v3.21.1
BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
12 Months Ended
Dec. 31, 2020
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 Corporation 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 Voting Shares or non-voting exchangeable shares of the Corporation or its subsidiaries (“Exchangeable Shares”) that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation. The Corporation treats the Exchangeable Shares as options with a value equal to a share of Subordinate Voting Shares, which represents the holder’s claim on the equity of the Corporation. In order to comply with certain contractual requirements of the acquisition, the Corporation and its subsidiaries are required to maintain the economic equivalency of such Exchangeable Shares with the publicly traded Subordinate Voting Shares of the Corporation. This means the Exchangeable Shares are required to share the same economic benefits and retain the same proportionate ownership in the assets of the Corporation as the holders of the Corporation’s publicly traded Subordinate Voting Shares. The Corporation 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 Corporation’s publicly traded Subordinate Voting 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 without such restriction by exchanging them for Subordinate Voting Shares of the Corporation. 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 CGUs corresponding to each of the acquired businesses. None of the goodwill is expected to be deductible for income tax purposes. The Corporation tests the recoverability of its goodwill annually, or more frequently, if events or changes in circumstances indicate that they might be impaired. For further analysis on goodwill relating to business combinations, see Note 8.

Pennsylvania 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 whole 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 “Pennsylvania Acquisitions”.

Any summary of certain material terms from the Definitive Agreements, as amended, in respect to the acquisition of CannTech PA, (the “CannTech PA Agreement”) is not exhaustive and is qualified in its entirety by reference to the terms of the Definitive Agreements, which may be found on Ayr’s profile on SEDAR at www.sedar.com.

The details of the purchase price consideration, which consist of cash, debt, Subordinate Voting Shares, and Exchangeable Shares, are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

Debt Payable

 

Shares Issued

 

Total

 

    

$

    

$

    

$

    

$

Calculated Consideration

 

42,638,652

 

15,852,145

 

27,059,085

 

85,549,882

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

 

 

 

 

 

 

 

 

 

Dochouse

 

Canntech

 

Total

US$

    

$

    

$

    

$

ASSETS ACQUIRED

 

  

 

  

 

  

Cash and cash equivalents

 

 –

 

2,383,373

 

2,383,373

Inventory

 

 –

 

254,342

 

254,342

Prepaid expenses, deposits, and other current assets

 

 –

 

525,989

 

525,989

Intangible assets

 

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

 

 –

 

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

Deferred tax liabilities

 

 –

 

4,469,630

 

4,469,630

Advance from related parties

 

2,303,349

 

5,737,455

 

8,040,804

Lease obligations

 

 –

 

11,170,076

 

11,170,076

Debts payable

 

 –

 

8,271,432

 

8,271,432

Total liabilities assumed at fair value

 

2,640,191

 

30,626,635

 

33,266,826

 

 

 

 

 

 

 

Goodwill

 

 –

 

7,484,630

 

7,484,630

 

 

 

 

 

 

 

Calculated purchase price

 

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 IFRS 3, it was recorded as an asset acquisition. Purchase consideration was comprised of the following:

 

 

 

 

 

 

 

 

 

 

    

 

    

Shares

    

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

 

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

i.

$17.5 million of the DocHouse purchase price in the form of cash consideration, of which $12.4M was paid on closing, $3.0M is payable within three months, and $2.1M is payable within six months of closing;

ii.

$1.9 million of the DocHouse purchase price in the form of promissory note payables; and

iii.

$2.1 million of the DocHouse purchase price in the form of 128,265 Subordinate Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for six to twelve months (the “DocHouse Lock-Up Provision”).

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

    

 

Value

Cash

 

i, iv

   

  

 

$

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 CannTech PA Agreement, Ayr satisfied the purchase price of $64.1M for CannTech PA through the following:

i.

$25.2 million of the CannTech PA purchase price in the form of cash consideration;

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;

iii.

$24.5 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 Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for four to twelve months (the “CannTech PA Lock-Up Provision”); and

iv.

Settlement of the final working capital adjustment.

Qualifying Transaction

As explained in Note 1 to the financial statements, on May 24, 2019 (the “acquisition date”), the Corporation completed its concurrent acquisitions of the target businesses of Washoe, Canopy, Sira, LivFree, and CannaPunch, which collectively constituted its Qualifying Transaction. Any summary information of certain material terms from definitive agreements, as amended, in respect of the acquisitions of Washoe, Canopy, Sira, LivFree, and CannaPunch (respectively, the “Washoe Agreement”, the “Canopy Agreement”, the “Sira Agreement”, the “LivFree Agreement”, and the “CannaPunch Agreement”, collectively the “Definitive Agreements”) is not exhaustive and is qualified in its entirety by reference to the terms of the Definitive Agreements, which may be found on Ayr’s profile on SEDAR at www.sedar.com.

The purchase price consideration consisted of cash, debt, Exchangeable Shares, and other consideration. The other consideration includes a contingent cash payment based on certain milestones being met as detailed in the Sira Agreement, a payment for excess inventory as outlined in the Sira Agreement, and make-whole provisions as outlined in the Canopy Agreement and the Washoe Agreement. The details of the purchase price consideration are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

Debt Payable

 

Shares Issued

 

Other

 

Total

 

  

$

  

$

  

$

  

$

  

$

Calculated Consideration

 

76,420,000

 

37,140,000

 

125,421,479

 

31,471,789

 

270,453,268

 

Ayr obtained control, as defined in IFRS 10 for purposes of determining the consolidated basis of financial statement presentation, of Washoe, Canopy, and LivFree through separate operational and service agreements. Each operational and service agreement provides Ayr certain rights over the entities’ operations. Through these operational and service agreements, Ayr has the power to control relevant activities which affect the returns Ayr receives. As a result of the control, as defined in IFRS 10 for purposes of determining the consolidated basis of financial statement presentation, obtained through the operational and service agreements, these entities are consolidated on Ayr’s financial statements. As of December 31, 2020, Washoe, Canopy, and LivFree are awaiting state regulatory approval to transfer licenses to Ayr.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Livfree

 

Sira

 

Cannapunch

 

Washoe

 

Canopy

 

Total

US$

 

$

    

$

    

$

    

$

    

$

    

$

ASSETS ACQUIRED

 

  

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

 

1,258,928

 

270,280

 

7,233

 

21,458

 

147,930

 

1,705,829

Accounts receivable

 

 –

 

600,151

 

625,143

 

87,617

 

 –

 

1,312,911

Inventory

 

2,670,057

 

9,671,814

 

552,040

 

4,500,213

 

1,618,639

 

19,012,763

Biological assets

 

 –

 

1,996,642

 

 –

 

1,763,516

 

 –

 

3,760,158

Prepaid expenses and other assets

 

96,157

 

340,428

 

 –

 

129,477

 

160,748

 

726,810

Intangible assets

 

105,000,000

 

57,000,000

 

2,390,000

 

22,800,000

 

10,750,000

 

197,940,000

Property, plant and equipment

 

1,640,418

 

9,090,090

 

486,100

 

9,070,645

 

1,217,736

 

21,504,989

Right-of-use assets

 

2,894,076

 

5,239,201

 

1,119,826

 

 –

 

2,057,681

 

11,310,784

Due from related parties

 

 –

 

 –

 

 –

 

 –

 

784,733

 

784,733

Deposits

 

90,147

 

149,251

 

 –

 

91,574

 

9,983

 

340,955

Total assets acquired at fair value

 

113,649,783

 

84,357,857

 

5,180,342

 

38,464,500

 

16,747,450

 

258,399,932

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES ASSUMED

 

  

 

  

 

  

 

  

 

  

 

  

Trade payables

 

387,500

 

475,193

 

251,829

 

506,073

 

 –

 

1,620,595

Accrued liabilities

 

1,176,088

 

970,418

 

46,972

 

100,412

 

520,453

 

2,814,343

Deferred tax liabilities

 

25,796,726

 

13,611,222

 

567,507

 

2,153,131

 

2,841,746

 

44,970,332

Advance from related parties

 

187,809

 

 –

 

 –

 

784,733

 

 –

 

972,542

Lease obligations

 

2,520,437

 

6,514,038

 

1,083,189

 

 –

 

2,553,502

 

12,671,166

Debts payable

 

120,000

 

13,054

 

 –

 

9,180,808

 

421,128

 

9,734,990

Total liabilities assumed at fair value

 

30,188,560

 

21,583,925

 

1,949,497

 

12,725,157

 

6,336,829

 

72,783,968

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

39,779,584

 

16,399,143

 

13,971,953

 

8,121,569

 

6,565,055

 

84,837,304

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculated purchase price

 

123,240,807

 

79,173,075

 

17,202,798

 

33,860,912

 

16,975,676

 

270,453,268

 

Sira Acquisition

Sira is a vertically-integrated cannabis company with cultivation, extraction, production, manufacturing, distribution and retail dispensary operations in Massachusetts. Sira operates its dispensaries in the medical market in Massachusetts.

Purchase consideration was comprised of the following:

 

 

 

 

 

 

 

 

 

    

    

    

Shares

    

Value

Cash

 

i

 

  

 

$

17,500,000

Debt Payable

 

ii

 

  

 

 

5,000,000

Shares Issued

 

iii

 

1,885,606

 

 

29,165,138

Contingent Consideration

 

iv

 

  

 

 

21,820,132

Inventory Payment

 

v

 

  

 

 

6,091,357

Working Capital Receivable

 

vi

 

  

 

 

(403,552)

Total

 

  

 

1,885,606

 

 

79,173,075

 

Pursuant to the terms of the Sira Agreement, Ayr satisfied the purchase price of $79.2 million for Sira through the following:

i.

$17.5 million of the Sira purchase price in the form of cash consideration;

ii.

$5.0 million of the Sira purchase price in the form of a promissory note payable;

iii.

$29.2 million of the Sira purchase price in the form of 1,885,606 Exchangeable Shares that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for twelve months (the “Sira Lock-Up Provision”);

iv.

A portion of the Sira purchase price is derived from an earn-out provision that may entitle the sellers to earn additional consideration, if certain milestones are achieved at Sira’s planned final cultivation facilities in Milford, MA;

v.

An amount equal to the fair market value of Sira’s inventory above a target level set at $800,000 (the “Inventory Payment”), pursuant to a formula specified in the Sira Agreement; and

vi.

Settlement following the final working capital adjustment.

One-third of the Inventory Payment, subject to a cap of $2,500,000, was paid on the Closing Date and is included in the cash consideration listed above. The remaining two-thirds is part of the current portion of purchase consideration payable as set out on the statements of financial position. On August 31, 2020, the outstanding balance of $6,091,357 was further amended to adopt a monthly payment schedule ranging from 10‑25 months based on certain milestones. The remaining balance as of December 31, 2020 is $3,936,522.

Canopy Acquisition

Canopy, through its licensed subsidiaries, is an owner and operator of cannabis dispensaries in Nevada, with an established footprint in Reno, Nevada. Canopy operates its dispensaries in both the medical and adult-use markets.

Purchase consideration was comprised of the following:

 

 

 

 

 

 

 

 

 

    

    

    

Shares

    

Value

Cash

 

i

 

  

 

$

7,000,000

Debt Payable

 

ii

 

  

 

 

4,500,000

Shares Issued

 

iii, iv

 

265,360

 

 

4,349,003

Make-Whole Provision

 

v

 

  

 

 

1,389,182

Working Capital Receivable

 

vi

 

  

 

 

(262,509)

Total

 

  

 

265,360

 

 

16,975,676

 

Pursuant to the terms of the Canopy Agreement, Ayr satisfied the purchase price of $17.0 million for Canopy through the following:

i.

$7.0 million of the Canopy purchase price in the form of cash consideration;

ii.

$4.5 million of the Canopy purchase price in the form of a promissory note payable;

iii.

$4.3 million of the Canopy purchase price in the form of 250,000 Exchangeable Shares that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for six to twelve months (the “Canopy Lock-Up Provision”);

iv.

An additional 15,360 Exchangeable Shares to Canopy pursuant to certain make-whole provisions (the “Canopy Make-Whole Provisions”);

v.

An additional 432,940 Exchangeable Shares to the Canopy sellers under the Canopy Make-Whole Provisions based on a formula specified therein relating to the market price of the Subordinate Voting Shares on certain specified dates settled during the year; and

vi.

Settlement of the final working capital adjustment.

Washoe Acquisition

Washoe, through its licensed subsidiaries, is a Nevada-based cannabis company with cultivation, extraction, processing, manufacturing and distribution capabilities. Washoe operates in both the medical and adult-use segments of the Nevada cannabis market.

Purchase consideration was comprised of the following:

 

 

 

 

 

 

 

 

 

    

    

    

Shares

 

Value

Cash

 

i

 

  

 

$

21,670,000

Debt Payable

 

ii

 

  

 

 

5,640,000

Shares Issued

 

iii, iv

 

270,000

 

 

4,260,775

Make-Whole Provision

 

v

 

  

 

 

1,424,536

Working Capital Payable

 

vi

 

  

 

 

865,601

Total

 

  

 

270,000

 

 

33,860,912

 

Pursuant to the terms of the Washoe Agreement, Ayr satisfied the purchase price of $33.9 million for Washoe through the following:

i.

$21.7 million of the Washoe purchase price in the form of cash consideration;

ii.

$5.6 million of the Washoe purchase price in the form of a promissory note payable;

iii.

$4.3 million of the Washoe purchase price in the form of 256,364 Exchangeable Shares that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for six to twelve months (the “Washoe Lock-Up Provision”);

iv.

Pursuant to the terms of the Washoe Agreement, 13,636 Exchangeable Shares to a Washoe lender;

v.

An additional 571,479 Exchangeable Shares to the Washoe sellers pursuant to certain make-whole provisions (the “Washoe Make-Whole Provisions”) in the Washoe Agreement based on a formula specified therein relating to the market price of the Subordinate Voting Shares on certain specified dates settled during the year; and

vi.

Settlement of the final working capital adjustment.

CSAC AcquisitionCo agreed to fund a bonus payment in the amount of $5,000,000 to various employees and consultants of Washoe; this amount is included in the cash consideration above.

LivFree Acquisition

LivFree is a leading Nevada-based cannabis company with retail dispensary operations in Las Vegas and Reno, Nevada. LivFree operates in both the medical and adult-use segments of the Nevada cannabis market. LivFree operates three retail dispensaries where it sells products purchased in the wholesale market. LivFree has licenses to operate medical marijuana dispensary, cultivation, and production facilities, and adult-use marijuana retail dispensary and production facilities.

Purchase consideration was comprised of the following:

 

 

 

 

 

 

 

 

 

    

    

    

Shares

    

Value

Cash

 

i

 

  

 

$

29,500,000

Debt Payable

 

ii

 

  

 

 

20,000,000

Shares Issued

 

iii, iv

 

4,664,182

 

 

73,525,577

Working Capital Payable

 

v

 

  

 

 

215,230

Total

 

  

 

4,664,182

 

 

123,240,807

 

Pursuant to the terms of the LivFree Agreement, Ayr satisfied the purchase price of $123.2 million for LivFree through the following:

i.

$29.5 million of the LivFree purchase price in the form of cash consideration;

ii.

$20.0 million of the LivFree purchase price in the form of a promissory note payable;

iii.

$69.1 million of the LivFree purchase price in the form of 4,342,432 Exchangeable Shares that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for six to twelve months (the "LivFree Lock-Up Provision");

iv.

$4.4 million of the LivFree purchase price, pursuant to an amendment to the definitive agreement in respect of the LivFree Acquisition, in the form of an additional 321,750 Exchangeable Shares to the LivFree sellers; and

v.

Settlement of the final working capital adjustment.

CannaPunch Acquisition

CannaPunch possesses trade name and brand value and licenses this know-how to a licensed cannabis facility that extracts raw cannabis plant material to create processed cannabis oil for use in vaporizer cartridges and pens or as an input into other infused products, as well as manufactures a variety of cannabis-infused products, including beverages, gummies, chocolates, CBD cream, and vaporizer pens.

Purchase consideration was comprised of the following:

 

 

 

 

 

 

 

 

 

    

    

    

Shares

    

Value

Cash

 

i

 

  

 

$

750,000

Debt Payable

 

ii

 

  

 

 

2,000,000

Shares Issued

 

iii, iv

 

898,739

 

 

14,120,986

Working Capital Payable

 

v

 

  

 

 

331,812

Total

 

  

 

898,739

 

 

17,202,798

 

Pursuant to the terms of the CannaPunch Agreement, Ayr satisfied the purchase price of $17.2 million for CannaPunch through the following:

i.

$0.8 million of the CannaPunch purchase price in the form of cash consideration;

ii.

$2.0 million of the CannaPunch purchase price in the form of a promissory note payable;

iii.

$13.7 million of the CannaPunch purchase price in the form of 866,668 Exchangeable Shares that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation. These shares have restrictions on their ability to be sold for six to twelve months (the “CannaPunch Lock-Up Provision”, and collectively with the Sira Lock-Up Provision, Canopy Lock-Up Provision, Washoe Lock-Up Provision, LivFree Lock-Up Provision, DocHouse Lock-Up Provision, CannTech PA Lock-Up Provision, the “Lock-Up Provisions”, and each, a “Lock-Up Provision”);

iv.

$0.4 million of the CannaPunch purchase price, pursuant to an amendment to the definitive agreement in respect of the CannaPunch acquisition, in the form of an additional 32,071 Exchangeable Shares to the CannaPunch sellers; and

v.

Settlement of the final working capital adjustment.

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. The business combinations have been accounted for by the acquisition method, with the results included in the Corporation’s net earnings from the date of acquisition.

The consideration that is subject to a Lock-Up Provision or that is payable under a make-whole provision is measured at fair value based on unobservable inputs and is considered a Level 3 measurement. The fair value was determined by the Corporation’s share price at the acquisition date and other inputs based on other observable market data. The earn-out provision in the Sira purchase agreement has been measured at fair value by taking a probability-weighted average of possible outcomes, as estimated by management, and discounting the payment to the acquisition date. Refer to Note 14 for the make-whole provision and contingent consideration fair value treatment subsequent to the acquisition.

Goodwill

The goodwill balance reflects the benefits of an assembled workforce, expected earnings and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. Goodwill will not be amortized and will be reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that they might be impaired.