Annual reports filed by certain Canadian issuers pursuant to Section 15(d) and Rule 15d-4

BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

v3.22.1
BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
12 Months Ended
Dec. 31, 2021
BUSINESS COMBINATIONS AND ASSET ACQUISITIONS  
BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

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.

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;

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.

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;

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.

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 $1.5 million, deferred taxes increased $1.4 million and lease liabilities decreased $2.1 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.

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

    

Liberty

    

Oasis

    

Parma

    

Ohio Medical

    

Total

 

$

 

$

 

$

 

$

 

$

ASSETS ACQUIRED

Cash

6,650,137

8,237,240

14,887,377

Accounts receivable

26,125

6,362

32,487

Inventory, net

46,842,186

10,288,630

313,076

57,443,892

Prepaid expenses and other assets

817,824

463,825

96,974

1,378,623

Intangible assets - licenses/permits

270,000,000

220,000,000

11,739

490,011,739

Intangible assets - right-to-use licenses

13,255,000

13,255,000

Property, plant, and equipment

56,745,883

10,898,530

3,910,000

493,239

72,047,652

Right-of-use assets - operating

11,750,150

15,824,407

3,488,670

31,063,227

Right-of-use assets - finance, net

378,992

13,095

392,087

Deposits

619,377

166,200

252,000

1,037,577

Total assets acquired at fair value

393,804,549

265,918,052

17,165,000

4,662,060

681,549,661

LIABILITIES ASSUMED

Trade payables

3,274,256

2,901,326

6,175,582

Accrued liabilities

5,383,075

2,720,381

15,000

8,118,456

Income tax payable

1,818,520

1,818,520

Deferred tax liabilities

71,962,667

71,962,667

Lease liabilities - operating

11,693,248

15,824,408

3,497,060

31,014,716

Lease liabilities - finance

378,992

13,095

392,087

Debts payable

7,479,389

7,479,389

Accrued interest

153,057

153,057

Total liabilities assumed at fair value

102,143,204

21,459,210

3,512,060

127,114,474

Goodwill

114,682,655

30,581,041

145,263,696

Consideration transferred

406,344,000

275,039,883

17,165,000

1,150,000

699,698,883

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

Liberty Business Combination

Liberty is a vertically integrated cannabis company with cultivation, processor, transporter, and retail dispensary operations in Florida. Liberty owns a 387-acre cultivation campus in Gainesville, Florida with over 300,000 square feet of production facilities and operates dispensaries in the medical market.

Purchase consideration was comprised of the following:

    

    

    

Shares

    

Fair Value

Share Capital

 

i

 

12,670,958

$

399,499,188

Purchase Consideration Payable

 

ii

 

75,864

2,391,895

Replacement Options Issued

 

iii

 

248,412

4,452,917

Total

 

  

 

12,995,234

$

406,344,000

Pursuant to the terms of the Definitive Agreement (“Liberty Agreement”), Ayr satisfied the purchase price of $406.3 million for Liberty through the following:

i. $399.5 million of the Liberty purchase price in the form of 12,670,958 Subordinate Shares of the Company in a stock-for-stock combination. Liberty shareholders received 0.03683 Ayr shares for each Liberty share held;
ii. $2.4 million of the Liberty purchase price in the form of 75,864 Subordinate Shares were issued to dissenting Liberty shareholders who subsequently withdrew their dissent notices. On April 1, 2021, the dissenting Liberty shareholders received 0.03683 Ayr Subordinate Shares for each share held and the Company recognized a gain from fair value adjustment of $102,351, see Note 13; and
iii. $4.5 million of the Liberty purchase price in the form of 248,412 replacement options issued that were fully vested.

Oasis Business Combination

Oasis is a vertically integrated cannabis company with a cultivation, processing, and retail dispensary operations in Arizona. Oasis operates a 10,000 square foot cultivation and processing facility and has an 80,000 square foot cultivation facility under development. Oasis operates three dispensaries in both the adult-use and medical markets.

Purchase consideration was comprised of the following:

    

    

    

Shares

    

Fair Value

Cash

 

i

 

  

$

9,732,751

Debt Payable

 

ii

 

  

 

22,504,885

Shares Issued

 

iii

 

4,570,434

 

125,187,247

Contingent Consideration

 

iv

 

  

 

117,615,000

Total

 

  

 

4,570,434

$

275,039,883

4. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS (Continued)

Oasis Business Combination (continued)

Pursuant to the terms of the Definitive Agreement (“Oasis Agreement”), Ayr satisfied the purchase price of $275.0 million for Oasis through the following:

i. $9.7 million of the Oasis purchase price in the form of cash consideration;
ii. $22.5 million of the Oasis purchase price in the form of promissory notes payable. The notes are subjected to adjustment based on a final working capital adjustment;
iii. $125.2 million of the Oasis purchase price in the form of 4,570,434 Exchangeable Shares, that are exchangeable on a one-for-one basis into an equal number of Subordinate Shares of the Company. Two million of the Exchangeable Shares are held in escrow and may be payable upon the achievement of established cultivation targets at the facility under development. These shares have restrictions on their ability to be sold for six to eighteen months (the “Oasis Lock-Up Provision”). The fair value of the shares was determined by the share price at the date of acquisition and a 15% discount rate attributed to the contractual restrictions; and
iv. A portion of the Oasis purchase price is derived from an earn-out provision through December 31, 2022 based on adjusted EBITDA, a non-GAAP measure, consisting of cash 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.

Parma Asset Acquisition

Greenlight Management operates on a 58,000 square foot facility in Parma, Ohio under a management agreement with Parma. Parma is a recipient of a Tier 1 Cultivator Provisional License in the medical cannabis market in Ohio. The land and building where the facility is located are owned by Greenlight Holdings.

As the Parma 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 $17,165,000, paid in cash.

Ohio Medical Business Combination

Ohio Medical is a cannabis processor and manufacturer in the Ohio medical market with a 9,000 square foot medical marijuana processing facility that is licensed as part of the Ohio medical cannabis program.

Purchase consideration for the combination was $1,150,000, paid in cash.

2020 Fourth Quarter Acquisitions

On November 18, 2020, CSAC AcquisitionCo completed its acquisition of DocHouse, LLC (“DocHouse”) through a membership interest purchase agreement. On December 23, 2020, CSAC PA, a wholly-owned subsidiary in Nevada, United States, completed its acquisition of CannTech PA through a membership interest purchase agreement. Collectively, the DocHouse and CannTech PA acquisitions are referred to as the “Q4 2020 Acquisitions”.

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

4. BUSINESS COMBINATION AND ASSET ACQUISITIONS (Continued)

Ohio Medical Business Combination (continued)

2020 Fourth Quarter Acquisitions (continued)

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

DocHouse

CannTech PA

Total

    

$

    

$

    

$

ASSETS ACQUIRED

Cash

 

2,383,373

 

2,383,373

Inventory, net

 

254,342

 

254,342

Prepaid expenses, deposits, and other current assets

 

525,989

 

525,989

Intangible assets - licenses/permits

13,072,485

 

62,099,558

 

75,172,043

Property, plant, and equipment

11,063,908

 

10,596,301

 

21,660,209

Right-of-use assets - operating

 

11,131,990

 

11,131,990

Deposits and other assets

 

204,132

 

204,132

Total assets acquired at fair value

24,136,393

 

87,195,685

 

111,332,078

LIABILITIES ASSUMED

Trade payables

290,512

 

715,912

 

1,006,424

Accrued liabilities

46,330

 

262,130

 

308,460

Advance from related parties

2,303,349

 

5,737,455

 

8,040,804

Lease liabilities - operating

 

11,170,076

 

11,170,076

Debts payable

 

8,271,432

 

8,271,432

Total liabilities assumed at fair value

2,640,191

 

26,157,005

 

28,797,196

Goodwill

 

3,015,000

 

3,015,000

Consideration transferred

21,496,202

 

64,053,680

 

85,549,882

DocHouse Asset Acquisition

DocHouse owns real property with a grower/processor permit in the Pennsylvania medical cannabis market.

As DocHouse did not meet the definition of a business according to ASC 805, it was recorded as an asset acquisition. Purchase consideration was comprised of the following:

    

    

    

Shares

    

Fair Value

Cash

 

i

 

  

$

17,477,788

Debt Payable

 

ii

 

  

 

1,934,964

Shares Issued

 

iii

 

128,265

 

2,083,450

Total

 

  

 

128,265

$

21,496,202

4. BUSINESS COMBINATION AND ASSET ACQUISITIONS (Continued)

DocHouse Asset Acquisition (continued)

Pursuant to the terms of the Definitive Agreement (“DocHouse Agreement”), Ayr satisfied the purchase price of $21.5 million for DocHouse through the following:

i. $17.5 million of the DocHouse purchase price in the form of cash consideration, of which $12.4 million was paid on closing, $3.0 million was paid within three months, and $2.1 million was paid within six months of closing;
ii. $1.9 million of the DocHouse purchase price in the form of promissory notes payables; and
iii. $2.1 million of the DocHouse purchase price in the form of 128,265 Subordinate Shares of the Company. These shares have restrictions on their ability to be sold for six to twelve months (the “DocHouse Lock-Up Provision”). The fair value of the shares was determined by the share price at the date of acquisition and a 12.5% discount rate attributed to the contractual restrictions.

CannTech PA Business Combination

CannTech PA is a vertically integrated cannabis company with a grower/processor and dispensary permit in the Pennsylvania medical market. CannTech PA has a permit to operate six retail dispensaries and a cultivation and processing facility.

The purchase consideration was comprised of the following:

    

    

Shares

    

Fair Value

Cash

i

   

  

$

25,160,864

Debt Payable

 

ii

 

  

 

13,917,181

Shares Issued

 

iii

 

1,310,041

 

24,975,635

Total

 

  

 

1,310,041

$

64,053,680

Pursuant to the terms of the Definitive Agreement (“CannTech PA Agreement”), Ayr satisfied the purchase price of $64.1 million for CannTech PA through the following:

i. $25.2 million of the CannTech PA purchase price in the form of cash consideration and settlement of the final working capital, which is deemed immaterial;
ii. $15.2 million of the CannTech PA purchase price in the form of promissory notes payable. The fair value of the notes on the acquisition date was $13.9 million; and
iii. $25.0 million of the CannTech PA purchase price in the form of 1,310,041 Exchangeable Shares that are exchangeable on a one-for-one basis into an equal number of Subordinate Shares of the Company. These shares have restrictions on their ability to be sold for four to twelve months (the “CannTech PA Lock-Up Provision”). The fair value of the shares was determined by the share price at the date of acquisition and a 12% discount rate attributed to the contractual restrictions.

Fair Value Considerations

The consideration has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Transactions accounted for as business combinations have been accounted for in accordance with ASC 805, with the results included in the Company’s net loss from the date of acquisition.

4. BUSINESS COMBINATION AND ASSET ACQUISITIONS (Continued)

Fair Value Considerations (continued)

The earn-out consideration is measured at fair value based on unobservable inputs and is considered a Level 3 measurement. The fair value was determined by the Company’s share price at the acquisition date and other inputs based on other observable market data. The earn-out provisions in the Oasis, GSD, and PA Natural Agreements have been measured at fair value by using a Monte-Carlo simulation model. Refer to Note 13 for the contingent consideration fair value treatment subsequent to the acquisition.

Supplemental Pro-Forma Information

Revenue and income before taxes attributable to Liberty, Oasis, GSD, and PA Natural for the year ended December 31, 2021, were $125.7 million and $48 million, respectively,from their acquisition dates. The consolidated unaudited pro-forma revenue for the year ended December 31, 2020, would have increased $41.2 million had the acquisition of Liberty occurred on January 1, 2020. The other supplemental pro-forma information required by ASC 805-10-50-2h for the years ended December 31, 2021 and 2020 is not practicable.