corp (“CSAC PA”)

NV

Corporate - Holding Company

CSAC Acquisition PA II Corp (“CSAC PA II”)

NV

Corporate - Holding Company

CSAC Acquisition PA III Corp

NV

Corporate - Holding Company

CSAC Acquisition AZ Corp (“CSAC AZ”)

NV

Corporate - Holding Company

CSAC Acquisition NJ Corp

NV

Corporate - Holding Company

CSAC Acquisition DE Corp

NV

Corporate - Holding Company

CSAC Acquisition IL Corp

NV

Corporate - Holding Company

CSAC Acquisition NV Corp

NV

Corporate - Holding Company

Ayr Ohio LLC

OH

Corporate - Holding Company

Ayr NJ, LLC

NV

Management Company

CSAC Ohio, LLC

NV

Production

Sira Naturals, Inc.

MA

Cultivation, Production, and Retail

CannaPunch of Nevada LLC

NV

Branded Manufactured Products

LivFree Wellness, LLC

NV

Retail

Tahoe-Reno Botanicals, LLC

NV

Cultivation

Tahoe-Reno Extractions, LLC

NV

Production

Kynd-Strainz, LLC

NV

Retail

Lemon Aide, LLC

NV

Retail

DocHouse, LLC

PA

Cultivation and Production

CannTech PA, LLC (“CannTech PA”)

PA

Cultivation, Production, and Retail

Blue Camo LLC (doing businses as (“dba”) “Oasis”)

AZ

Corporate - Holding Company

Ocotillo Vista, Inc

AZ

Cultivation, Production, and Retail

Total Health and Wellnes, Inc.

AZ

Cultivation, Production, and Retail

WillCox OC, LLC (“WillCox”) (owned 60%)

AZ

Cultivation

242 Cannabis LLC (referred to as “Liberty”)

FL

Real Estate

DJMMJ Investments LLC (dba “Liberty Health Sciences Florida LTD.”) (referred to as “Liberty”)

FL

Cultivation, Production, and Retail

Greenlight Management, LLC

OH

Managed Services - Cultivation

Greenlight Holdings, LLC

OH

Real Estate

GSD NJ, LLC

NJ

Cultivation, Production, and Retail

PA Natural Medicine, LLC (“PA Natural”)

PA

Retail

Eskar Holdings, LLC (“Eskar”)

MA

Retail

DWC Investments, LLC

NV

Real Estate

Parker RE MA, LLC

NV

Real Estate

Parker RE PA, LLC

NV

Real Estate

Clear Choice Admin Services, LLC

AZ

Payroll

Mercer Strategies PA, LLC

NV

Payroll

Parker Solutions PA, LLC

NV

Payroll

Mercer Strategies MA, LLC

NV

Payroll

Parker Solutions MA, LLC

NV

Payroll

Mercer Strategies FL, LLC

NV

Payroll

Parker Solutions FL LLC

FL

Payroll

Parker Solutions OH, LLC

NV

Payroll

Parker Solutions IL, LLC

NV

Payroll

BP Solutions LLC

NV

Payroll

Klymb Project Management, Inc.

NV

Corporate

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Revenue

Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers (“ASC 606”), which was codified in Accounting Standards Codification “ASC” Topic 606, specifies how and when revenue should be recognized based on a five-step model, which is applied to all contracts with customers. Through the application of the standard, the Company applies the following five-step model to determine the amount and timing of revenue to be recognized:

Identifying the contract with a customer
Identifying the performance obligations within the contract
Determining the transaction price
Allocating the transaction price to the performance obligations
Recognizing revenue when/as performance obligation(s) are satisfied.

In some cases, judgment is required in determining whether the customer is a business or the end consumer. This evaluation is made based on whether the business obtains control of the product before transferring to the end consumer. Control of the product transfers at a point in time either upon shipment to or receipt by the customer, depending on the contractual terms. In determining the appropriate time of sale, the Company takes into consideration a) the Company’s right to payment for the goods or services; b) customer’s legal title; c) transfer of physical possession of the goods; and d) timing of acceptance of goods.

Revenue is recognized based on the sale of cannabis products and branded packaged goods for a fixed price when control is transferred. The amount recognized reflects the consideration that the Company expects to receive, taking into account any variation that is expected to result from rights of return and discounts. Dispensary revenue is recognized at the point of sale while wholesale revenue is recognized once Ayr transfers the significant risks and rewards of ownership of the goods and does not retain material involvement associated with ownership or control over the goods sold. In accordance with ASC 606, the Company has elected to account for its sales and excise tax on a net basis, within its Statements of Operations.

3.3 Cash and cash equivalents

The Company considers the following to be cash and cash equivalents: cash deposits in financial institutions, cash held in Company safes or lockboxes at operational locations, and deposits that are readily convertible into cash within three months or less. The Company has banking or similar relationships in all jurisdictions in which it operates. In addition, the Company has cash balances in excess of Federal Deposit Insurance Corporation (the “FDIC”) and Canadian Deposit Insurance Corporation (the “CDIC”) limits. As of December 31, 2021 and 2020, there are no cash equivalents.

3.4 Accounts receivable

Accounts receivable from wholesale sales are recorded net of an allowance for doubtful accounts. The Company estimates allowance for doubtful accounts based on various factors such as historical data and specific customer situations. As of December 31, 2021, and 2020, the Company had approximately $87,000 and nil, in allowance for doubtful accounts, respectively. For the years ended December 31, 2021 and 2020, the Company wrote off approximately $104,000 and $6,000, respectively.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.5 Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method in accordance with ASC 805 – Business Combination (“ASC 805”). The Company performs an assessment whether the acquisition is a business combination or asset acquisition based on the conditions surrounding the event using guidance from ASC 805. If the acquisition is determined to be a business combination, the Company measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.

Consideration transferred includes the fair value of the assets transferred (including cash), the liabilities incurred by the Company on behalf of the acquiree, any contingent consideration and any equity interests issued by the Company. Transaction costs, other than those directly associated with the issuance of debt or equity securities that the Company incurs in connection with a business combination, are expensed as incurred.

The acquisition date is the date when the Company obtains control of the acquiree. Contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as a liability is re-measured at subsequent reporting dates in accordance with the criteria and guidance provided under ASC 450 – Contingencies and ASC 820 – Fair Value Measurement, as appropriate with corresponding gain or loss recorded in the statements of operations, see Note 13.

3.6 Inventory

Inventories are primarily comprised of finished goods, work-in-process, raw materials, and supplies. Inventory is valued at the lower of cost and net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Raw materials and work-in-process are stated at the lower of cost and net realizable value, with cost being determined using the weighted average cost method. Finished goods inventory is stated at the lower of cost and net realizable value, with cost being determined on the first-in, first-out (“FIFO”) accounting method.

Costs incurred during the growing process are capitalized as incurred to the extent that cost is less than net realizable value. Any subsequent post-harvest costs, including direct costs such as materials, labor, related overhead, and depreciation expense on equipment attributable to processing, are capitalized to inventory to the extent that cost is less than net realizable value. Inventories of purchased finished goods and packing materials, other than inventory acquired through business combinations, are initially valued at cost and subsequently at the lower of cost and net realizable value. The Company reviews inventories for obsolete, spoiled, and slow-moving goods and any such inventories identified are written down to net realizable value. Inventory acquired in a business combination is valued at fair value less selling costs.

3.7 Property, plant, and equipment (“PPE”)

PPE is stated at cost less accumulated depreciation, amortization, and impairment losses, if any. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. PPE acquired in a business combination is initially recorded at fair value.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.7 Property, plant, and equipment (“PPE”) (continued)

Depreciation and amortization are provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the straight-line method over the following expected useful lives:

Furniture and fixtures – 5 to 7 years
Office equipment – 3 to 5 years
Machinery and equipment – 5 to 15 years
Auto and trucks – 5 years
Leasehold improvements – the shorter of the useful life or life of the lease
Buildings – 39 years
Land – not depreciated
Construction in progress – not depreciated until placed in service

An item of PPE is derecognized upon disposal, when held for sale, or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the statements of operations.

Construction in progress is transferred to the appropriate asset class when available for use and depreciation or amortization of the assets commences at that point of time.

The Company conducts a periodic assessment of the residual balances, useful lives, and depreciation or amortization methods being used for PPE and any changes arising from the assessment are applied by the Company prospectively.

Where an item of PPE comprises major components with different useful lives, the components are accounted for as separate items of PPE. Expenditures incurred to replace a component of an item of PPE that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

The Company capitalizes interest on debt in projects under construction. Upon the asset becoming available for use, capitalized interest costs, as a portion of the total cost of the asset, are depreciated over the estimated useful life of the related asset.

3.8 Intangible assets

Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Intangible assets, separately identifiable according to ASC 805 – Business Combinations, acquired in a business combination are initially measured at fair value as of the acquisition date. Amortization periods of assets with finite lives are based on management’s estimates at the date of acquisition and are amortized over their estimated useful lives. Intangible assets that have indefinite useful lives are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.8 Intangible assets (continued)

(a)Goodwill

The Company measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount of the identifiable assets and liabilities assumed, all measured as of the acquisition date. Goodwill is allocated to a specific reporting unit upon acquisition. The Company’s policy is to first perform a qualitative assessment to determine if it was more-likely-than-not that the reporting unit’s carrying value is less than the fair value, indicating the potential for goodwill impairment. The amount of goodwill impairment, if any, is determined as the excess of the carrying value of the reporting unit’s goodwill over the fair value of that reporting unit. Impairment testing is performed annually by the Company, or more frequently, if events or changes in circumstances indicate that goodwill might be impaired. Management makes estimates during impairment testing as judgment is required to determine indicators of impairment and estimates are used to determine the fair value that is used to measure impairment losses. The Company assesses the fair values of its intangible assets, and its reporting unit for goodwill testing purposes, as necessary, using an income-based approach. Under the income approach, fair value is based on the present value of estimated future cash flows.

(b)Finite-lived intangible assets

Intangible assets are recorded at cost unless acquired through a business combination and recorded at fair value, less accumulated amortization and impairment losses. Amortization is recorded on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. Intangible assets, which include licences/permits, right-to-use licenses, host community agreements, and trade name/brand have useful lives of 15, 15, 15, and 5 years, respectively. Such assets are tested for impairment if events or changes in circumstances indicate that they might be impaired. The estimated useful lives, residual values, and amortization methods are reviewed periodically, and any changes in estimates are accounted for prospectively.

(c)Impairment of long-lived assets

Long-lived assets such as PPE and finite-lived intangible assets are grouped with other assets and liabilities at the lowest level for which identifiable independent cash flows are available (“asset group”). The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In order to determine if assets have been impaired, the impairment test is a two-step approach wherein the recoverability test is performed first to determine whether the long-lived asset is recoverable. The recoverability test (Step 1) compares the carrying amount of the asset to the sum of its future undiscounted cash flows using entity specific assumptions generated through the asset’s use and eventual disposition. If the carrying amount of the asset is less than the cash flows, the asset is recoverable and an impairment is not recorded. If the carrying amount of the asset is greater than the cash flows, the asset is not recoverable and an impairment loss calculation (Step 2) is required. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market approach, income approach, or cost approach. The cash flow projection and fair value represents management’s best estimate, using appropriate and customary assumptions, projections, and methodologies, at the date of evaluation. The reversal of impairment losses is prohibited.

3.9 Leases

The Company applies the accounting guidance in ASC 842 – Leases, and assesses whether a contract is or contains a lease, at inception of a contract. Leases are recognized as a right-of-use asset (“ROU”) and corresponding liability at the commencement date based on the present value of the future minimum lease payments over the lease term. Operating leases are included in ROU – operating and lease liabilities – operating on the balance sheets. For operating leases, the Company records operating lease expense. Finance leases are included in ROU – finance, net and lease liabilities – finance are included in other current liabilities and other non-current liabilities on the balance sheets based on their payment dates. For finance leases, the Company records interest expense on the lease liability in addition to amortizing the right-of-use asset (generally straight-line) over the shorter of the lease term or the useful life of the right-of-use asset. The Company primarily leases space for corporate offices, retail, cultivation, and manufacturing under non-cancellable operating leases. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.9 Leases (continued)

Lease liabilities include the net present value of fixed payments (including in-substance fixed payments), variable lease payments that are not based on an index or a rate or subject to a fair market value renewal, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The Company allocates the consideration in the contract to each lease component on the basis of the relative standalone price of the lease component and the aggregate stand-alone price of the non-lease components. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the Company’s incremental borrowing rate. The period over which the lease payments are discounted is the reasonably certain lease term, including renewal options that the Company is reasonably certain to exercise. Renewal options are included in a number of leases across the Company.

Payments associated with short-term leases are recognized as an expense on a straight-line basis in the statements of operations. Short-term leases are leases with a lease term of 12 months or less. Variable lease payments that depend on an index or a rate or are subject to a fair market value renewal are expensed as incurred and recognized in the statements of operations.

3.10 Equity investments

An associate is an entity over which the Company exercises significant influence. Significant influence is the power to participate in the financial and operating policy of the investee but without control or joint control over those policies. Interests in associates are accounted for using the equity method and are initially recognized at cost. Subsequent to initial recognition, the carrying value of the Company’s interest in an associate is adjusted for the Company’s share of income or loss and distributions of the investee. The carrying value of associates is assessed for impairment at each balance sheet date. Significant influence is presumed if the Company holds between 20% and 50% of the voting rights, unless evidence exists to the contrary.

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investees in which the Company has joint control and rights to the net assets thereof are defined as joint ventures. Joint ventures are also accounted for under the equity method.

3.11 Non-controlling interests

Equity interests owned by parties that are not shareholders of the Company in consolidated subsidiaries are considered non-controlling interests. The share of net assets attributable to non-controlling interests are presented as a component of equity while the share of net income or loss is recognized in the statements of operations. Changes in Ayr’s ownership interest that do not result in a loss of control of these less than wholly-owned subsidiaries are accounted for as equity transactions. Non-controlling interest activity is immaterial to the financial statement as of and for the years ended December 31, 2021 and 2020.

3.12 Derivatives

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported in the Company’s financial statements. In calculating the fair value of derivative liabilities, the Company uses a valuation model when Level 1 inputs are not available to estimate fair value at each reporting date (see Note 16).

The classification of derivative instruments, including whether such instruments should be recognized as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months of the financial statement date.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Loss per share

The basic loss per share is computed by dividing the net loss by the weighted average number of shares outstanding, including Subordinate Shares, multiple voting shares of the Company (“Multiple Voting Shares”), and Exchangeable Shares (as defined in Note 4), during the period. The diluted loss per share reflects the potential dilution of shares by adjusting the weighted average number of shares outstanding to assume conversion of potentially dilutive shares, such as Warrants, restricted stock units (“RSUs”), and vested options. The “treasury stock method” is used for the assumed proceeds upon the exercise of the Exchangeable Shares, Warrants, and vested options that are used to purchase Subordinate Shares at the average market price during the period. If the Company incurs a net loss during a reporting period, the calculation of fully diluted loss per share will not include potentially dilutive equity instruments such as Warrants, RSUs, contingent shares, and vested options, therefore, basic loss per share and diluted loss per share will be the same.

Year Ended

Potential Diluted Shares Breakout

    

December 31, 2021

    

December 31, 2020

Warrants

 

1,868,225

 

2,055,437

Rights

 

 

138,394

Options

 

86,011

 

RSUs

 

1,955,240

 

1,711,736

Total

 

3,909,476

 

3,905,567

3.14 Stock-based payments

(a) Stock-based payment transactions

Certain employees (including directors and senior executives) of the Company receive a portion of their remuneration in the form of stock-based payment transactions, whereby employees render services as consideration for equity instruments.

Stock-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued. In situations where equity instruments are issued to non-employees and some or all of the fair value of the good or service received by the Company as consideration cannot be specifically identified, they are measured at fair value of the stock-based payment. Stock-based payment transactions are primarily for individuals whose compensation has been classified as part of general and administrative expenses in the statement of operations.

The costs of equity-settled transactions with employees are measured by reference to the fair value of the stock price at the date on which they are granted, using an appropriate valuation model. The value of the transaction is expensed through the vesting period. Market and performance based RSUs are fair valued through Monte-Carlo simulations and are expensed over the indicative service period. Performance RSUs are recorded once the condition is probable to occur.

The costs of equity-settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”).

The cumulative expense is recognized for equity-settled transactions at each reporting date until the vesting date as the Company’s policy is to account for forfeitures as they occur. The income or loss for a period represents the movement in cumulative expense recognized as of the beginning and end of that period and the corresponding amount is represented in additional paid-in capital. At the end of each reporting period, the Company assesses if any forfeitures occurred and recognizes the impact in the statements of operations.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting for expense purposes irrespective of whether or not the market condition is satisfied provided that all other performance and/or service conditions are satisfied.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.14 Stock-based payments (continued)

(a) Stock-based payment transactions (continued)

Where the terms of an equity settled award are modified, the minimum expense recognized is the grant date fair value of the unmodified award, provided the original terms of the award are met. An additional expense is recognized for any modification which increases the total fair value of the stock-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification. When an award is cancelled by the Company or the counterparty, any remaining element of the fair value of the award is derecognized at that time through the statements of operations.

RSUs are issued on the vesting dates, sometimes net of the applicable statutory tax withholding to be paid by the Company on behalf of the employees. In those instances, lower shares are issued than the number of RSUs vested and the tax withholding is recorded as a reduction to paid-in capital. The terms of the stock-based payment awards allow an entity with a statutory income tax withholding obligation to withhold shares with a fair value up to the maximum statutory tax in the employee’s applicable jurisdiction.

(b) Warrants

The Company determines the accounting classification of warrants, as either liability or equity, by assessing ASC 480 – Distinguishing Liabilities from Equity and ASC 815 – Derivatives and Hedging. Under ASC 480, warrants are considered a liability if the warrants are mandatorily redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. Under ASC 815, warrants are considered liabilities if contracts require or may require the issuer to net settle the contract for cash. Such derivatives are recorded as a liability at fair value until they are settled or expire, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature.

After all relevant assessments, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date unless the warrants are modified.

The Company determined that all of its outstanding warrants are freestanding instruments which do not meet the characteristics of a liability and therefore are classified as equity.

3.15 Loss contingencies

Loss contingencies are recognized when the Company has a present obligation that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. Loss contingencies are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation.

3.16 Financial instruments

Recognition and initial measurement

Financial assets and financial liabilities, including derivatives, are recognized when the Company becomes a party to the contractual provisions of a financial instrument or non-financial derivative contract. All financial instruments are measured at fair value on initial recognition. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities, other than financial assets and financial liabilities classified as FVTPL (as defined below), are added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in the statements of operations.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.16 Financial instruments (continued)

Classification and subsequent measurement

The Company classifies financial assets, at the time of initial recognition, according to the Company’s business model for managing the financial assets and the contractual terms of the cash flows. Financial assets are classified in the following measurement categories:

a)amortized cost (“AC”);
b)fair value through profit or loss (“FVTPL”); and
c)fair value through other comprehensive income (“FVTOCI”).

Financial assets are subsequently measured at amortized cost if both of the following conditions are met and they are not designated as FVTPL: a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash flows; and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

These assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and losses recognized in the statements of operations in the period that the asset is derecognized or impaired. All financial assets not classified at amortized cost as described above are measured at FVTPL or FVTOCI depending on the business model and cash flow characteristics. The Company has no financial assets measured at FVTOCI.

Financial liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized in the statements of operations in the period that the liability is derecognized, except for financial liabilities classified as FVTPL.

Refer to Note 16 for the classification and fair value (“FV”) level of financial instruments.

Derecognition

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are recognized in the statements of operations.

The Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled, or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the statements of operations.

3.17 Foreign currency transactions and translations

Foreign currency transactions are translated into the functional currency of the entity using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, such as remeasurement of local currency into functional currency, are recognized in the statements of operations.

The results and financial position of an entity that has a functional currency different from the presentation currency is translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; and
income and expenses for each statement of operations are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated as the rate on the dates of the transactions).

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Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.17 Foreign currency transactions and translations (continued)

Effect of translation differences, such as translation of foreign currency into reporting currency, are accumulated and presented as a component of equity under accumulated other comprehensive income.

3.18 Taxation

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Ayr recognizes deferred tax assets to the extent that Ayr believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If Ayr determines that Ayr would be able to realize our deferred tax assets in the future in excess of their net recorded amount, Ayr would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2021 and 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position within twelve months of the reporting date.

As the Company operates in the cannabis industry, the Company is subject to the limits of the United States Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.

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Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.19 Significant accounting judgments and estimates

The application of the Company’s accounting policies requires management to use estimates and judgments that can have a significant effect on the revenues, expenses, assets and liabilities recognized, and disclosures made in the financial statements.

Management’s best estimates concerning the future are based on the facts and circumstances available at the time estimates are made. Management uses historical experience, general economic conditions, and assumptions regarding probable future outcomes as the basis for determining estimates. Estimates and their underlying assumptions are reviewed periodically, and the effects of any changes are recognized at that time. Actual results could differ from the estimates used.

The global pandemic outbreak of the novel strain of coronavirus (“COVID-19”) has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, store closures, self-imposed quarantine periods and social distancing, may cause material disruption to businesses globally resulting in an economic slowdown. COVID-19, as well as the increase in inflation and gas prices, has cast uncertainty on the assumptions used by management in making its judgments and estimates. Management has not observed any indicators of impairment to assets or a significant change in the fair value of assets due to COVID-19. The Company implemented new safety procedures in accordance with the guidance from the CDC at all locations to better protect the health and safety of both employees and customers. The Company is re-assessing its response to and any potential impact of the COVID-19 pandemic on an ongoing basis.

The following areas require management’s critical estimates and judgments:

(a)Business combinations

A business combination is a transaction or event in which an acquirer obtains control of one or more businesses and is accounted for using the acquisition method. The total consideration paid for the acquisition is the aggregate of the fair values of assets acquired, liabilities assumed, and equity instruments issued in exchange for control of the acquiree at the acquisition date. The acquisition date is the date when the Company obtains control of the acquiree.

Contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions.

Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured at subsequent reporting dates in accordance with the criteria and guidance provided under ASC 805 – Business Combinations.

Based on the facts and circumstances that existed at the acquisition date, management will perform a valuation analysis to allocate the consideration transferred based on the fair values of the identifiable assets acquired and liabilities assumed on the acquisition date. Management is required to finalize its allocation on the earlier of the date that information becomes known, but no later than one year from the acquisition date. Until such time, these values might be provisionally reported and are subject to change. During the measurement period, adjustments to provisional purchase price allocations are recognized if new information is obtained about the facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.

In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to contingent consideration and intangible assets. Management exercises judgment in estimating the probability and timing of when contingent considerations are expected to be achieved, which is used as the basis for estimating fair value. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.

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Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.19 Significant accounting judgments and estimates (continued)
(a)Business combinations (continued)

Judgment is applied in determining whether a transaction is a business combination or an asset acquisition by considering the nature of the assets acquired and the processes applied to those assets, or if the integrated set of assets and activities is capable of being conducted and managed for the purpose of providing a return to investors or other owners.

(b)Inventory

In calculating the value of inventory, management is required to make a number of estimates, including estimating the stage of growth of the cannabis up to the point of harvest, expected yields for the cannabis plants, harvesting costs, net realizable value, selling costs, average or expected selling prices, fair value of inventory acquired in a business combination and impairment factors. In calculating final inventory values, management compares the inventory costs to estimated net realizable value as well as investigates slow moving inventory, if applicable. The estimates are judgmental in nature and are made at a point in time, using available information, such as expected business plans and expected market conditions. Periodic reviews are performed on the inventory balance with the changes in inventory reserves reflected in cost of goods sold.

(c)Estimated useful lives and depreciation of PPE

Depreciation of PPE is dependent upon estimates of useful lives, which are determined through the exercise of judgments. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

(d)Valuation, estimated life and impairment of intangible assets

Management uses significant judgment in estimating the useful lives and impairment. Impairment tests rely on judgments and estimates related to growth rates, discount rates, and estimated margins.

(e)Goodwill impairment

Goodwill is tested for impairment annually on December 31st of each fiscal year and whenever events or changes in circumstances indicate that the carrying amount of goodwill may have been impaired. In order to determine that the value of goodwill may have been impaired, the Company may perform a qualitative assessment to determine if it was more-likely-than-not that the reporting unit’s carrying value is less than the fair value, indicating the potential for goodwill impairment. A number of factors, including historical results, business plans, forecasts, and market data are used to determine the fair value of the reporting unit. Changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill. The Company has not recognized any goodwill impairments during the years ended December 31, 2021 and 2020.

(f)Leases

Each capitalized lease is evaluated to determine if the Company would exercise any of the renewal options offered. Several material factors are considered in determining if the renewal options would be exercised, such as length of the renewal, renewal rate, and ability to transfer locations. When measuring lease liabilities, the Company used discounted lease payments using a weighted-average rate in the range of 7.8% to 15.5% per annum. The weighted-average rate is based on the Company’s incremental borrowing rate, which relies on judgments and estimates.

(g)Provisions and contingent liabilities

When the Company is more-likely-than-not to incur an outflow of resources to settle an obligation and the amount can be reasonably estimated, a contingent liability is recorded. The contingent liability is recorded at management’s best estimates of the expenditure required to settle the obligation at period end, discounted to the present value, if material.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.19 Significant accounting judgments and estimates (continued)

(h)Financial instruments

To determine the fair value of financial instruments, the Company develops assumptions and selects certain methods to perform the fair value calculations. Various methods considered include but are not limited to: (a) assigning the value attributed to the transaction at the time of origination; (b) re-measuring the instrument if it requires concurrent fair value measurement; and (c) valuing the instrument at the issuance value less any amortized costs. As judgment is a factor in determining the value and selecting a method, as well as the inherent uncertainty in estimating the fair value, the valuation estimates may be different.

Application of the option pricing model requires estimates in expected dividend yields, expected volatility in the underlying assets, and the expected life of the financial instruments. These estimates may ultimately be different from amounts subsequently realized, resulting in an overstatement or understatement of net loss.

3.20 Change in accounting standards

The Company is treated as an “emerging growth company” per the definition under the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until the standards apply to private companies.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13 Topic 326 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which was subsequently revised by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (“ASU 2016-13”), which introduces a new model for assessing impairment on most financial assets. Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. ASU 2016-13 is effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods therein. The Company is evaluating the adoption date and impact, if any, adoption will have on its financial statements.

In December 2019, the FASB issued ASU 2019-12 Topic 740 – Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods therein. The Company is evaluating the adoption date and impact, if any, adoption will have on its financial statements.

In January 2020, the FASB issued ASU 2020-01 Topic 321 – Investments – Equity Securities, Topic 323 – Investments – Equity Method and Joint Ventures, and Topic 815 – Derivatives and Hedging (collectively “ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods therein. The Company is evaluating the adoption date and impact, if any, adoption will have on its financial statements.

In August 2020, the FASB issued ASU No. 2020-06 Subtopic 470-20 – Debt—Debt with Conversion and Other Options and Subtopic 815-40 Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is effective for the Company’s fiscal year beginning after December 15, 2021, including interim periods therein. The Company is evaluating the adoption date and impact, if any, adoption will have on its financial statements.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.20 Change in accounting standards (continued)

In January 2017, the FASB issued ASU 2017-04 Topic 350 – Intangibles - Goodwill and Other, Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the Company’s fiscal year beginning December 15, 2022. Early adoption is permitted for fiscal years beginning after January 1, 2017. The Company early adopted this guidance in 2021. There was no impact on the Company’s financial statements upon adoption.

In May 2021, the FASB issued ASU 2021-04 Topic 260 – Earnings Per Share, Subtopic 470-50 – Debt - Modifications and Extinguishments, Topic 718 – Compensation - Stock Compensation, Subtopic 815-40 – Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASU 2021-04”). ASU 2021-04 updates the guidance in connection with modifying equity issued warrants. The entity would recognize the increase in the warrant’s fair value as an equity issuance cost. The Company early adopted this guidance in 2021. There was no impact on the Company’s financial statements upon adoption.

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Each of the acquisitions are subject to specific terms relating to the satisfaction of the purchase price by the Company and its wholly-owned subsidiaries, and incorporates payments in cash, shares, and debt as well as certain contingent considerations. The shares issued as consideration are either Subordinate Shares or non-voting exchangeable shares of the Company’s subsidiaries (“Exchangeable Shares”) that are exchangeable on a one-for-one basis into an equal number of Subordinate Shares of the Company. The Company treats the Exchangeable Shares as options with a value equal to a share of Subordinate Shares, which represents the holder’s claim on the equity of the Company. The Company has presented these Exchangeable Shares as a part of shareholders’ equity within these financial statements due to (i) the fact that they are economically equivalent to the Company’s publicly traded Subordinate Shares (ii) the holders of the Exchangeable Shares are subject to restrictions on transfer under United States securities laws, but may dispose of the Exchangeable Shares through the CSE by exchanging them for Subordinate Shares of the Company. Changes in these assumptions would affect the presentation of the Exchangeable Shares from shareholders’ equity to non-controlling interests; however, there would be no impact on loss per share.

The goodwill recognized on acquisitions is attributable mainly to the expected future growth potential and expanded customer base arising as a result of the completion of the respective acquisition. Goodwill has been allocated to the reporting units corresponding to the states of the acquired businesses. None of the goodwill is expected to be deductible for income tax purposes. For further analysis on goodwill relating to business combinations, see Note 7. All the acquisitions noted below were accounted for in accordance with ASC 805 as either business combinations or asset acquisitions.

2021 Fourth Quarter Acquisition

Business combination

On October 4, 2021, the Company completed its acquisition of PA Natural through a membership interest purchase agreement.

Final valuations of the assets acquired and liabilities assumed are not yet complete due to the inherent complexity associated with valuations and the short period of time between the acquisition date and the period end. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and analysis of resulting tax effects. Further changes may still be required as management works to finalize the valuation of assets acquired and liabilities assumed. Differences between these provisional estimates and the final acquisition accounting may occur and these differences could have a material impact.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

2021 Fourth Quarter Acquisition (continued)

Business combination (continued)

The preliminary fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:

    

PA Natural

$

ASSETS ACQUIRED

Cash

2,223,523

Inventory, net

2,669,998

Prepaid expenses and other assets

77,351

Intangible assets-licenses/permits

101,000,000

Property, plant, and equipment

847,747

Right-of-use assets - operating

785,780

Deposits

5,600

Total assets acquired at fair value

107,609,999

LIABILITIES ASSUMED

Trade payables

1,991,425

Accrued liabilities

317,868

Lease liabilities - operating

703,495

Total liabilities assumed at fair value

3,012,788

Goodwill

15,158,663

Consideration transferred

119,755,874

PA Natural Business Combination

PA Natural is an operator of three licensed retail dispensaries. PA Natural has locations in Bloomsburg, State College, and Selinsgrove, PA.

Purchase consideration was comprised of the following:

    

  

    

Shares

    

Fair Value

Cash

 

i

 

  

$

36,497,692

Debt Payable

 

ii

 

  

25,000,000

Shares Issued

 

iii

 

814,329

19,216,937

Contingent Consideration

 

iv

 

  

39,041,245

Total

 

  

 

814,329

$

119,755,874

Pursuant to the terms of the Definitive Agreement (“PA Natural Agreement”), Ayr satisfied the purchase price of $119.8 million for PA Natural through the following:

i.

$36.5 million of the PA Natural purchase price in the form of cash consideration and settlement of the final working capital which is deemed immaterial;

ii.

$25.0 million of the PA Natural purchase price in the form of a promissory note payable;

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

PA Natural Business Combination (continued)

iii.

$19.2 million of the PA Natural purchase price in the form of 814,329 Exchangeable Shares, these shares have contractual restrictions on their ability to be sold for four to twelve months (the “PA Natural Lock-Up Provision”). The fair value of the shares was determined by the share price at the date of acquisition and an 11% discount rate attributed to the contractual restrictions; and

iv.

A portion of the PA Natural purchase price is derived from an earn-out provision through December 31, 2021 based on adjusted earnings before interest tax depreciation and amortization (“EBITDA”), a non-GAAP measure, consisting of cash, a promissory note, and Exchangeable Shares, valued through a Monte-Carlo simulation, that may entitle the sellers to earn additional consideration if certain milestones are achieved, see Note 13 for more information.

2021 Third Quarter Acquisitions

Business combination

On September 15, 2021, the Company completed its acquisition of GSD NJ LLC (“Garden State Dispensary” or “GSD”) through a membership interest purchase agreement.

Asset Acquisition

On July 1, 2021, the Company completed its acquisitions of Eskar Holdings, LLC, (“Eskar”) through a membership interest purchase agreement. Collectively, the GSD and Eskar acquisitions are referred to as the “Q3 2021 Acquisitions”.

The details of the purchase consideration consist of cash, debt, Exchangeable Shares, and contingent consideration.

Final valuations of the assets acquired and liabilities assumed for the acquisition of GSD are not yet complete due to the inherent complexity associated with valuations and the short period of time between the acquisition date and the period end. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and analysis of resulting tax effects. During the year ended December 31, 2021, measurement period adjustments were recorded because of changes to various estimates and assumptions, with the cumulative effect impacting goodwill, such as intangible assets increasing $12.0 million. Further changes may still be required as management works to finalize the valuation of assets acquired and liabilities assumed. Differences between these provisional estimates and the final acquisition accounting may occur and these differences could have a material impact.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

2021 Third Quarter Acquisitions (continued)

Asset Acquisition (continued)

The preliminary fair value of the identifiable assets acquired and liabilities assumed for GSD as of the acquisition date are as follows:

    

GSD

    

Eskar

    

Total

$

$

$

ASSETS ACQUIRED

Cash

579,560

 

 

579,560

Inventory, net

3,237,125

 

 

3,237,125

Prepaid expenses and other assets

67,449

 

 

67,449

Intangible assets - licenses/permits

172,000,000

 

 

172,000,000

Intangible assets - host community agreements

 

1,000,000

 

1,000,000

Property, plant, and equipment

30,699,183

 

 

30,699,183

Right-of-use assets - operating

13,234,034

 

 

13,234,034

Deposits

193,610

 

 

193,610

Total assets acquired at fair value

220,010,961

 

1,000,000

 

221,010,961

LIABILITIES ASSUMED

Trade payables

1,658,180

 

 

1,658,180

Accrued liabilities

444,784

 

 

444,784

Advance from related parties

22,750,176

 

 

22,750,176

Lease liabilities - operating

13,025,508

 

 

13,025,508

Debts payable

3,000,000

 

 

3,000,000

Total liabilities assumed at fair value

40,878,648

 

 

40,878,648

Goodwill

11,523,843

 

 

11,523,843

Consideration transferred

190,656,156

 

1,000,000

 

191,656,156

GSD Business Combination

GSD has three open dispensaries, the maximum allowed under its permit, at highway locations throughout the central region of the State of New Jersey, as well as approximately 30,000 sq. ft. of operational cultivation and production facilities. An additional 75,000 sq. ft. of cultivation is under construction.

Purchase consideration was comprised of the following:

    

    

Shares

    

Fair Value

Cash

i

 

  

$

41,860,310

Debt Payable

ii

 

  

 

29,490,630

Shares Issued

 

iii

 

1,511,334

 

29,744,216

Contingent Consideration

iv

89,561,000

Total

 

  

 

1,511,334

$

190,656,156

Pursuant to the terms of the Definitive Agreement (“GSD Agreement”), Ayr satisfied the purchase price of $190.7 million for GSD through the following:

i.$41.9 million of the GSD purchase price in the form of cash consideration and settlement of the final working capital, which is deemed immaterial;

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

GSD Business Combination (continued)

ii.$29.5 million of the GSD purchase price in the form of a promissory note payable;
iii.$29.7 million of the GSD purchase price in the form of 1,511,334 Exchangeable Shares, these shares have contractual restrictions on their ability to be sold for four to twelve months (the “GSD Lock-Up Provision”). The fair value of the shares was determined by the share price at the date of acquisition and a 9.2% discount rate attributed to the contractual restrictions; and
iv.A portion of the GSD purchase price is derived from an earn-out provision through December 31, 2022, subject to extension, based on exceeding revenue target thresholds, consisting of cash, a promissory note, and Exchangeable Shares, valued through a Monte-Carlo simulation, that may entitle the sellers to earn additional consideration if certain milestones are achieved, see Note 13 for more information.

Eskar Asset Acquisition

Pursuant to the agreements, the Company acquired rights to legally open and operate an adult-use cannabis licensed retail store along with the purchase of the property located in the Town of Watertown, Massachusetts.

The Eskar acquisition did not meet the definition of a business according to ASC 805 and as such, it was recorded as an asset acquisition.

Purchase consideration for the acquisition was $1,000,000, paid in cash, all of which was allocated to intangible assets – host community agreements.

2021 First Quarter Acquisitions

Business combinations

On February 26, 2021, the Company completed its acquisition of Liberty in a stock-for-stock combination. On March 23, 2021, the Company completed its acquisition of Oasis through a membership interest purchase agreement. On March 31, 2021, the Company completed its acquisition of Ohio Medical Solutions, LLC (“Ohio Medical”) through an asset purchase agreement.

Asset acquisition

On March 30, 2021, the Company completed its acquisition of Greenlight Management, LLC (“Greenlight Management”) and Greenlight Holdings, LLC (“Greenlight Holdings”) through a membership purchase agreement. Greenlight Management has a management agreement with Parma Wellness, Center, LLC (“Parma”). Collectively, the Liberty, Oasis, Ohio Medical, and Parma acquisitions are referred to as the “Q1 2021 Acquisitions”.

The details of the purchase consideration consist of cash, debt, Subordinate Shares, Exchangeable Shares, contingent consideration, purchase consideration payable, and replacement options issued.

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Table of Contents

Ayr Wellness Inc. (formerly Ayr Strategies Inc.)

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

2021 First Quarter Acquisitions (continued)

Asset acquisition (continued)

Final valuations of the assets acquired and liabilities assumed are not yet complete due to the inherent complexity associated with valuations and the short period of time between the acquisition date and the period end. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and analysis of resulting tax effects. During the year ended December 31, 2021, measurement period adjustments were recorded related to the Liberty transaction because of changes to various estimates and assumptions, with the cumulative effect impacting goodwill. Inventory decreased $6.6 million, property, plant and equipment decreased $1.7 million, right-of-use assets decreased $2.1 million, income taxes decreased $