Annual Report by a Canadian Issuer — Form 40-F — SEA’34
Filing Table of Contents
Document/ExhibitDescriptionPagesSize
1: 40-F Annual Report by a Canadian Issuer HTML 767K
2: EX-99.1 Miscellaneous Exhibit HTML 46K
3: EX-99.2 Miscellaneous Exhibit HTML 46K
4: EX-99.3 Miscellaneous Exhibit HTML 43K
5: EX-99.4 Miscellaneous Exhibit HTML 43K
6: EX-99.5 Miscellaneous Exhibit HTML 3.32M
7: EX-99.6 Miscellaneous Exhibit HTML 919K
8: EX-99.7 Miscellaneous Exhibit HTML 283K
9: EX-99.8 Miscellaneous Exhibit HTML 43K
15: R1 Cover HTML 100K
16: R2 Audit Information HTML 47K
17: R3 Consolidated Statements of Financial Position HTML 148K
18: R4 Consolidated Statements of Comprehensive Loss HTML 199K
19: R5 Consolidated Statements of Changes in Equity HTML 118K
20: R6 Consolidated Statements of Changes in Equity HTML 48K
(Parenthetical)
21: R7 Consolidated Statements of Cash Flows HTML 140K
22: R8 Nature of Operations HTML 48K
23: R9 Significant Accounting Policies and Judgments HTML 71K
24: R10 Restructuring Provision HTML 69K
25: R11 Accounts Receivable HTML 55K
26: R12 Government Grant HTML 47K
27: R13 Investments HTML 70K
28: R14 Marketable Securities and Derivatives HTML 146K
29: R15 Investments in Associates and Joint Ventures HTML 74K
30: R16 Biological Assets HTML 55K
31: R17 Inventory HTML 77K
32: R18 Property, Plant and Equipment HTML 137K
33: R19 Assets and Liabilities Held for Sale and HTML 118K
Discontinued Operations
34: R20 Business Combinations HTML 68K
35: R21 Asset Acquisition and Non-controlling Interest HTML 51K
(?Nci?)
36: R22 Intangible Assets and Goodwill HTML 172K
37: R23 Convertible Debentures HTML 66K
38: R24 Share Capital HTML 99K
39: R25 Share-Based Compensation HTML 124K
40: R26 Loss Per Share HTML 54K
41: R27 Other Gains (Losses) HTML 60K
42: R28 Supplemental Cash Flow Information HTML 61K
43: R29 Income Taxes HTML 153K
44: R30 Related Party Transactions HTML 69K
45: R31 Commitments and Contingencies HTML 69K
46: R32 Revenue HTML 66K
47: R33 Segmented Information HTML 80K
48: R34 Fair Value of Financial Instruments HTML 116K
49: R35 Financial Instruments Risk HTML 88K
50: R36 Capital Management HTML 46K
51: R37 Subsequent Events HTML 46K
52: R38 Lease Liabilities HTML 62K
53: R39 Significant Accounting Policies and Judgments HTML 273K
(Policies)
54: R40 Significant Accounting Policies and Judgments HTML 52K
(Tables)
55: R41 Restructuring Provision (Tables) HTML 49K
56: R42 Accounts Receivable (Tables) HTML 52K
57: R43 Marketable Securities and Derivatives (Tables) HTML 145K
58: R44 Investments in Associates and Joint Ventures HTML 98K
(Tables)
59: R45 Biological Assets (Tables) HTML 97K
60: R46 Inventory (Tables) HTML 73K
61: R47 Property, Plant and Equipment (Tables) HTML 117K
62: R48 Assets and Liabilities Held for Sale and HTML 102K
Discontinued Operations (Tables)
63: R49 Business Combinations (Tables) HTML 59K
64: R50 Asset Acquisition and Non-controlling Interest HTML 47K
(?Nci?) (Tables)
65: R51 Intangible Assets and Goodwill (Tables) HTML 171K
66: R52 Convertible Debentures (Tables) HTML 57K
67: R53 Share Capital (Tables) HTML 91K
68: R54 Share-Based Compensation (Tables) HTML 118K
69: R55 (Loss) Earnings Per Share (Tables) HTML 52K
70: R56 Other Gains (Losses) (Tables) HTML 60K
71: R57 Supplemental Cash Flow Information (Tables) HTML 62K
72: R58 Income Taxes (Tables) HTML 150K
73: R59 Related Party Transactions (Tables) HTML 67K
74: R60 Commitments and Contingencies (Tables) HTML 47K
75: R61 Revenue (Tables) HTML 58K
76: R62 Segmented Information (Tables) HTML 77K
77: R63 Fair Value of Financial Instruments (Tables) HTML 158K
78: R64 Financial Instruments Risk (Tables) HTML 81K
79: R65 Lease Liabilities (Tables) HTML 57K
80: R66 Significant Accounting Policies and Judgments - HTML 63K
Major Subsidiaries Over Which the Company Has
Control (Details)
81: R67 Restructuring Provision - Narrative (Details) HTML 51K
82: R68 Restructuring Provision - Rollforward of HTML 49K
Restructuring Provision (Details)
83: R69 Accounts Receivable (Details) HTML 56K
84: R70 Government Grant (Details) HTML 56K
85: R71 Investments - Choom Holdings Inc. (Details) HTML 123K
86: R72 Investments - Australis Capital Inc. (Details) HTML 71K
87: R73 Investments - Radient Technologies Inc. (Details) HTML 54K
88: R74 Investments - Cann Group Limited (Details) HTML 75K
89: R75 Investments - Capcium, Inc. (Details) HTML 81K
90: R76 Investments - Investee - B (Details) HTML 92K
91: R77 Investments - High Tide Inc. (Details) HTML 155K
92: R78 Investments - Investee C (Details) HTML 64K
93: R79 Marketable Securities and Derivatives - Marketable HTML 103K
Securities (Details)
94: R80 Marketable Securities and Derivatives - Derivative HTML 107K
Investments (Details)
95: R81 Investments in Associates and Joint Ventures - HTML 77K
Summary of Carrying Value (Details)
96: R82 Biological Assets - Significant Unobservable HTML 61K
Assumptions Used in the Valuation of Biological
Assets, Including Sensitivities (Details)
97: R83 Biological Assets - Changes in Carrying Value of HTML 58K
Biological Assets (Details)
98: R84 Biological Assets - Narrative (Details) HTML 56K
99: R85 Inventory (Details) HTML 89K
100: R86 Property, Plant and Equipment - Narrative HTML 100K
(Details)
101: R87 Property, Plant and Equipment - Carrying Values of HTML 171K
Property, Plant and Equipment (Details)
102: R88 Assets and Liabilities Held for Sale and HTML 108K
Discontinued Operations - Assets Held For Sale
(Details)
103: R89 Assets and Liabilities Held for Sale and HTML 142K
Discontinued Operations - Narrative (Details)
104: R90 Assets and Liabilities Held for Sale and HTML 68K
Discontinued Operations - Discontinued Operations
(Details)
105: R91 Business Combinations - Narrative (Details) HTML 71K
106: R92 Business Combinations - Business Combinations HTML 99K
Completed (Details)
107: R93 Asset Acquisition and Non-controlling Interest HTML 57K
(?NCI?) - Net Change in Non-Controlling Interests
(Details)
108: R94 Asset Acquisition and Non-controlling Interest HTML 66K
(?NCI?) - Narrative (Details)
109: R95 Intangible Assets and Goodwill - Useful Lives HTML 54K
(Details)
110: R96 Intangible Assets and Goodwill - Continuity HTML 104K
Schedule of Intangible Assets and Goodwill
(Details)
111: R97 Intangible Assets and Goodwill - Changes in Net HTML 104K
Book Value of Intangible Assets and Goodwill
(Details)
112: R98 Intangible Assets and Goodwill - Narrative HTML 104K
(Details)
113: R99 Intangible Assets and Goodwill - Key Assumptions HTML 95K
Used in Impairment Testing (Details)
114: R100 Convertible Debentures - Activity of Convertible HTML 62K
Debentures (Details)
115: R101 Convertible Debentures - Narrative (Details) HTML 124K
116: R102 Share Capital - Narrative (Details) HTML 140K
117: R103 Share capital - Summary of Shares Issued for HTML 53K
Equity Financing (Details)
118: R104 Share Capital - Share Purchase Warrants (Details) HTML 44K
119: R105 Share Capital - Summary of Warrant Derivative HTML 57K
Liabilities (Details)
120: R106 Share Capital - Summary of Warrants Outstanding HTML 64K
(Details)
121: R107 Share-Based Compensation - Narrative (Details) HTML 80K
122: R108 Share-Based Compensation - Summary of Options HTML 71K
Outstanding (Details)
123: R109 Share-Based Compensation - Stock Options that HTML 78K
Remain Outstanding, by Exercise Price Range
(Details)
124: R110 Share-Based Compensation - Weighted Average HTML 53K
Assumptions of Options (Details)
125: R111 Share-Based Compensation - Summary of RSUs and HTML 76K
DSUs Outstanding (Details)
126: R112 Share-Based Compensation - RSUs and DSUs that HTML 65K
Remain Outstanding (Details)
127: R113 Share-Based Compensation - Summary of PSUs HTML 66K
Outstanding (Details)
128: R114 Share-Based Compensation - PSUs that Remain HTML 65K
Outstanding (Details)
129: R115 Share-Based Compensation - Weighted Average HTML 56K
Assumptions of PSUs (Details)
130: R116 (Loss) Earnings Per Share (Details) HTML 76K
131: R117 Other Gains (Losses) (Details) HTML 70K
132: R118 Supplemental Cash Flow Information - Changes in HTML 62K
Non-Cash Working Capital (Details)
133: R119 Supplemental Cash Flow Information - Supplementary HTML 54K
Cash Flow Information (Details)
134: R120 Supplemental Cash Flow Information - Narrative HTML 49K
(Details)
135: R121 Income Taxes - Narrative (Details) HTML 49K
136: R122 Income Taxes - Reconciliation of Net Tax Provision HTML 71K
to Income (Loss) Before Income Tax (Details)
137: R123 Income Taxes - Movements in Deferred Tax Assets HTML 130K
(Liabilities) (Details)
138: R124 Income Taxes - Deferred Tax Assets (Liabilities) HTML 50K
(Details)
139: R125 Income Taxes - Deferred Tax Assets Not Recognized HTML 72K
(Details)
140: R126 Related Party Transactions - Compensation Expense HTML 54K
(Details)
141: R127 Related Party Transactions - Transactions with HTML 44K
Related Parties (Details)
142: R128 Related Party Transactions - Receivable from HTML 74K
(Payable to) Related Parties (Details)
143: R129 Commitments and Contingencies - Narrative HTML 66K
(Details)
144: R130 Commitments and Contingencies - Future Commitments HTML 50K
Including Minimum Royalty Payments Due in the Next
Five Years (Details)
145: R131 Revenue - Narrative (Details) HTML 46K
146: R132 Revenue - Revenue from the Transfer of Goods and HTML 64K
Services (Details)
147: R133 Segmented Information - Operating Segments HTML 64K
(Details)
148: R134 Segmented Information - Geographical Segments HTML 57K
(Details)
149: R135 Segmented Information - Narrative (Details) HTML 53K
150: R136 Fair Value of Financial Instruments - Carrying HTML 144K
Values of Financial Instruments (Details)
151: R137 Fair Value of Financial Instruments - Summary of HTML 79K
Financial Instruments Measured at Fair Value
(Details)
152: R138 Fair Value of Financial Instruments - Continuity HTML 70K
Schedule of Contingent Consideration Payable
(Details)
153: R139 Fair Value of Financial Instruments - Narrative HTML 57K
(Details)
154: R140 Financial Instruments Risk - Credit Risk Narrative HTML 50K
(Details)
155: R141 Financial Instruments Risk - Schedule of Aging of HTML 51K
Receivables (Details)
156: R142 Financial Instruments Risk - Schedule of HTML 67K
Contractual Cash Flows from Lease Receivables
(Details)
157: R143 Financial Instruments Risk - Schedule of Accounts HTML 57K
Payable and Accrued Liabilities (Details)
158: R144 Financial Instruments Risk - Liquidity Risk HTML 51K
Narrative (Details)
159: R145 Financial Instruments Risk - Market Risk Narrative HTML 64K
(Details)
160: R146 Capital Management (Details) HTML 44K
161: R147 Subsequent Events (Details) HTML 47K
162: R148 Lease Liabilities - Lease Liabilities (Details) HTML 59K
163: R149 Lease Liabilities - Narrative (Details) HTML 44K
164: R9999 Uncategorized Items - _IXDS HTML 96K
167: XML IDEA XML File -- Filing Summary XML 318K
165: XML XBRL Instance -- acb-20220630_htm XML 6.98M
166: EXCEL IDEA Workbook of Financial Reports XLSX 407K
11: EX-101.CAL XBRL Calculations -- acb-20220630_cal XML 361K
12: EX-101.DEF XBRL Definitions -- acb-20220630_def XML 1.94M
13: EX-101.LAB XBRL Labels -- acb-20220630_lab XML 3.95M
14: EX-101.PRE XBRL Presentations -- acb-20220630_pre XML 2.64M
10: EX-101.SCH XBRL Schema -- acb-20220630 XSD 576K
168: JSON XBRL Instance as JSON Data -- MetaLinks 732± 1.14M
169: ZIP XBRL Zipped Folder -- 0001683541-22-000002-xbrl Zip 1.26M
Management is responsible for the preparation and presentation of the consolidated financial statements and accompanying note disclosures in accordance with International Financial Reporting Standards. This responsibility includes selection of appropriate accounting policies and principles as well as decisions related to significant estimates and areas of judgment.
In discharging its responsibilities to support the integrity and fairness of the consolidated financial statements, management designs and maintains the necessary
accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded, and financial records are properly maintained to provide reliable information.
The Board of Directors is primarily composed of Independent Directors and the Audit Committee is entirely composed of Independent Directors. The Board is responsible for the oversight of management in the performance of its financial reporting responsibilities and approval of the financial information included in the annual report. The Board fulfills these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and the external auditors. The Audit Committee is also responsible for recommending the appointment of the Company’s
external auditors.
KPMG LLP, an independent registered public accounting firm, has been appointed by the Company’s shareholders to audit the consolidated financial statements and report directly to them. The external auditors have full and free access to the Audit Committee and management to discuss their audit findings.
To the Shareholders and Board of Directors Aurora Cannabis Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Aurora Cannabis Inc. (the Company) as of June 30, 2022 and 2021, the related consolidated statements of comprehensive loss, changes in equity, and cash flows for each of the years in the two-year period ended June 30, 2022, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two‑year period ended June 30, 2022, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated September 20, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We are a public accounting firm registered with the 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 audits 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of goodwill, intangible assets, and property, plant and equipment in the Canadian cannabis operating segment and in the International cannabis operating segment
As discussed in Note 11 to the consolidated financial statements as of June 30, 2022, the property, plant and equipment balance was $233,465 thousand. As discussed in Note 15 to the consolidated financial statements, the
total
goodwill and intangible assets balance was $70,696 thousand as of June 30, 2022. The Company conducts an impairment test annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred. The recoverable amounts of the operating segments to which goodwill is allocated and the cash generating units (CGUs) to which intangible assets and property, plant and equipment are allocated in the Canadian cannabis operating segment and in the International cannabis operating segment (together, the relevant operating segments and CGUs) were determined based on the fair value less costs of disposal method. An impairment loss is recognized for the amount by which the operating segment’s or CGU’s carrying amount exceeds its recoverable amount. For the year ended June
30, 2022, the Company recognized impairment of goodwill of $914,275 thousand, impairment of intangible assets of $271.9 million and impairment of property, plant and equipment of $60.7 million.
We identified the assessment of the recoverable amounts of the relevant operating segments and CGUs as a critical audit matter. There was a high degree of auditor judgment required to evaluate the significant assumptions used in determining the recoverable amount. The significant assumptions used in the recoverable amount model were the forecasted revenues, operating costs and discount rates. The sensitivity of reasonably possible changes to those assumptions could have had a significant impact on the determination of the recoverable amount of the relevant operating segments and CGUs and the
Company’s determination of the amounts of impairment. Additionally, the audit judgment associated with certain of these significant assumptions required the use of professionals with specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We compared the Company’s historical revenue and operating costs forecasts to actual results to assess the Company’s ability to accurately forecast. We evaluated the reasonableness of the Company’s forecasted revenues for the relevant operating segments and CGUs by comparing the growth assumptions to historical actual results
of the Company, planned business initiatives and external industry reports. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the discount rates used in the impairment analyses by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable entities; and
•performing sensitivity analyses over the discount rates to assess their impact on the determination of the recoverable amount.
Measurement of fair value of biological assets
As
discussed in Note 9 to the consolidated financial statements, the Company measures biological assets at fair value less costs to sell. As of June 30, 2022, the carrying value of the Company’s biological assets was $23,827 thousand. Biological assets are measured at fair value less costs to sell at the end of each reporting period in accordance with IAS 41 - Agriculture. The Company utilizes an income approach to determine the fair value less costs to sell at a specific measurement date, based on the existing cannabis plants’ stage of completion up to the point of harvest.
We identified
the assessment of the Company’s determination of the fair value of biological assets as a critical audit matter. A high degree of auditor judgment was required due to the degree of subjectivity of the significant assumptions. The significant assumptions used to measure biological assets were average selling price per gram, weighted average yield per plant, weighted average effective yield and cost per gram to complete production.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls related to the post-harvest weigh-ins. We performed sensitivity analyses over the significant assumptions used to determine the fair value of biological assets to assess the impact of changes in those
assumptions on the Company’s determination of fair value. We tested the average selling price per gram by comparing to actual sales prices per gram as set out in sales documents for transactions in the fourth quarter. We tested the weighted average yield per plant by observing a selection of post-harvest weigh-ins. We tested weighted average effective yield by tracing a selection of harvested biological assets
3
to their external laboratory test reports and comparing those results to Company specifications. We tested the cost per gram to complete production by comparing a selection
of production costs incurred and grams produced to source documents.
Assessment of the cannabis inventory provision
As discussed in Note 10 to the consolidated financial statements, the Company’s consolidated inventory balance was $116,098 thousand as of June 30, 2022. Inventory is valued at the lower of cost and net realizable value (NRV). The Company uses judgment in determining the NRV of inventory. When assessing NRV, the Company considers the impact of average selling price per gram, inventory
spoilage, inventory excess, age and damage.
We identified the assessment of the cannabis inventory provision as a critical audit matter. A high degree of auditor judgment was required due to the degree of subjectivity of the significant assumptions. The significant assumptions used to determine the inventory provision were inventory excess and age.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the appropriateness of the cannabis inventory provision by testing the inventory excess by comparing the forecast usage to historical usage. We compared the Company’s historical forecasted usage to actual usage in the current year to assess the
Company’s ability to accurately forecast. We evaluated the Company's aging policies by comparing the aging assumptions to external industry information. We tested the aging by tracing a selection of inventory to the Company’s production and packaging records.
We have served as the Company’s auditor since 2018.
4
Report
of Independent Registered
Public Accounting Firm
To the Shareholders and Board of Directors
Aurora Cannabis Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Aurora Cannabis Inc.’s (the Company) internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria,
the Company has not maintained effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of June 30, 2022 and 2021, the related consolidated statements of comprehensive loss, changes in equity, and cash
flows for each of the years in the two-year period ended June 30, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated September 20, 2022 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to the following have been identified and included in management’s assessment:
Complex
Spreadsheet Controls: The Company did not implement and maintain effective controls surrounding certain complex spreadsheets. Spreadsheets are inherently prone to error due to their manual nature, which increases the risk of human error. The Company’s controls related to complex spreadsheets did not address all identified risks associated with manual data entry, review of inputs into management assumptions and estimates, completeness of data entry, and the accuracy of mathematical formulas, impacting complex spreadsheets used in property, plant and equipment, fair value of biological assets, valuation of inventory, and key goodwill, intangibles and purchase price accounting calculations and estimates.
IT General Controls:
Specific to the Aurora Europe business component, the Company had an aggregation of deficiencies within its IT general controls across multiple systems within the subsidiary, including deficiencies related to segregation of duties, user access and change management. As a result, the Company concluded that the subsidiary’s process-level automated and manual controls in the areas of journal entries and revenue that are dependent on IT general controls, information, and data derived from affected IT systems were also ineffective because they could have been adversely impacted.
Management Review Controls: The Company did not consistently
have documented evidence of management review controls and did not always maintain segregation of duties between preparing and reviewing analyses and reconciliations with respect to inventory, revenue pricing, procure-to-pay, and financial statement close processes.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
The Company acquired Thrive Cannabis during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial
reporting as of June 30, 2022, Thrive Cannabis’s internal control over financial reporting associated with total current assets of $12,319 thousand, total non-current
5
assets of $11,402 thousand, total current liabilities of $2,680 thousand, total non-current liabilities of $2,862 thousand, total revenues of $1,877 thousand and net loss of $3,154 thousand included in the consolidated financial statements of the Company as of and for the year ended June 30, 2022. Our audit of
internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Thrive Cannabis.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the 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 effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(1)
Included in share-based compensation is $i0.5 million relating to milestone payments for the year ended June 30, 2022 ( June 30, 2021 - $i1.3
million).
The accompanying notes are an integral part of these Consolidated Financial Statements.
(1)
Included in share-based compensation is $i1.3 million expense relating to milestone payments from prior year acquisitions for the year ended June 30, 2021.
As at June 30, 2021, there were ino
common shares in the capital of the Company (“Common Shares”) held in escrow (June 30, 2020 - i50,283 Common Shares). These securities were originally deposited in escrow on November 30, 2017 in connection with the acquisition of H2 Biopharma Inc. The escrowed Common Shares were to be released upon receipt
of relevant licenses to cultivate and sell cannabis, both of which were obtained, and milestones were fully met, during the year ended June 30, 2020. During the year ended June 30, 2021, the Company cancelled and returned the remaining i50,283 escrowed Common Shares to treasury.
The
accompanying notes are an integral part of these Consolidated Financial Statements.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note
1 iNature of Operations
Aurora Cannabis Inc. (the “Company” or “Aurora”) was incorporated under the Business Corporations Act (British Columbia)on December 21, 2006 as Milk Capital Corp. Effective October 2, 2014, the
Company changed its name to Aurora Cannabis Inc. The Company’s shares are listed on the Nasdaq Global Select Market (“Nasdaq”) and the Toronto Stock Exchange (“TSX”) under the trading symbol “ACB”, and on the Frankfurt Stock Exchange (“FSE”) under the trading symbol “21P”.
The Company’s head office and principal address is 500 - 10355 Jasper Avenue, Edmonton, Alberta, Canada, T5J 1Y6. The Company’s registered and records office address is Suite 1700, 666 Burrard Street , Vancouver, British Columbia, V6C 2X8.
The
Company’s principal strategic business lines are focused on the production, distribution and sale of cannabis related products in Canada and internationally. Aurora currently conducts the following key business activities in the jurisdictions listed below:
•Production, distribution and sale of medical and consumer cannabis products in Canada pursuant to the Cannabis Act;
•Distribution of wholesale medical cannabis in the European Union (“EU”) pursuant to the German Medicinal Products Act and German Narcotic Drugs Act;
•Distribution of wholesale medical cannabis in various international markets, including Australia, Caribbeans, South America and
Israel; and
•Distribution and sale of hemp-derived CBD products in the United States (“U.S.”) market.
Note 2 iSignificant Accounting Policies and Judgments
IFRS
requires management to make judgments, estimates, and assumptions that affect the carrying values of certain assets and liabilities and the reported amounts of income and expenses during the period. Actual results may differ from these judgments, estimates, and assumptions.
Significant accounting policies, which affect the consolidated financial statements as a whole, as well as key accounting estimates and areas of significant judgment are highlighted in this section. This note also describes change in accounting policies, new accounting standards, which have been adopted during 2022, and new accounting pronouncements, which are not yet effective but are expected to impact the Company’s consolidated financial statements in the future. Accounting policies, estimates, or judgments that have a significant
effect on the amounts recognized in the financial statements include government grants (Note 5), biological assets (Note 9), inventory (Note 10), estimated useful lives of property, plant and equipment and intangible assets (Note 11 and 15), impairment of non-financial assets (Note 10, 11, and 15), business combinations (Note 13), convertible debentures (Note 16), share purchase warrants (Note 18(c)), share-based compensation (Note 19), deferred taxes (Note 23), segmented information (Note 27) and the fair value of financial instruments (Note 28).
(a) iBasis
of Presentation and Measurement
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and interpretations of the IFRS Interpretations Committee (“IFRIC”). Unless otherwise noted, all amounts are presented in thousands of Canadian dollars, except share and per share data.
These consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on September 20,
2022.
(b) iCOVID-19 Estimation Uncertainty
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has impacted revenue in the Canadian consumer market, particularly in Ontario, as governments
imposed retail access restrictions to curbside pickup at points during the pandemic, and have changed their purchasing patterns to reflect the slow-down in the market. The production and sale of medical and consumer cannabis have been recognized as essential services across Canada. All of the Company’s facilities in Canada and internationally continue to be operational and the Company continues to work closely with local, national and international government authorities to ensure that the Company is following the required protocols and guidelines related to COVID-19 within each region.
Due to the rapid developments and uncertainty
surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on the Company’s business, financial position and operating results in the future. In addition, it is possible that estimates in the Company’s financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets including intangibles and goodwill. The Company is closely monitoring the impact of the pandemic on all aspects of its business.
(c) iBasis
of Consolidation
The consolidated financial statements include the financial results of the Company and its subsidiaries. Subsidiaries include entities which are wholly-owned as well as entities over which Aurora has the authority or ability to exert power over the investee’s financial and/or operating decisions (i.e. control), which in turn may affect the Company’s exposure or rights to the variable returns from the investee. The consolidated financial statements include the operating results of acquired or disposed entities from
the date control is obtained or the date control is lost, respectively. All intercompany balances and transactions are eliminated upon consolidation.
Whistler Medical Marijuana Corporation (“Whistler”)
i100%
Canadian
Dollar
ACB Captive Insurance Company Inc.
i100%
Canadian Dollar
All shareholdings are of ordinary shares or other equity. Other subsidiaries, while included in the consolidated financial statements, are not material and
have not been reflected in the table above.
(d) iForeign Currency Translation
The Company’s functional currency is the Canadian dollar. Transactions undertaken in foreign currencies are translated into Canadian dollars at daily exchange rates
prevailing when the transactions occur. Monetary assets and liabilities denominated in foreign currencies are translated at period-end exchange rates and non-monetary items are translated at historical exchange rates. Realized and unrealized exchange gains and losses are recognized in the consolidated statements of comprehensive loss.
The assets and liabilities of foreign operations are translated into Canadian dollars using the period-end exchange rates. Income, expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from the translation of foreign operations into Canadian dollars are recognized in other comprehensive loss and accumulated in equity.
(e) iCash
and Cash Equivalents
Cash and cash equivalents are financial assets that are measured at amortized cost, which approximate fair value. Cash and cash equivalents includes cash deposits in financial institutions and other deposits that are highly liquid and readily convertible into cash. Restricted cash includes funds reserved in the Captive to cover self-insurance over property related risks and collateral held for letters of credit and corporate credit cards.
(f) iInvestment
Tax Credit Grants
The Company is entitled to certain Canadian federal and provincial tax incentives for qualified expenditures. These investment tax credits (“ITCs”) are recorded as a reduction to the related expenditures in the fiscal period when there is reasonable assurance that such credits will be realized.
Investment tax credits, whether or not recognized in the financial statements, may be carried forward to reduce future Canadian federal and provincial income taxes payable. The Company applies judgment when determining whether the reasonable assurance threshold has been met to recognize ITCs in the financial statements.
The Company must interpret eligibility requirements in accordance with Canadian income tax laws and must assess whether future taxable income will be available against which the ITCs can be utilized. Any changes in these interpretations and assessments could have an impact on the amount and timing of ITCs recognized in the financial statements.
(g) iProvisions
The
Company recognizes a provision if there is a present legal or constructive obligation as a result of a past event, it is probable that the Company will be required to settle that obligation and the obligation can be reliably estimated. The amount recognized as a provision reflects management’s best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.
An onerous contract provision is recorded when the Company has a contract
under which it is more likely than not that the unavoidable costs of meeting the contractual obligations will be greater than the economic benefits that the Company expects to receive under the contract. An onerous contract provision represents the lesser of the cost of exiting from the contract and the cost of fulfilling it.
(h) New
Accounting Policy
Segregated Cell Insurance
Insurance coverage for the Company’s directors and officers has been secured through a segregated cell program (“Segregated Cell”). The Segregated Cell was effected by entering into a participation agreement with a registered Segregated Accounts Company for the purposes of holding and supporting the Company’s insurance risk transfer strategies. The Company applies IFRS 10 Consolidated Financial Statements in its assessment of control as it relates
to the Segregated Cell and the Company’s accounting policy is to consolidate the Segregated Cell. The funds
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
held
in the Segregated Cell are held as cash with the possibility of reinvestment. As the funds cannot be transferred to other parts of the group, the funds are disclosed as Restricted Cash.
i
(i) New Accounting Pronouncements
The following IFRS standards have been recently issued by the IASB. Pronouncements that are irrelevant
or not expected to have a significant impact have been excluded.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating
the potential impact of these amendments on the Company’s consolidated financial statements.
Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract
can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
Amendments to IAS 41: Agriculture
As
part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IAS 41. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
Amendments to IFRS 9: Financial Instruments
As
part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The
Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The standard
is effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the potential impact of this standard on the Company’s consolidated financial statements.
Note 3 iRestructuring
Provision
i
Accounting Policy
A restructuring provision is recognized when the Company has developed
a detailed formal plan for the restructuring and has raised a valid expectation that it will carry out the restructuring by starting to implement the plan or announcing its main features to those individuals who are affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which reflect amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
During the year ended June 30, 2022, the Company announced an operational efficiency plan including the centralization of
the Company’s Canadian manufacturing processes to the Aurora River facility and the resultant closure of the western Canada manufacturing facility. In addition, with the repositioning of the Company’s production footprint and its shift toward a premium product portfolio, the Company announced the closure of Aurora Sky, Valley, Anandia and Whistler Alpha Lake facilities. The restructuring includes a reduction to the number of corporate and production level employees across the organization in an effort to reduce spending.
During the year ended June 30, 2022, the
Company recorded restructuring charges of $i2.1 million (June 30, 2021 - $i0.2 million) relating to workforce reductions associated with the closure of production
facilities. In addition, during the year ended June 30, 2022, the Company recorded restructuring charges of $i1.0 million for termination fees on certain contractual obligations.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
During the year ended June 30, 2021, the Company entered into an agreement with Great North Distributors Inc. (“Great North”) to be the exclusive representative for
Aurora’s Canadian cannabis retail brands. As a result of shifting consumer sales costs from a fixed internal sales force to variable contract sales, the Company recorded restructuring charges of $i0.8 million related to the workforce reductions.
The provisions for restructuring and other charges represent the present value of the best estimate
of the future outflow of economic benefits that will be required to settle the expected liabilities and may vary as a result of new events affecting the amounts that will need to be paid.
Accounts receivable are recognized initially at fair value and subsequently measured at amortized cost, less any provisions for impairment. Financial assets measured at amortized cost are assessed for impairment at the end of each reporting period. Impairment provisions are estimated using the expected credit loss impairment model where any expected future credit losses are provided for, irrespective of whether a loss event has occurred at the reporting date.
Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in and forecasts of future economic conditions that affect default
risk. Where applicable, the carrying amount of a trade receivable is reduced for any expected credit losses through the use of an allowance for doubtful accounts (“AFDA”) provision. Changes in the AFDA provision are recognized in the statement of comprehensive loss. When the Company determines that no recovery of the amount owing is possible, the amount is deemed irrecoverable and the financial asset is written off.
(1) Includes
interest receivable from the convertible debenture investments (Note 6).
/
Note 5 iGovernment Grant
Accounting
Policy
The Company recognizes government grants when there is reasonable assurance that it will comply with the conditions required to qualify for the grant, and that the grant will be received. Government grants related to income are recognized as other gains (losses) in the statement of comprehensive loss while government grants related to assets, including non-monetary grants at fair value, are recognized as a reduction of the related asset’s carrying amount.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) program. CEWS provides a wage subsidy on eligible remuneration, subject to limits
per employee, to eligible employers based on certain criteria, including the demonstration of revenue declines. The Company has determined that it has qualified for this subsidy and has applied for CEWS. For the year ended June 30, 2022, the Company has recognized government grant income of $i10.7 million (June 30, 2021 - $i32.5
million), in government grant income, within other gains (losses) in the statement of comprehensive loss. Estimation uncertainty arises when interpreting certain definitions as prescribed by CEWS. As such, of the $i19.5 million (June 30, 2021 - $i36.2
million) cash received from CEWS, $i12.4 million (June 30, 2021 - $i10.9 million) is recognized as other current liabilities on the statement of financial position.
During
the year ended June 30, 2021, the Company received a $i3.6 million government grant related to the installation of a heat and power system which reduced electricity consumption from a city power grid. The grant was recognized against the asset and reduced the carrying value by $i3.6
million (Note 11). Subsequent to June 30, 2022, the Company received an additional $i3.7 million related to this government grant which was recognized in accounts receivable as at June 30, 2022 (Note 4), with a corresponding decrease to the carrying value of the asset.
Note
6 iInvestments
(a) Choom Holdings Inc. (“Choom”)
Choom is a consumer cannabis company that is developing retail networks across Canada. Choom is publicly listed on the Canadian Securities Exchange.
(i) Convertible Debenture
Effective July
8, 2021, the Company restructured its debt with Choom by extinguishing its existing $i20.0 million unsecured convertible debenture and accrued interest in exchange for: (i) i79,754,843
common shares in Choom with a fair value of $i5.2 million; and (ii) a $i6.0 million secured convertible debenture (“2021 Debenture”) which approximated fair value. The 2021 Debenture is secured by a second ranking security interest in all of Choom’s present and future
acquired property. The 2021 Debenture bears interest at i7.0% per annum, matures on December 23, 2024, and is convertible into common shares in Choom at $i0.10
per share. Additionally, the Company and Choom (i) amended the Investor Rights Agreement providing the right to nominate up to itwo directors to Choom’s Board of Directors and a participation right to maintain Aurora’s pro-rata ownership, and (ii) established a debt restructuring fee payable by Choom to Aurora based on products sold at Choom’s retail stores.
As a result of the amendment, the $i20.0 million unsecured convertible debenture with a fair value of $i18.2 million and $i2.1
million interest receivable was derecognized, resulting in a loss of $i9.1 million recognized in other gains (losses) on the statement of comprehensive loss.
On April 22, 2022, Choom and certain of its subsidiaries obtained an order (the “Initial Order”) of the Supreme Court
British Columbia providing Choom protection from their creditors pursuant to the Companies’ Creditors Act (Canada) (“CCAA”). As part of the Initial Order, the Company has agreed to advance Choom up to an aggregate of $i0.8 million (“Loan”) to fund Choom’s ongoing operations and CCAA proceedings. The Loan accrues interest at a rate of i12%
per annum, and matures, at the latest, on August 31, 2022. The Loan is secured against all assets of Choom and certain of its subsidiaries pursuant to the Initial Order. During the year ended June 30, 2022, the Company recorded an impairment of $i0.8 million
against the outstanding loan receivable.
As of June 30, 2022, the 2021 Debenture had a fair value of $i0.0 million (June 30, 2021 - $i18.2
million) resulting in an unrealized loss of $i6.0 million for the year ended June 30, 2022 (June 30, 2021 - $i2.3
million). The Company considers the probability of collection in its assessment of fair value. The fair value of the 2021 Debenture as of June 30, 2021 was estimated using the FINCAD model based on the following assumptions: closing share price of $i0.08; credit spread of i14%;
dividend yield of i0%; stock price volatility of i119%; and an expected life of i1.34
years.
(ii) Common Shares and Investment in Associate
As a result of the convertible debenture amendment, the Company obtained significant influence over the management of Choom based on its i19.9% ownership interest in Choom and qualitative factors described above. The i9,859,155
common shares previously held in Choom was reclassified from marketable securities (Note 7(a)) to investment in associates (Note 8) at its fair value of $i0.6 million based on the quoted market price of $i0.065
per share on the amendment date.
As of June 30, 2022, the Company held i89,613,998 (June 30, 2021 - i9,859,155)
common shares in Choom, representing a i19% (June 30, 2021 - i3.03%) ownership interest. During the year ended June
30, 2022, the Company assessed the carrying value of the investment against the estimated recoverable amount and as a result, recognized an impairment charge of $i5.5 million (year ended June 30, 2021 - $i0.0
million) which has been recognized through the statement of comprehensive loss (Note 8).
(b) Australis Capital Inc. (“ACI”)
ACI is a public company that is focused on investments and acquisitions in the cannabis space and more specifically, investment in the growing U.S. cannabis market. ACI was previously wholly-owned by Aurora and was spun-out to Aurora shareholders on September 19, 2018. As of June 30, 2022, the Company holds the following restricted back-in right warrants:
(a)i22,628,751
warrants exercisable at $i0.20 per share expiring September 19, 2028; and
(b)The number of warrants equal to i20%
of the number of common shares issued and outstanding in ACI as of the date of exercise. The warrants are exercisable at the ifive-day volume weighted average trading price (“VWAP”) of ACI’s shares and have an expiration date of September 19, 2028.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Aurora is restricted from exercising the back-in right warrants unless all of ACI’s business operations in the U.S. are permitted under applicable U.S. federal and state laws and Aurora has received consent of the
TSX and any other stock exchange on which Aurora may be listed, as required. As of June 30, 2022, the warrants remain un-exercisable.
As of June 30, 2022, the warrants had a fair value of $i1.4 million (June 30, 2021 - $i5.7
million) estimated using the Binomial model with the following assumptions: share price of $i0.09 (June 30, 2021 - $i0.32); risk-free interest rate of i4%
(June 30, 2021 - i2%); dividend yield of i0% (June 30, 2021 - i0%);
stock price volatility of i113% (June 30, 2021 - i116%); an expected life of i6.23
years (June 30, 2021 - i7.23 years); and adjusted for a probability factor of legalization of cannabis in the U.S. under federal and certain state laws. As a result, the Company recognized $i4.2
million of unrealized losses on fair value during the year ended June 30, 2022 (year ended June 30, 2021 - $i2.5 million) (Note 7(b)).
(c) Radient Technologies
Inc. (“Radient”)
Radient is a public company listed on the TSX Venture Exchange (“TSXV”) and is a commercial manufacturer of cannabis derivatives, formulations and products.
Cann Group is a public company listed on the Australian Stock Exchange and is licensed in Australia for research and cultivation of medical cannabis for human use.
On July 23, 2020, the Company no longer held significant influence over Cann Group as the Company’s percentage ownership interest was diluted to approximately i18%.
As a result, the $i17.0 million carrying value of the Company’s equity investment was derecognized from investment in associates (Note 8) and reclassified to marketable securities (Note 7(a)) at its fair value of $i15.5
million, calculated based on the July 23, 2020 quoted market price of A$i0.51. This resulted in the recognition of a $i1.4
million loss on the deemed disposal of the investment in associate during the year ended June 30, 2021 (Note 22).
On October 9, 2020, the Company sold all of its i31,956,347 common shares held in Cann Group at A$i0.20
per share for net proceeds of $i5.9 million. The fair value of the Cann Group shares on October 9, 2020 was $i6.0 million, which resulted in a cumulative loss of $i9.5
million recognized through OCI during the year ended June 30, 2021.
(e) Capcium Inc. (“Capcium”)
Capcium is a Montreal-based private company and is in the business of manufacturing soft-gels.
In July 2020, the Company converted its i5,371
convertible debentures held in Capcium, with a principal balance of $i5.4 million and a fair value of inil, into i5,371,300
Series A preferred shares. The Series A preferred shares accrue an annual per share dividend of i8% and rank subordinate to the Series B preferred shares described below. In the event of a liquidity event, which is the occurrence of a merger, consolidation, sale, lease, transfer, exclusive license or other disposal of all or substantially all of the assets of Capcium, the Series A preferred shares shall automatically convert into a number of common stock equal to i15%
of the issued and outstanding common stock on a fully diluted basis. As at June 30, 2022 and 2021, the Series A preferred shares had a nominal fair value .
During the year ended June 30, 2021, the Company subscribed for i1,851,086 Series B preferred shares of Capcium for
$i1.9 million. In the event of a liquidity event, Series B preferred shareholders of Capcium shall receive a cash payment equal to twice the initial investment and the Series B preferred shares shall automatically convert into a number of common stock based on the fair market value at that time. In the event of an IPO liquidity event, which is the occurrence of either a public offering or a reverse take-over, the Series B preferred shares shall automatically convert into a number of common stock based on the fair market value at that time. In conjunction with the
Company’s investment, the parties amended an existing manufacturing agreement to reduce the Company’s annual minimum purchase commitment by i20.0 million capsules (Note 25(b)). As at June 30, 2022 and 2021, the Series B preferred shares had a nominal fair value resulting in an unrealized loss of $i1.9
million for the year ended June 30, 2021
The Company continues to hold i8,828,662 common shares in Capcium as of June 30, 2022 (June 30, 2021 - i8,828,662)
representing an i18% ownership interest based on common shares outstanding (June 30, 2021 - i18%).
(f) Investee-B
Investee-B
is a private Canadian company that cultivates, manufactures, and distributes medical cannabis products in Jamaica. As of June 30, 2022, The Company holds a $i12.9 million (US $$i10.0
million) (June 30, 2021 - $i12.4 million (US$i10.0 million)) convertible debenture in Investee-B that bears interest at i1.5%
per annum, payable in cash or common shares equal to the fair value of shares at the time of issuance. The debentures are convertible into common shares of Investee-B at US $i4.9585 at Aurora’s option until July 2, 2023. As part of the arrangement, Aurora has the right to: (i) participate in any future equity offerings of Investee-B to enable Aurora to maintain its percentage ownership interest, and (ii) to nominate a director to Investee-B’s Board of Directors as long as the
Company owns at least a i10% interest.
As of June 30, 2022, the convertible debenture had a fair value of $i14.0
million (US $i10.8 million) (June 30, 2021 – $i14.4 million (US $i11.6
million))(Note 7(b)). The Company recognized unrealized gains of $i1.0 million for the year ended June 30, 2022 (June 30, 2021 – $i0.4
million
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 7(b)). The
fair value was estimated using two coupled Black-Scholes models based on the following assumptions: estimated share price of $i3.71 (June 30, 2021 – $i3.71); risk-free interest
rate of i2.77% (June 30, 2021 – i0.29%); dividend yield of i0%
(June 30, 2021 – i0%); stock price volatility of i41.93% (June 30, 2021 – i44.75%);
credit spread of i1.34% (June 30, 2021 – i0.48%) and an expected life of i1.01
years (June 30, 2021 – i2.01 years). If the estimated volatility increases or decreases by iiii10///%,
the estimated fair value would increase or decrease by approximately $ii0.1/
million (June 30, 2021 – $ii0.2/
million). If the estimated share price increases or decreased by iiii10///%,
the estimated fair value would increase or decrease by approximately $ii0.2/
million (June 30, 2021 – $ii0.3/
million).
(g) High Tide Inc. (“High Tide”)
High Tide is an Alberta based, retail focused cannabis company and is publicly listed on the TSXV.
On December 12, 2018, the Company invested $i10.0 million in unsecured convertible debentures bearing an
interest rate of i8.5% per annum and maturing on December 12, 2020 (the “December 2018 Debentures”). The December 2018 Debentures are convertible into common shares of High Tide at $i0.75
per share at the option of the Company at any time after June 12, 2019.
On June 14, 2019, the Company invested $i1.0 million in unsecured convertible debentures of High Tide bearing interest of i10.0%
per annum, payable annually in advance in common shares of High Tide and maturing in itwo years from the date of issuance (the “June 2019 Debentures”). The June 2019 Debentures are convertible into common shares of High Tide at $i0.75
per share at the option of the Company at any time after December 14, 2019. The Company also received i1,333,333 warrants, each warrant entitling the Company to acquire ione
common share at an exercise price of $i0.85 per share for a period of itwo years.
On November 14,
2019, the Company invested $i2.0 million in senior unsecured convertible debentures of High Tide bearing an interest rate of i10% per annum and maturing on November 14,
2021 (the “November 2019 Debentures”). The November 2019 Debentures are convertible into common shares of High Tide at $i0.25 per share at the option of the Company any time after May 14, 2020. The Company also received i7,936,507
warrants, each warrant entitling the Company to acquire ione common share at an exercise price of $i0.50
per share for a period of itwo years.
On July 23, 2020, the Company entered into an amended restated secured convertible debenture (the “July 2020 Debenture”) agreement for its December 2018 Debentures. Under the terms of the amendment, the July 2020 Debenture is secured against the assets and properties of High Tide, bears no interest, are convertible into common shares of
High Tide at $i0.425 per share at the option of the Company at any time, and matures on January 1, 2025. The Company has also entered into a debt restructuring agreement whereby High Tide will pay a i0.5%
royalty payment on all non-Aurora product revenue generated by High Tide beginning November 1, 2021, with an automatic increase of an additional i0.5% each subsequent year. Payments under the July 2020 Debentures can be offset against other obligations between Aurora and High Tide.
The conversion of the July 2020 Debenture is subject to Aurora holding no more than a i25%
ownership interest in High Tide in accordance with the ownership restriction applicable to licensed producers under the Cannabis Retail Regulations in Ontario. The June 2019 Debentures and November 2019 Debentures are subject to Aurora holding no more than a i9.9% ownership interest in High Tide under the debenture agreements.
During the year ended June 30, 2021,
the Company converted its $i1.0 million June 2019 Debentures and $i2.0 million November 2019 Debentures into i9,269,840
common shares at a weighted average conversion price of $i0.42 with a fair value of $i6.3 million). The Company also exercised i7,936,507
warrants held in High Tide at $i0.50 per warrant with a fair value of $i2.8 million or a cost of $i4.0
million. Additionally, the Company sold all of its i18,650,197 common shares held in High Tide at a weighted average price of $i0.64 per share for net proceeds
of $i11.8 million. As a result, the Company recognized a realized loss of $i1.3 million through comprehensive
loss during the year ended June 30, 2021. The realized loss was calculated based on the deemed cost of $i13.1 million which represents the warrant exercise cost and the fair value of the derivatives on the conversion date. As of June 30, 2021, the Company held ino
common shares of High Tide.
The remaining i1,333,333 warrants exercisable at $i0.85
per warrant expired unexercised on June 14, 2021 resulting in a nominal fair value loss during the year ended June 30, 2021.
During the year ended June 30, 2022, $i1.0 million of High Tide service fees (June 30, 2021 - $i0.4
million) incurred by the Company were applied against the principal outstanding under the July 2020 convertible debentures. As of June 30, 2022, the remaining July 2020 convertible debentures had a fair value of $i8.4 million (June 30, 2021 – $i18.7
million), resulting in an unrealized loss of $i7.8 million for the year ended June 30, 2022 (June 30, 2021 – $i9.3
million) net of i1.0 million in repayments (June 30, 2021 - i0.4 million). The fair value of the convertible debentures was estimated using the FINCAD model with the following assumptions: share price
of $i0.17 (June 30, 2021 – $i0.66); credit spread of i12.6%
(June 30, 2021 – i11.9%); dividend yield of i0% (June 30, 2021 – i0%);
stock price volatility of i94% (June 30, 2021 – i102%) and an expected life of i2.51
years (June 30, 2021 – i3.51 years).
(Amounts
reflected in thousands of Canadian dollars, except share and per share amounts)
(i) Investee-C
Investee-C is a privately held Licensed Producer, based in Ontario, focused on growing premium craft cannabis in Canada.
On May 19, 2021, the Company invested $i2.5
million in a secured convertible debenture that matures on October 31, 2022. The debenture bears interest at i8% per annum on the outstanding principal with the first interest payable quarterly in arrears beginning September 30, 2021. The debenture is convertible into common shares of Investee-C at a i15%
discount to, the first to occur of: (i) the consideration received by a holder of Investee-C common shares pursuant to a change of control, or (ii) the issuance price of Investee-C common shares pursuant to a public offering.
As of June 30, 2022, the convertible debenture had a fair value of $i2.5 million (June 30, 2021 - $i2.5
million) estimated using the FINCAD model with the following assumptions: interest rate volatility of i39% (June 30, 2021 - i44%); risk-free rate of i2%
(June 30, 2021 - i1%); credit spread of i10% (June 30, 2021 - i7%);
and an expected life of i0.34 years (June 30, 2021 - i1.34 years).
( Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 7 iMarketable
Securities and Derivatives
(a) Marketable securities
Accounting Policy
Marketable securities are initially measured at fair value and are subsequently measured at fair value through profit or loss (“FVTPL”) or are designated at fair value through other comprehensive income (loss) (“FVTOCI”). The
Company designates its marketable securities as financial assets measured at FVTOCI. This designation is made on an instrument-by-instrument basis and if elected, subsequent changes in fair value are recognized in other comprehensive (loss) income only and not through profit or loss upon disposition.
( Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
(b) Derivatives
Accounting
Policy
Derivatives are initially measured at fair value and are subsequently measured at FVTPL. If the transaction price does not equal to fair value at the point of initial recognition, management measures the fair value of each component of the investment and any unrealized gains or losses at inception are either recognized in profit or loss or deferred and recognized over the term of the investment, depending on whether the valuation inputs are based on observable market data. The resulting unrealized gain or loss at inception and subsequent changes in fair value are recognized in profit or loss for the period. Transaction costs, which are directly attributable to the acquisition of the investment, are expensed as incurred. Refer to Note 28 for significant judgments in determining the fair value of derivative financial instruments.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 8 iInvestments
in Associates and Joint Ventures
Accounting Policy
Associates are companies over which Aurora has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence represents the power to participate in the financial and operating policy decisions of the investee but does not represent the right to exercise control or joint control over those policies.
A joint venture is a contractual arrangement whereby the
Company and other parties undertake an economic activity that is subject to joint control (i.e. when the strategic, financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control).
Investments in associates and joint ventures are accounted for using the equity method and are initially recognized at cost, excluding financial assets that are not in-substance common shares and inclusive of transaction costs. When the Company holds marketable securities or derivative financial assets and subsequently obtains significant influence in that investee, the fair value of the financial instruments are reclassified to investments in associates at the deemed cost with the cumulative unrealized fair value gains or losses in
other comprehensive loss, if any, transferred to deficit.
The consolidated financial statements include the Company’s share of the investee’s income, expenses and equity movements. Where the Company transacts with its joint ventures or associates, unrealized profits or losses are eliminated to the extent of the Company’s interest in the joint venture or associate.
Investments in associates and joint ventures are assessed for indicators of impairment at each period end. An impairment test is performed when there is objective evidence of impairment,
such as significant adverse changes in the environment in which the equity-accounted investee operates or there is a significant or prolonged decline in the fair value of the investment below its carrying amount. An impairment loss is recorded when the recoverable amount is lower than the carrying amount. An impairment loss is reversed if the reversal is related to an event occurring after the impairment loss is recognized. Reversals of impairment losses are recognized in profit or loss and are limited to the original carrying amount under the equity method as if no impairment had been recognized for the asset in prior periods. The Company uses judgment in assessing whether impairment has occurred or a reversal is required as well as the amounts of such adjustments.
ii
The
carrying value of investments in associates and joint ventures consist of:
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 9 iBiological
Assets
i
Accounting
Policy
The Company defines biological assets as cannabis plants up to the point of harvest. Biological assets are measured at fair value less costs to sell at the end of each reporting period in accordance with IAS 41 - Agriculture using the income approach. The Company utilizes an income approach to determine the fair value less cost to sell at a specific measurement date, based on the existing cannabis plants’ stage of completion up to the point of harvest. The stage of completion is determined based on the specific date of clipping the mother plant, the period-end reporting date, the average growth rate for the strain and facility environment and is calculated on a
weighted average basis for the number of plants in the specific lot. The following inputs and assumptions are all categorized within Level 3 on the fair value hierarchy and were used in determining the fair value of biological assets:
Inputs and assumptions
Description
Correlation between inputs and fair value
Average selling price per gram
Represents the average selling price per gram of dried cannabis net of excise taxes, where applicable, for the period for all strains of cannabis sold, which is expected to approximate
future selling prices.
If the average selling price per gram were higher (lower), estimated fair value would increase (decrease).
Average attrition rate
Represents the weighted average number of plants culled at each stage of production.
If the average attrition rate was lower (higher), estimated fair value would increase (decrease).
Weighted average yield per plant
Represents the weighted average number of grams of dried cannabis inventory expected to be harvested from each cannabis plant.
If
the weighted average yield per plant was higher (lower), estimated fair value would increase (decrease).
Cost per gram to complete production
Based on actual production costs incurred divided by the grams produced in the period.
If the cost per gram to complete production was lower (higher), estimated fair value would increase (decrease).
Weighted average effective yield
Represents the estimated percentage of harvested product that meets specifications in order to be sold as a dried cannabis product.
If the weighted average
effective yield were higher (lower), the estimated fair value would increase (decrease).
Stage of completion in the production process
Calculated by taking the weighted average number of days in production over a total average grow cycle of approximately twelve weeks.
If the number of days in production was higher (lower), estimated fair value would increase (decrease).
Production costs are capitalized to biological assets and include all direct and indirect costs relating to biological transformation. Costs include direct costs of production, such as labor, growing materials, as well as indirect costs such as indirect labor
and benefits, quality control costs, depreciation on production equipment, and overhead expenses including rent and utilities.
ii
The
following table highlights the sensitivities and impact of changes in significant assumptions on the fair value of biological assets grown at indoor facilities:
The
Company’s estimates are, by their nature, subject to change, and differences from the anticipated yield will be reflected in the gain or loss on biological assets in future periods.
The Company’s outdoor plants did not comprise a significant balance of biological assets as at June 30, 2022.
Biological
assets acquired through business combinations (Note 13)
i232
i—
Sale
of biological assets
(i387)
i—
Foreign
currency translation
(i1,233)
i—
Changes
in fair value less cost to sell due to biological transformation
i118,671
i109,178
Transferred
to inventory upon harvest
(i193,326)
(i156,334)
Ending
balance
i23,827
i20,250
/
As
of June 30, 2022, the weighted average fair value less cost to complete and cost to sell a gram of dried cannabis was $i3.12 per gram (June 30, 2021 - $i2.22
per gram) for indoor plants and $i0.13 per gram (June 30, 2021 - n/a) for outdoor plants.
During the year ended June 30, 2022, the Company’s biological assets produced i73,371
kilograms of dried cannabis (June 30, 2021 - i111,153 kilograms). As at June 30, 2022, it is expected that the Company’s indoor and outdoor biological assets will yield approximately i14,754
kilograms (June 30, 2021 – i18,599 kilograms) of dried cannabis when harvested. As of June 30, 2022, the weighted average stage of growth for the biological assets was i50%
(June 30, 2021 – i49%) for indoor plants and i38% (June 30, 2021 – n/a)
for outdoor plants.
Note 10 iInventory
i
Accounting
Policy
The Company defines inventory as all cannabis products after the point of harvest (“Cannabis Inventory”), hemp products, purchased finished goods for resale, consumable supplies and accessories. Cannabis Inventory includes harvested cannabis, trim, cannabis oils, capsules, edibles and vaporizers.
Inventories of harvested cannabis are transferred from biological assets at fair value less costs to sell at the point of harvest, which becomes the deemed cost. By-products, such as trim, are measured at their net-realizable-value (“NRV”) at point of harvest which is deducted from the total deemed cost to give a net cost for the primary product. Any subsequent post-harvest costs are capitalized to Cannabis
Inventory to the extent that the cost is less than NRV. NRV for work-in-process (“WIP”) and finished Cannabis Inventory is determined by deducting estimated remaining conversion/completion costs and selling costs from the estimated sale price achievable in the ordinary course of business. Conversion and selling costs are determined using average cost. In the period that Cannabis Inventory is sold, the fair value portion of the deemed cost is recorded within changes in fair value of inventory sold line, and the cost of such Cannabis Inventory, including direct and indirect costs, are recorded within the cost of sales line on the statement of comprehensive loss.
Products for resale, consumable supplies and accessories are initially recognized at cost and subsequently valued at the lower of cost and NRV. The
Company reviews these types of inventory for obsolescence, redundancy and slow turnover to ensure that they are written-down and reflected at NRV.
The Company uses judgment in determining the NRV of inventory. When assessing NRV, the Company considers the impact of the average selling price per gram, inventory spoilage, inventory excess, age and damage.
During
the year ended June 30, 2022, inventory expensed to cost of goods sold was $i318.8 million (June 30, 2021 - $i376.0
million), which included $i106.1 million (June 30, 2021 - $i118.7 million) of non-cash expense related to the changes in fair value of inventory
sold.
During the year ended June 30, 2022, the Company recognized $i137.0 million (June 30, 2021 - $i167.2
million) in inventory impairment losses consisting of $i71.9 million (June 30, 2021 - $i82.5 million) recognized in changes in fair value of inventory sold and $i65.1
million (June 30, 2021 - $i84.7 million) recognized in cost of sales.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 11 iProperty,
Plant and Equipment
i
Accounting Policy
Owned Assets
Property, plant and equipment
is measured at cost, net of accumulated depreciation and any impairment losses.
Cost includes expenditures that are directly attributable to the asset acquisition. The cost of self-constructed assets includes the cost of materials, direct labor, other costs directly attributable to make the asset available for its intended use, as well as relevant borrowing costs on qualifying assets as further described below. During their construction, property, plant and equipment are classified as construction in progress (“CIP”) and are not subject to depreciation. When the asset is available for use, it is transferred from CIP to the relevant category of property, plant and equipment and depreciation commences.
Where particular parts of an asset are significant, discrete and have distinct useful lives, the
Company may allocate the associated costs between the various components, which are then separately depreciated over the estimated useful lives of each respective component. Depreciation is calculated on a straight-line basis over the following estimated useful lives:
Computer software and equipment i3 years
Production equipment i2
- i10 years
Furniture and fixtures i5 years
Building and improvements i10
- i30 years
Residual values, useful lives and depreciation methods are reviewed annually and changes are accounted for prospectively.
Gains and losses on asset disposals are determined by deducting the carrying value from the sale proceeds and are recognized in profit or loss.
The
Company capitalizes borrowing costs on qualifying capital construction projects. Upon the asset becoming available for use, capitalization of borrowing costs ceases and depreciation commences on a straight-line basis over the estimated useful life of the related asset.
Right-of-use leased assets
Right-of-use assets are measured at cost, which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the useful life of the underlying asset. The depreciation is recognized from the commencement date of the lease.
If
the right-of-use asset is subsequently leased to a third party (a “sublease”), the Company will assess the classification of the sublease as to whether it is a finance or operating lease. Subleases that are classified as an operating lease will recognize lease income while a finance lease will recognize a lease receivable and derecognize the carrying value of the right-of-use asset, with the difference recorded in profit of loss.
Impairment of property, plant and equipment
The Company assesses impairment of property, plant and equipment when an impairment indicator arises (e.g. change in use or discontinued use, obsolescence
or physical damage). When the asset does not generate cash inflows that are largely independent of those from other assets or group of assets, the asset is tested at the cash generating unit (“CGU”) level. In assessing impairment, the Company compares the carrying amount of the asset or CGU to the recoverable amount, which is determined as the higher of the asset or CGU’s fair value less costs of disposal and its value-in-use. Value-in-use is assessed based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects applicable market and economic conditions, the time value of money and the risks specific to the asset. An impairment loss is recognized whenever the carrying amount of the asset or CGU exceeds its recoverable amount and is recorded in the consolidated statements of comprehensive loss.
(1)Includes
reclassification of construction in progress cost when associated projects are complete. Includes the transfer of facilities to assets held for sale to assets held for sale as at June 30, 2022 (Note 12(a)).
(2)During the year ended June 30, 2021, the Company derecognized $i5.3 million of right-of-use assets
as a result of subleases where the Company is an intermediate lessor. Included in real estate owned and right-of-use assets is $i3.4 million and $i0.1 million, respectively,
related to operating subleases where the Company is an intermediate lessor.
/
During the year ended June 30, 2021, the Company sold itwo
production facilities for net proceeds of $i13.9 million with an aggregate carrying value of $i3.8 million. As a result, the
Company recognized a $i10.1 million gain on disposal of property, plant and equipment.
During the year ended June 30, 2021, $i2.1
million in borrowing costs were capitalized to construction in progress at a weighted average interest rate of i13%. There were no borrowing costs capitalized to construction in progress during the year ended June 30, 2022.
Depreciation relating to manufacturing equipment and production facilities for owned and right-of-use leased assets is capitalized into biological assets and inventory, and
is expensed to cost of sales upon the sale of goods. During the year ended June 30, 2022, the Company recognized $i60.2 million (June 30, 2021 - $i66.5
million) of depreciation expense of which $i34.5million (June 30, 2021 - $i38.1
million) was reflected in cost of sales.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Impairments
The
Company reviews the carrying value of its property, plant and equipment at each reporting period for indicators of impairment. During the year ended June 30, 2022 and June 30, 2021, management noted indicators of impairment at the asset specific level, the Cash Generating Unit (“CGU”) level and the Operating Segment level which are discussed below.
As a result of the Company’s change in strategy during the year ended June
30, 2022 to focus on lower volume, higher margin premium categories, management made the decision that it will close its Aurora Sky facility in Edmonton, Alberta, which is an indicator of impairment. The fair value of the manufacturing facility was determined based on a third-party appraisal using a FVLCD approach including market and cost approaches. Consideration is given to information from historical data and industry standards which constitute both observable and unobservable inputs (level 2 and level 3). As a result, the Company recognized a $i154.5
million impairment loss for the manufacturing facility for the year ended June 30, 2022. The manufacturing facility and the corresponding impairment loss is allocated to the Canadian cannabis operating segment (Note 27).
During the year ended June 30, 2022, management recorded an impairment of $i21.1
million for its Polaris facility in Edmonton, Alberta, as a result of observable indications that its market value has declined more than would be expected as a result of the passage of time or normal use, which is an indicator of impairment. The fair value of the manufacturing facility was determined based on offers to purchase received from third-parties. The manufacturing facility and the corresponding impairment loss is allocated to the Canadian cannabis operating segment (Note 27).
In connection with the announced restructuring during the year ended June 30, 2022 (Note 3), management had noted indicators of impairment for property, plant and equipment associated with the closure of certain facilities. The recoverable amount of these assets were estimated using a FVLCD approach (Level
3) which resulted in a nominal value. As a result, the Company recognized a $i7.4 million impairment loss relating to these assets for the year ended June 30, 2022, of which $i6.8
million was allocated to the Canadian cannabis operating segment and $i0.6 million was allocated to the international operating segment (Note 27).
During the year ended June 30, 2021, the
Company initiated a plan to consolidate its operations in Europe with corporate office closures in Portugal, Spain and Italy. As a result, the Company recognized a $i1.5 million impairment loss relating to certain European property, plant and equipment. The Company also identified other custom equipment in
Canada that is no longer intended to be used, resulting in a $i8.7 million impairment loss for the year ended June 30, 2021. Both the impairment losses are allocated to the cannabis operating segment (Note 27).
During the year ended June 30, 2021, the
Company halted construction at the Aurora Sun facility which is an indicator of impairment. The fair value of the Aurora Sun facility was determined based on a third-party appraisal using a Fair Value Less Cost of Disposal (“FVLCD”) approach including market and cost approaches in the context of an orderly liquidation process. Consideration is given to information from manufacturers, historical data and industry standards which constitute both observable and unobservable inputs (level 2 and level 3). As a result, the Company recognized a $i220.8 million
impairment loss for Aurora Sun for the year ended June 30, 2021. The Aurora Sun facility, and the corresponding impairment loss, is allocated to the cannabis operating segment (Note 27).
The Company has constructed a cannabis production facility in Germany which is no longer expected to generate cash inflows as initially forecasted, which is an indicator of impairment. The fair value of the production facility was determined using a FVLCD approach (level 3). As a result, the Company recognized a $i31.2 million
impairment loss for the production facility for the year ended June 30, 2021. The German production facility and the corresponding impairment loss is allocated to the cannabis operating segment (Note 27).
During the year ended June 30, 2021, management had plans to close a Canadian manufacturing facility, which is an indicator of impairment. The fair value of the manufacturing facility was determined based on a third-party appraisal using a FVLCD approach including market and cost approaches. Consideration is given to information from historical data and industry standards which constitute both observable and unobservable inputs (level 2 and level 3). As a result, the Company recognized a $i10.9 million
impairment loss for the manufacturing facility for the year ended June 30, 2021. The manufacturing facility and the corresponding impairment loss is allocated to the cannabis operating segment (Note 27).
During the year ended June 30, 2022, the Company recognized impairment losses within its Canadian CGU and Canadian Cannabis operating segment and allocated impairment losses of $i60.7
million to property, plant and equipment (Note 15]. The impairment losses are allocated to the Canadian Cannabis operating segment (Note 27).
Note 12 iAssets and Liabilities Held for Sale and Discontinued Operations
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
i
Accounting
Policy
Assets Held for Sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continued use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and the fair value less costs of disposal. Impairment losses recognized upon initial classification as held-for-sale and subsequent gains and losses on re-measurement are recognized in the statement of comprehensive loss. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortized or depreciated.
Discontinued Operations
A
disposal group qualifies as discontinued operations if it is a component of an entity that has either been disposed of, or is classified as held for sale, and (i) represents a separate major line of business or geographical area of operations, (ii) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or (iii) is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of comprehensive loss and comparative periods have been restated.
(a) Assets
and Liabilities Held for Sale
i
Assets held for sale are comprised of the following:
(Amounts
reflected in thousands of Canadian dollars, except share and per share amounts)
Colombia Property
In connection with the Company’s business transformation plan during the year ended June 30, 2021, the Company listed for sale its Colombian land which had a
carrying value of $i3.2 million. The fair value of the land was estimated using a market approach resulting in a FVLCD of $i1.9
million. As a result, the Company recognized an impairment loss of $i1.3 million for the year ended June 30, 2021. The impairment loss was included in impairment of property, plant and equipment in the statement of comprehensive loss.
Restructuring Facilities
During
the year ended June 30, 2021, the Company entered into agreements to sell its Mountain facility, located in Alberta, and its Prairie facility, located in Saskatchewan, in connection with its business transformation plan and as such, the two facilities were reclassified from property, plant and equipment to assets held for sale. The fair values of the facilities were estimated using a market approach resulting in a FVLCD of $i14.2
million which resulted in an impairment loss of $i7.8 million for the year ended June 30, 2021. The impairment loss was included in impairment of property, plant and equipment in the statement of comprehensive loss.
During the year ended June 30, 2022, the
Company sold these facilities for combined net proceeds of $i11.4 million and carrying value of $i13.6
million. As a result, the Company recognized a $i2.2 million loss on disposal which is recognized in other gains (losses) in the statement of comprehensive loss (Note 21).
Uruguay Properties
In connection with the
Company’s business transformation plan during the year ended June 30, 2020, the Company listed for sale itwo properties in Uruguay which had a total carrying value of $i2.0
million. As a result, the Company reclassified the land from property, plant, and equipment to assets held for sale. During the year ended June 30, 2021, the Company sold both properties for $i1.4 million (US$i1.1 million)
resulting in a $i0.5 million loss on disposal. The loss on disposal is recognized in other gains (losses) in the statement of comprehensive loss (Note 21).
During the year ended June 30, 2022, management committed to sell its recreational production facility located in Uruguay and listed the property for sale. As a result, the
Company reclassified the asset with a carrying value of $i0.7 million from property, plant, and equipment to assets held for sale. The Company sold the facility for net proceeds of $i0.6
million and recognized a $i0.1 million loss on disposal within other gains (losses) in the statement of comprehensive loss (Note 21).
Jamaica Property
In connection with the Company’s business transformation plan during the year ended June 30, 2020, the
Company listed for sale its Jamaica land which had a carrying value of $i4.2 million. As a result, the Company reclassified it from property, plant, and equipment to assets held for sale. The fair value of the land was estimated based on the accepted offer on the property for proceeds of $i4.3
million, net of selling costs. As the estimated net proceeds was higher than the carrying value, ino impairment was recognized. On August 19, 2020, the Company entered into an agreement to sell the Jamaica property for net proceeds of $i4.0
million.
Nordic Sky
During the year ended June 30, 2022, management committed to sell its production facility located in Denmark and listed the property for sale. As a result, the Company reclassified the asset with a carrying value of $i8.8
million from property, plant, and equipment to assets held for sale. On March 15, 2022 net proceeds of approximately$i7.5 million were received by the Company resulting in a loss of disposal
of $i1.3 million which is recognized in other gains (losses) in the statement of comprehensive loss (Note 21).
Aurora Sun
During the year ended June 30, 2022, the Company entered into a
share purchase agreement (the “Agreement”) to sell 2105657 Alberta Ltd., a wholly owned subsidiary which owns the Aurora Sun facility located in Alberta. Total consideration for the Transaction is for $i46.8 million. The closing of the Transaction is subject to certain standard closing conditions for both parties. The assets and liabilities of the subsidiary have been reclassified to assets and liabilities held for sale following the execution of the Agreement and are comprised of the following as at June 30, 2022:
$
Property, plant and equipment
i34,404
Assets held for
sale
i34,404
Accounts payable and accrued liabilities
i11
Provisions
i2,000
Liabilities
held for sale
i2,011
Subsequent to June 30, 2022the
Company has given notice to terminate the agreement due to the prospective buyer’s failure to fulfill closing conditions (Note 31).
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
In
connection with the restructuring announced during the year ended June 30, 2022 (Note 3), the Company listed its Valley facility for sale. As a result, the Company reclassified it from property, plant, and equipment to assets held for sale. The fair value of the facility was determined based on an accepted offer for the facility for proceeds of $i5.9
million, resulting in an impairment loss of $i2.8 million. The impairment loss was included in impairment of property, plant and equipment in the statement of comprehensive loss. On June 9, 2022, the Company entered into an agreement to sell the facility for proceeds of $i5.9
million. The transaction closed on August 15, 2022.
Polaris
During the year ended June 30, 2022, management committed to sell its facility and associated right of use leased asset located in Alberta and listed the property for sale. As a result. the Company reclassified the facility and right of use leased asset from property, plant and equipment to assets held for sale and the associated lease liability was reclassified to liabilities held for sale. The fair value of the facility and right of use leased asset were determined based on an offer received for proceeds of $i15
million, resulting in an impairment loss of $i12.5 million. The impairment loss was included in impairment of property, plant and equipment in the statement of comprehensive loss. The assets and liabilities held for sale are comprised of the following at June 30, 2022:
$
Property,
plant and equipment
i18,678
Assets held for sale
i18,678
Lease
liability
i3,977
Liabilities held for sale
i3,977
Whistler
Alpha Lake
In connection with the restructuring announced during the year ended June 30, 2022 (Note 3), the Company listed its Whistler Alpha Lake facility for sale. As a result, the Company reclassified it from property, plant, and equipment to assets held for sale. The fair value of the facility was determined based on a valuation of the property.
(b) Discontinued Operations
There were no transactions within discontinued operations during the year ended June
30, 2022. iThe following table summarizes the Company's consolidated discontinued operations for the year ended June 30, 2021:
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Sale of Aurora Hemp Europe (“AHE”)
On July 23, 2020, the
Company divested its wholly owned Lithuanian subsidiary, AHE, to the subsidiary’s President and former owner. Aurora Hemp Europe provided hemp seed contracting and processing. The sale was a result of hemp-based consumer packaged goods no longer aligning with the Company’s strategy to focus on core cannabis operations. As AHE represented a separate line of business of the Company, the revenue, expenses and cash flows related to AHE’s operations have been presented in these consolidated financial statements as discontinued operations on a retroactive basis. AHE was sold for gross consideration of $i3.0
million which shall be paid in 12 quarterly installments beginning on June 30, 2022. The $i1.9 million fair value of the consideration receivable on the disposal date was determined by the present value of principal and interest payments, discounted at a rate of i15%
which represents management’s best estimate of the rate that a similar interest bearing loan receivable with similar terms and risk would earn. As a result of the divestiture, the Company recognized a $i2.8 million loss on disposal during the year ended June
30, 2021.
Dissolution of Hempco Food and Fiber Inc. (“Hempco”)
During the year ended June 30, 2021, the Company dissolved its wholly owned subsidiary, Hempco. Hempco was in the business of producing and selling hemp products within Canada. The decision was a result of hemp-based consumer packaged goods no longer aligning with the Company’s strategy to focus on core cannabis operations. As Hempco represented a separate line of business of the Company, the revenue, expenses and cash flows related
to Hempco’s operations have been presented in these consolidated financial statements as discontinued operations on a retroactive basis. As a result of the dissolution, the Company recognized a $i0.1 million loss on disposal during the year ended June
30, 2021.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note
13 iBusiness Combinations
i
Accounting
Policy
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. The identifiable assets acquired and liabilities assumed are recognized at their acquisition date fair values, except for deferred taxes and share-based payment awards where IFRS provides exceptions to recording the amounts at fair value. Goodwill represents the difference between total consideration paid and the fair value of the net
identifiable assets acquired. Acquisition costs incurred are expensed through the statement of comprehensive loss.
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 an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 9 Financial Instruments with the corresponding gain or loss recognized in profit or loss.
Based on the facts and circumstances that existed at
the acquisition date, management will perform a valuation analysis to allocate the purchase price based on the fair values of the identifiable assets acquired and liabilities assumed on the acquisition date. Management has one year from the acquisition date to confirm and finalize the facts and circumstances that support the finalized fair value analysis and related purchase price allocation. Until such time, these values are provisionally reported and are subject to change. Changes to fair values and allocations are retrospectively adjusted in subsequent periods.
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 earn-out milestones 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.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.
Thrive
Cannabis (“Thrive”)
On May 5, 2022, the Company acquired TerraFarma Inc. (parent company of Thrive), a Canadian company based in Ontario specialized in the sale of innovative premium cannabis products including dried flower, pre-rolls, vapour products and concentrates.
The Company acquired all of the issued and outstanding shares of TerraFarma Inc. for an aggregate initial consideration of $63.3 million consisting of $i27.0
million paid in cash, $i9.2 million through the issuance of 2,467,421 Common Shares, $i9.7 million for earned milestones issuable in Common Shares and $i3.0
million withheld as an indemnity holdback payable in cash or shares, or a combination of both, at the Company’s discretion. On July 7, 2022, the Company issued i2,614,995 Common Shares for the $i9.7
million of equity consideration relating to earned milestones known at the time of the acquisition.
Additional consideration of up to $i14.4 million in potential earnout amounts is payable in cash, Common Shares or a combination of both, at the election of the Company, subject to Thrive achieving certain revenue targets within itwo
years of closing the transaction.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
i
Total
consideration
Cash paid
i26,983
Common shares issued
i9,230
Common
shares issuable
i9,683
Indemnity holdback
i3,000
Contingent
consideration
i14,371
i63,267
Net
identifiable assets acquired (liabilities assumed)
Cash
i2,513
Accounts receivables
i3,713
Biological
assets
i232
Inventories
i10,441
Prepaid
expenses and deposits
i151
Investments in associates
i1,156
Property,
plant equipment
i10,453
Intangible assets
Permits and licenses
i6,100
Brand
i10,800
i45,559
Accounts
payable and accruals
i5,831
Deferred tax liability
i2,862
i8,693
Provisional
purchase price allocation
Net identifiable assets acquired
i36,866
Goodwill
i26,401
i63,267
Net
cash outflows
Cash consideration paid
(i26,983)
Cash acquired
i2,513
(i24,470)
/
Goodwill
arising from the acquisition represents expected synergies, future income and growth, and other intangibles that do not qualify for separate recognition. The goodwill arising on this acquisition is expected to be fully deductible for tax purposes. During the year ended June 30, 2022, the Company recognized an impairment loss on goodwill of $i26.4 million (Note 15).
Management
continues to gather relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired and liabilities assumed. As such the initial purchase price was provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired and the liabilities assumed on the acquisition date. The values assigned are, therefore, preliminary and subject to change. Management continues to refine and finalize its purchase price allocation for the fair value of identifiable intangible assets and the allocation of goodwill.
For the year ended June 30, 2022, Thrive accounted for $i1.4
million in revenue and $i3.2 million in net loss since the May 5, 2022 acquisition date. If the acquisition had been completed on July 1, 2021, the Company estimates it would have recorded an increase of $i10.3
million in revenue and an increase of $i22.1 million in net loss for the year ended June 30, 2022.
Note 14 iAsset
Acquisition and Non-controlling Interest (“NCI”)
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
i
Accounting
Policy
Non-controlling interests (“NCI”) are recognized either at fair value or at the NCI’s proportionate share of the acquiree’s net assets, determined on an acquisition-by-acquisition basis. For each acquisition, the excess of the total consideration, the fair value of previously held equity interests held prior to obtaining control and the NCI in the acquiree, over the fair value of the identifiable net asset acquired, is recorded as goodwill.
i
The
change in non-controlling interest is as follows:
$
Non-controlling interest on initial capital contribution
On November 12, 2021, the Company, through its wholly-owned indirect subsidiary, Aurora Nederland B.V., entered into a sale and purchase agreement to purchase i40% of the issued and outstanding shares in Growery B.V. (“Growery”). The Company controls
Growery as it has the right to nominate itwo of ithree
members of the Supervisory Board of Growery, and decisions require a simple majority. Based on having a controlling interest, the Company has consolidated Growery’s results in these consolidated financial statements.
The Company accounted for this purchase as an asset acquisition. In connection with the asset acquisition, the Company made an upfront cash payment of $i0.6 million
(EUR i0.4 million). In addition, the Company is obligated to make aggregate cash milestone payments of up to $i5.8 million
(EUR $i4.0 million) upon Growery achieving sufficient profits available for distribution, and up to $i4.3 million
(EUR i3.0 million) upon Growery achieving certain revenue targets. The Company recognized NCI of $i0.9 million
(EUR i0.6 million) based on its proportion share of Growery’s net assets. The difference between the purchase price and the net assets acquired has been allocated to intangible assets. A definite life intangible asset license of $i2.0 million
(EUR i1.4 million) has been recognized in these financial statements. The Company incurred transaction costs of $i0.1 million
(EUR i0.1 million) which have been capitalized to the net assets acquired.
Netherlands-based Growery is in the business of cultivation, production and sale of recreational cannabis. Growery is one of the few license holders permitted to participate in the Controlled Cannabis Supply Chain Experiment (the “CCSC”). The CCSC
is scheduled to be in effect for a minimum of four years, during which the Dutch government will evaluate if the rules of the CCSC should be expanded nationally.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note
15 iIntangible Assets and Goodwill
Accounting Policy
Intangible
assets
Intangible assets are recorded at cost less accumulated amortization and any impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is calculated on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any, over the following terms:
Customer relationships Health Canada licenses Other operating licenses Patents IP and Know-how ERP Software
i14
years Useful life of the facility i10 years i10 years i10
years i5 years
The estimated useful lives, residual values and amortization methods are reviewed annually and any changes in estimates are accounted for prospectively. Intangible assets with an indefinite life or not yet available for use are not subject to amortization.
Research costs are expensed as incurred. Development expenditures are
capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development to use or sell the asset. Other development expenditures are recognized as research and development expenses on the consolidated statement of comprehensive loss as incurred. Capitalized deferred development costs are internally generated intangible assets.
Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the cash generating unit
(“CGU”) or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.
Impairment of intangible assets and goodwill
Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment.
Goodwill and indefinite life intangible assets are tested annually at June 30
for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment. The Company’s goodwill is allocated to the Canadian Cannabis Operating segment and the International Cannabis Operating segment, which represents the lowest level at which management monitors goodwill. The allocation of goodwill to the CGUs or group of CGUs requires the use of judgment.
An impairment loss is recognized for the amount by which the operating segment or CGU’s carrying amount exceeds it
recoverable amount. The recoverable amounts of the CGUs’ assets have been determined based on the higher of fair value less costs of disposal and value-in-use. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified. A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior period.
Impairment losses on goodwill are not subsequently reversed.
(1)Indefinite
life permits and licenses are predominantly held by the Company’s foreign subsidiaries. Given that these permits and licenses are connected to the subsidiary rather than a specific asset, there is no foreseeable limit to the period over which these assets are expected to generate future cash inflows for the Company.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
As at June 30, 2022, $i36.2
million and $i20.0 million indefinite life intangibles were allocated to the group of cash generating units (“CGUs”) that comprise the Canadian Cannabis Segment and the International Cannabis Segment, respectively (June 30, 2021 - $i172.6
million allocated to the group of CGUs that comprise the Cannabis segment (Note 27). As at the July 1, 2021 date of the operating segment reorganization (Note 27), $i741.7 million and $i146.0 million of goodwill was allocated to the Canadian Cannabis Segment and the International Cannabis
Segment, respectively (June 30, 2021 - $i887.7 million of goodwill was allocated to the Cannabis operating segment).
At the end of each reporting period, the Company assesses whether events or changes in circumstances have occurred that would indicate that a CGU or group of CGUs were impaired. The Company considers external and internal factors, including
overall financial performance and relevant entity-specific factors, as part of this assessment.
(a) Asset Specific Impairments
In connection with the announced restructuring during the year ended June 30, 2022 (Note 3), management had noted indicators of impairment for intangible assets associated with the closure of certain facilities. The recoverable amount of the intangibles were estimated using a FVLCD approach (Level 3) which resulted in a nominal value. As a result, the Company recognized a $i9.4
million impairment loss relating to these intangible assets for the year ended June 30, 2022. The impairment loss was allocated to the Canadian cannabis operating segment (Note 27).
During the year ended June 30, 2022, management had noted indicators of impairment for customer relationship intangible assets. The recoverable amount of the intangible asset was estimated using a FVLCD approach (Level 3) which resulted in a nominal value. As a result, the Company recognized a $i3.7
million impairment loss for the year ended June 30, 2022. The impairment loss was allocated to the International cannabis operating segment (Note 27).
During the year ended June 30, 2021, the Company identified certain enterprise resource planning projects that will be discontinued as part of the Company’s ongoing business transformation plan. The recoverable amount of the projects were estimated by using a FVLCD approach (level 3) which resulted in a nominal value. As a result, the Company recognized a $i3.8
million impairment loss relating to these intangible assets for the year ended June 30, 2021. The impairment loss was allocated to the Canadian cannabis operating segment (Note 27).
(b) CGU and Goodwill Impairments
As at June 30, 2022 and 2021 the Company performed its annual impairment test on its indefinite life intangible assets and goodwill. The recoverable amount of the operating segments to which goodwill is allocated and the CGUs to which indefinite life intangibles are allocated were determined based on FVLCD using Level 3 inputs in a discounted cash flow (“DCF”) analysis. As the Canadian and International cannabis
operating segments are comprised of various CGUs, management tested the individual CGUs, which contain the indefinite life intangibles, for impairment before the Canadian and International cannabis operating segment which contains the associated goodwill. Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate DCF results. The significant assumptions applied in the determination of the recoverable amount are described below:
i.Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. Estimated cash flows are primarily driven by forecasted revenues and operating costs. The Canadian Cannabis CGU, European Cannabis CGU, the Canadian Cannabis Operating
Segment, and International Cannabis Operating Segment forecasts are extended to a total of four years (and a terminal year thereafter);
ii.Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators, and projected industry growth;
iii.Post-tax discount rate: The post-tax discount rate is reflective of the CGUs and Operating Segments Weighted Average Cost of Capital (“WACC”). The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields; and
iv.Tax rate: The tax rates used in determining
the future cash flows were those substantively enacted at the respective valuation date.
As at June 30, 2022, management had noted the following impairment indicators:
•Decline in stock price and market capitalization - As at June 30, 2022, the carrying amount of the Company’s total net assets exceeded the Company’s market capitalization; and
•Changes
in cannabis market conditions and capital market environment, including higher rates of borrowing and lower foreign exchange rates.
The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at June 30, 2022 and 2021:
Budgeted
revenue growth rate (average of next i4 years)
i18.1%
i23.1%
i18.2%
i23.7%
Fair
value less cost to dispose
$i319,828
$i48,052
$i264,829
$i69,021
Canadian
Cannabis CGU
European Cannabis CGU
Cannabis Operating Segment
U.S. CBD CGU
June 30. 2021 (1)
Terminal value growth rate
i3.0%
i3.0%
i3.0%
i3.0%
Discount
rate
i13.8%
i14.5%
i14.0%
i14.8%
Budgeted
revenue growth rate (average of next 4 years)
i53.4%
i60.8%
i53.7%
i47.4%
Fair
value less cost to dispose
$i1,587,207
$i183,480
$i1,915,366
$i4,368
(1)
Reflects the Canadian Cannabis CGU and Cannabis Operating Segment prior to the operating segment reorganization as at July 1, 2021 (Note 27).
In addition to the annual impairment test, at the end of each reporting period, the Company assesses whether there were events or changes in circumstances that would indicate that a CGU or group of CGUs were impaired. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment.
As at March 31, 2022,
management had noted indicators of impairment present within its Canadian Cannabis CGU and as a result performed an indicator-based impairment test as at March 31, 2022. The following factors were identified impairment indicators for the Canadian Cannabis CGU as at March 31, 2022:
•Change in strategy for the Canadian consumer business - during the three months ended March 31, 2022, the Company changed its strategy to focus on lower volume, higher margin premium categories.
•Revenue decline in Canadian consumer market - driven by increased competition and irrational
wholesale pricing; and
•Decline in stock price and market capitalization - As at March 31, 2022, the carrying amount of the Company’s total net assets exceeded the Company’s market capitalization.
As the Canadian Cannabis CGU is allocated to the Canadian Cannabis Operating Segment, management also tested the Canadian Cannabis Operating Segment.
The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at March
31, 2022:
Budgeted revenue growth rate
(average of next i4.25 years)
i33.4%
i33.4%
Fair
value less cost to dispose
$i711,158
$i634,861
CGU
impairment
Canadian Cannabis CGU
The Company’s Canadian Cannabis CGU represents its operations dedicated to the cultivation and sale of cannabis products within Canada and forms part of the Company’s Canadian Cannabis Operating Segment. Management concluded that the recoverable amount was lower than the carrying value as at June 30, 2022, and recorded impairment losses of $i315.9
million (June 30, 2021 - inil). Management allocated the impairment loss based on the relative carrying amounts of the CGU’s assets at the impairment date, with no individual asset being reduced below its recoverable amount. Management allocated $i258.1
million of impairment losses to the CGU’s intangible assets and $i57.8 million of impairment losses to property, plant and equipment (Note 11).
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
The Company’s European Cannabis CGU represents its operations dedicated to the cultivation and sale of cannabis products within Europe and certain international markets and forms part of the
Company’s International Cannabis Operating Segment. Management concluded that the recoverable amount was higher than the carrying value as at June 30, 2022, and ino impairment was recognized within the European Cannabis CGU (June 30, 2021 - inil).
Operating
segment impairment
Canadian Cannabis Operating Segment
Management concluded that the recoverable amount was lower than the carrying value as at March 31, 2022, and an impairment of $i741.7million was recognized against goodwill within the Canadian Cannabis Operating Segment.
Management
concluded that the recoverable amount was lower than the carrying value as at June 30, 2022, and an impairment of $i43.1 million was recognized within the Canadian Cannabis Operating Segment (June 30, 2021 - inil).
An impairment loss of $i26.4 million was recognized against goodwill and the remaining impairment loss was allocated based on the relative carrying amounts of the operating segment’s assets at the impairment date, with no individual asset being reduced below its recoverable amount. Management allocated $i13.8
million of impairment losses to the operating segment’s intangible assets and $i2.9 million of impairment losses to property, plant and equipment (Note 11).
International Cannabis Operating Segment
Management concluded that the recoverable amount was lower than the carrying value as at June 30, 2022, and an
impairment of $i146.1 million was recognized against goodwill within the International Cannabis Operating Segment (June 30, 2021 - inil).
Note
16 iConvertible Debentures
i
Accounting
Policy
Convertible debentures are financial instruments which are accounted for separately dependent on the nature of their components: a financial liability and an equity instrument. The identification of such components embedded within a convertible debenture requires significant judgment given that it is based on the interpretation of the substance of the contractual arrangement. Where the conversion option has a fixed conversion rate, the financial liability, which represents the obligation to pay coupon interest on the convertible debentures in the future, is initially measured at its fair value and subsequently measured at amortized cost. The residual amount is accounted for as an equity instrument at issuance. Where the conversion option has a variable conversion rate, the conversion option is recognized as a derivative liability measured at fair value through profit and loss. The
residual amount is recognized as a financial liability and subsequently measured at amortized cost. The determination of the fair value is also an area of significant judgment given that it is subject to various inputs, assumptions and estimates including: contractual future cash flows, discount rates, credit spreads and volatility.
Transaction costs are apportioned to the debt liability and equity components in proportion to the allocation of proceeds.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
On January 24, 2019, the Company issued $i460.6
million (US$i345.0 million) in aggregate principal amount of Convertible Senior Notes due 2024 (“Senior Notes”) issued at par value. Holders may convert all or any portion of the Senior Notes at any time. The Senior Notes are unsecured, mature on February 28, 2024 and bear cash interest semi-annually at a rate of i5.5%
per annum. The initial conversion rate for the Senior Notes is i11.53 Common Shares per US$i1,000 principal amount
of Senior Notes, equivalent to an initial conversion price of approximately US$i86.72 per Common Share. On and after February 28, 2022 and prior to February 28, 2024, the Senior Notes are redeemable in whole or in part from time to time at the Company’s option at par plus accrued and unpaid interest, provided that the VWAP of the shares on the Nasdaq for at least i20
trading days, during any i30 consecutive trading day period ending immediately preceding the date on which the notice of redemption is given, is not less than i130%
of the conversion price then in effect, which currently equates to $i112.74 per share.
At maturity, the Company has the option, upon not more than i60
nor less than i30 days prior notice, to satisfy its obligations to pay on redemption or maturity, the principal amount of the Senior Notes, in whole or in part, in cash or by delivering freely tradable shares. Any accrued and unpaid interest will be paid in cash. Where redemption is executed through the issuance of shares, payment will be satisfied by delivering for each $i1,000
due, that number of freely tradable shares obtained by dividing $i1,000 by the VWAP of the shares on the Nasdaq for the i20
consecutive trading days ending i10 trading days prior to the date fixed for redemption or maturity.
Holders will also have the right to require Aurora to repurchase their Senior Notes upon the occurrence of certain customary events at a purchase price equal to i100%
of the principal amount of the Senior Notes to be repurchased, plus accrued and unpaid interest.
The Senior Notes and any Common Shares of Aurora issuable upon conversion of the Senior Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws, or qualified for distribution by prospectus in Canada, and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements, or sold in Canada absent an exemption from the prospectus requirements of Canadian securities laws.
In accordance with IFRS 9, the equity conversion option embedded in the Senior Notes was determined to be a derivative liability, which has been recognized separately at its fair value. Subsequent changes in the
fair value of the equity conversion option are recognized through profit and loss (i.e. FVTPL). The equity conversion option was classified as an option liability as it can be settled through the issuance of a variable number of shares, cash or a combination thereof, based on the exchange rate and or trading price at the time of settlement.
The debt host has been recognized at its amortized cost of $i276.4 million, which represents the remaining fair value allocated from total net proceeds received of $i445.6
million (US$i334.7 million) after $i169.2 million (US$i126.8
million) was allocated to the derivative liability representing the equity conversion option. Management elected to capitalize transaction costs, which are directly attributable to the issuance of the Senior Notes. These transaction costs total $i15.0 million and have been netted against the principal amount of the debt.
As of June 30, 2022, $i269.2
million (US$i208.9 million) principal amount of the Senior Notes are outstanding.
As of June 30, 2022, the conversion option had a fair value of $i0.0million (June 30, 2021 - $i3.1 million) and the Company recognized an unrealized gain of $i3.1
million (year ended June 30, 2021 - unrealized loss of $1.3 million) on the derivative liability). The fair value of the conversion option was determined based on the Kynex valuation model with the following assumptions: share price of US$i1.32 (June 30, 2021 - US$i9.04),
volatility of i82% (June 30, 2021 - i87%), implied credit spread of i903
bps (June 30, 2021 - i1,302 bps), and assumed stock borrow rate of i10% (June
30, 2021 - i10%). As of June 30, 2022, the Company has accrued interest payable of $i6.6 million
(June 30, 2021 - $i8.6 million) on these Senior Notes.
During the year ended June 30, 2022, the Company repurchased a total of $i175.7
million (US$i136.1 million) in principal amount of the Senior Notes at a total cost, including accrued interest, of $i167.1 million
(US$i129.4 million), and recorded a loss of $(i19.4) million within other gains (losses) in the statement of comprehensive loss.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Accounting Policy
The Company assesses whether a contract is or contains a lease at
inception of the contract. A lease is recognized as a right-of-use asset and corresponding liability at the commencement date. Each lease payment included in the lease liability is apportioned between the repayment of the liability and a finance cost. The finance cost is recognized in “finance and other costs” in the consolidated statement of comprehensive loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. Lease liabilities represent the net present value of fixed lease payments (including in-substance fixed payments); variable lease payments based on an index, rate, or subject to a fair market value renewal condition; 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 it is probable that the lessee will exercise that option.
The Company’s lease liability is recognized net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the lease payments are discounted is the expected lease term, including renewal and termination options that the Company is reasonably certain to exercise.
Subsequently, if there is a change to the expected lease term within the control of the lessee, the lease liability
will be remeasured using the updated term and revised discount rate on a prospective basis.
Payments associated with short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis in general and administration and sales and marketing expense in the consolidated statement of comprehensive loss. Short-term leases are defined as leases with a lease term of 12 months or less. Variable lease payments that do not depend on an index, rate, or subject to a fair market value renewal condition are expensed as incurred and recognized in costs of goods sold, general and administration, or sales and marketing expense, as appropriate given how the underlying leased asset is used, in the consolidated statement of comprehensive loss.
If the right-of-use asset is subsequently leased
to a third party (a “sublease”), the Company will assess the classification of the sublease as to whether it is a finance or operating lease. Subleases that are classified as an operating lease will recognize lease income, while a financing lease will recognize a lease receivable and derecognize the carrying value of the right-of-use asset, with the difference recorded in profit or loss.
i
The
changes in the carrying value of current and non-current lease liabilities are as follows:
(1) As part of the Company’s restructuring activities (Note 3), management re-assessed the likelihood
of executing renewal options of its existing leases which resulted in a reduction of the assessed lease term of several of the Company’s leases.
For the year ended June 30, 2022, the Company recorded a $i2.9 million rent expense (June 30, 2021 - $i4.1
million) related to short-term leases, variable leases, and low-value leases.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Accounting Policy
Share
Purchase Warrants
Warrants issued in foreign currencies are classified as derivative liabilities. Upon exercise, in exchange for a fixed amount of common shares, the expected cash receivable is variable due to changes in foreign exchange rates. The Company measures derivative financial liabilities at fair value through profit or loss at initial recognition and in subsequent reporting periods. Fair value gains or losses are recognized in other (losses) gains on the statement of comprehensive income. The fair value of foreign currency share purchase warrants is determined using the quoted market price on the valuation date, which is a Level 1 input. Transaction costs, which are directly attributable to the offering, are allocated to equity and classified as equity financing transaction costs.
(a) Authorized
The authorized share capital of the Company is comprised of the following:
i.Unlimited number of common voting shares without par value.
Each Common Share carries the right to attend and vote at all general meetings of shareholders. Holders of Common Shares are entitled to receive on a pro rata basis such dividends, if any, as and when declared by the Board at its discretion from funds legally available for the payment of dividends. Upon the liquidation, dissolution or winding up of the Company these holders are entitled to receive, on a pro rata basis, the net assets of the
Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the holders of Common Shares with respect to dividends or liquidation. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.
ii.Unlimited number of Class “A” Shares each with a par value of $i1.00.
As at June 30, 2022, iino/
Class “A” Shares were issued and outstanding.
Class A shares may be issued from time to time in one or more series, and the directors may fix from time to time, before such issue, the number of Class A shares of each series and the designation, rights and restrictions attached thereto including any voting rights, dividend rights, redemption, purchase or conversion rights, sinking fund or other provisions. The Class A shares rank in priority over Common Shares and any other shares ranking by their terms junior to the Class A shares as to dividends and return of capital upon liquidation, dissolution or winding up of the Company or any other return of capital or distribution of the assets of the Company.
iii.Unlimited
number of Class “B” Shares each with a par value of $i5.00. As at June 30, 2022, iino/
Class “B” Shares were issued and outstanding.
Class B shares may be issued from time to time in one or more series, and the directors may fix from time to time, before such issue, the number of Class B shares of each series and the designation, rights and privileges attached thereto including any voting rights, dividend rights, redemption, purchase or conversion rights, sinking fund or other provisions. The Class B shares rank in priority over Common Shares and any other shares ranking by their terms junior to the Class B shares as to dividends and return of capital upon liquidation, dissolution or winding up of the Company or any other return of capital or distribution of the assets of the Company.
During the year ended June 30, 2022, the Company issued i2,467,421 Common Shares with a book value of $i9.2
million, in connection with the acquisition of Thrive (Note 13). On July 7, 2022, the Company issued i2,614,995 Common Shares for the $i9.7
million of equity consideration relating to earned milestones known at the time of the acquisition.
During the year ended June 30, 2021, there were no Common Shares issued for business combinations.
(ii) Shares issued for earn-out payments
During the year ended June 30, 2022, the Company issued an aggregate of i193,554
Common Shares for milestone payments in connection with an acquisition completed in a prior year (June 30, 2021 - i2,691,759 Common Shares in connection with three acquisitions).
On
June 1, 2022, the Company completed an offering of i70,408,750 units of the Company (“June 2022 Offering”) for gross proceeds of approximately $i218.2
million (US$i172.5 million). The Company paid commissions and issuance costs of $i9.9 million for net proceeds of $i208.3
million. Each unit consists of ione Common Share and one common share purchase warrant (“June 2022 Offering Warrant”) of the Company. Each June 2022 Offering Warrant entitles the holder to purchase ione
Common Share of the Company at a price of US$i2.45 per share until June 1, 2025 (Note 18(c)).
On January 26, 2021, the Company completed an offering of i13,200,000
units (“January 2021 Unit Offering”), including an over-allotment of i1,200,000 units, for gross proceeds of $i175.8 million (US$i137.9
million). The Company paid commissions and issuance costs of $i9.0 million for net proceeds of $i166.8 million. Each unit consists of ione
Common Share and one-half of one Common Share purchase warrant (“January 2021 Offering Warrant”) of the Company. Each whole January 2021 Offering Warrant entitles the holder to purchase ione Common Share of the Company at a price of US$i12.60
per share until January 26, 2024.
On November 16, 2020, the Company completed an offering of i23,000,000 units (“November 2020 Unit Offering”), including an over-allotment of i3,000,000
units, for gross proceeds of $i226.2 million (US$i172.5 million). The Company paid commissions and issuance costs of $i11.8
million for net proceeds of $i214.5 million. Each unit consists of ione Common Share and one-half of one Common Share purchase warrant (“November 2020 Offering Warrant”) of the
Company. Each whole November 2020 Offering Warrant entitles the holder to purchase ione Common Share of the Company at a price of US$i9.00
per share until March 16, 2024.
In
accordance with IAS 32 - Financial Instruments: Presentation, the June 2022 Offering Warrants were determined to be derivative liabilities as the proceeds receivable upon exercise may vary due to fluctuations in the foreign exchange rates. The June 2022 Offering Warrants are recognized at their fair values based on quoted market prices with gains and losses recognized in other gains (losses) (Note 21) on the statement of comprehensive loss. Of the $i208.3 million total net proceeds received, $i35.6
million was allocated to the warrant derivative liabilities and $i172.7 million was allocated to share capital.
In accordance with IAS 32 - Financial Instruments: Presentation, the November 2020 and January 2021 Offering Warrants (Note 19(b)(iii)), which are denominated in U.S. Dollars, were determined to be derivative liabilities as the proceeds receivable upon exercise may vary due to fluctuations in the foreign exchange
rates. The Offering Warrants are recognized at their fair values based on quoted market prices with gains and losses recognized in other (losses) gains (Note 21) on the statement of comprehensive loss. Of the $i381.2 million total net proceeds received, $i74.0
million was allocated to the warrant derivative liabilities and $i307.2 million was allocated to share capital.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 19 iShare-Based
Compensation
i
Accounting Policy
Stock Options
Stock
options issued to employees are measured at fair value at the grant date and are recognized as an expense over the relevant vesting periods with a corresponding credit to share reserves.
Stock options issued to non-employees are measured at the fair value of goods or services received or the fair value of equity instruments issued, if it is determined that the fair value of the goods or services cannot be reliably measured. The fair value of non-employee stock options is recorded as an expense at the date the goods or services are received with a corresponding credit to share reserves.
Depending on the complexity of the stock option terms, the fair value of options is calculated using either the Black-Scholes option pricing model or the Binomial model. When determining the fair value of stock options,
management is required to make certain assumptions and estimates related to expected lives, volatility, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date.
The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Upon the exercise of stock options, proceeds received from stock option holders are recorded as an increase to share capital and the related share reserve is transferred to share capital.
Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”)
RSUs
are equity-settled share-based payments. RSUs are measured at their intrinsic fair value on the date of grant based on the closing price of the Company’s shares on the date prior to the grant, and is recognized as share-based compensation expense over the vesting period with a corresponding credit to share reserves. Under IFRS, the Company’s DSUs are classified as equity-settled share-based payment transactions as they are settled in either cash or common shares at the sole discretion of Aurora. As such, the DSUs are measured in the same manner as RSUs.
The amount recognized for services received as consideration for the RSUs and DSUs granted is based on the number of equity instruments that eventually vest. Upon
the release of RSUs and DSUs, the related share reserve is transferred to share capital.
Performance Share Units (“PSUs”)
PSUs are equity-settled share-based payments and have both a service and market condition. PSUs are measured at their fair value on the grant date and are recognized as share-based compensation expense over the vesting period with a corresponding credit to share reserves. The fair value of PSUs is calculated using the Monte Carlo model which factors in the probability of achieving the market-based performance target. When determining the fair value, management is required to make certain assumptions and estimates related to volatility, risk-free rate, equity correlations between Aurora and a peer group of companies, future stock prices, and estimated forfeitures. The
amount recognized for services received as consideration for the PSUs granted is based on the number of equity instruments that eventually vest. Upon the release of PSUs, the related share reserve is transferred to share capital.
The Company currently has in place a “rolling maximum” or “evergreen” stock option plan (“Option Plan”), Fixed Restricted Share Unit Plan (“RSU Plan”), Fixed Performance Share Unit Plan (“PSU Plan”), and a Fixed Deferred Share Unit Plan (“DSU Plan”), which is applicable to non-employee directors only. The Board may from time to time, in its discretion and in accordance with Toronto Stock Exchange requirements, grant to directors, officers, employees and consultants, as applicable, non-transferable stock options,
RSUs, PSUs and DSUs in accordance with these plans. The maximum number of Common Shares issuable pursuant to all equity based compensation arrangements shall not, at any time, exceed i10% of the issued and outstanding Common Shares.
At the Company’s Annual General and Special Meeting
held on November 13, 2017 (“2017 AGM”), shareholders approved the adoption of the Option Plan, which was subsequently renewed by shareholders at the Annual General Meeting held on November 12, 2020 (“2020 AGM”). The Option Plan provides the right for directors, officers, employees and consultants to purchase shares at a specified price (exercise price) in the future. The Option Plan is a “rolling” plan, and therefore, the number of Common Shares issuable under the Option Plan and under all other equity based compensation arrangements shall not exceed i10%
of the total number of issued and outstanding Common Shares.
(1)iNo
stock options were exercised during the year ended June 30, 2022. The weighted average share price on the date stock options were exercised during the year ended June 30, 2021 was $i14.88.
/
i
The
following table summarizes the stock options that are outstanding as at June 30, 2022:
During
the year ended June 30, 2022, the Company recorded aggregate share-based compensation expense of $i4.9 million (year ended June 30, 2021 - $i11.2
million) for all stock options granted and vested during the period. This expense is reflected in the share-based compensation line on the statement of comprehensive loss.
i
Stock options granted during the respective periods highlighted below were fair valued based on the following weighted average assumptions:
Year
ended Jun 30,
2022
2021
Risk-free annual interest rate (1)
i0.95
%
i0.31
%
Expected
annual dividend yield
i—
%
i—
%
Expected
stock price volatility (2)
i84.21
%
i81.69
%
Expected
life of options (years) (3)
i2.50
i2.40
Forfeiture
rate
i19.99
%
i18.75
%
(1)The
risk-free rate is based on Canada government bonds with a remaining term equal to the expected life of the options.
(2)Volatility was estimated by using the average historical volatilities of the Company and certain competitors.
/
(3)The expected life in years represents the period of time that options granted are expected to be outstanding.
The weighted average fair value of stock options granted during the year ended June
30, 2022 was $i3.59 per option (year ended June 30, 2021 - $i5.50
per option).
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
(b)
Restricted Share Units (“RSU”) and Deferred Share Units (“DSU”)
At the 2017 AGM, shareholders also approved the adoption of the RSU Plan, which was subsequently amended at the 2020 AGM. The RSU Plan was designed to provide certain executive officers and other key employees of the Company and its subsidiaries with the opportunity to acquire RSUs of the Company in order to enable them to participate in the long-term success of the Company and to promote a greater alignment of their interests with the interests of the shareholders.
Under the terms of the RSU Plan, officers, employees and consultants of the Company may be granted RSUs that are released as Common Shares upon completion of the vesting period. Each RSU gives the participant the right to receive ione common share of the Company. The
Company is currently authorized to issue a maximum of i3,000,000 Common Shares under this plan.
At the Company’s Annual General and Special Meeting held on November 30, 2018, shareholders approved the adoption of the DSU Plan, which was subsequently amended at the 2020 AGM. Under the terms of the DSU plan, non-employee directors of the
Company may be granted DSUs. Each non-employee director is entitled to redeem their DSUs for period of i90 days following their termination date, being the date of their retirement from the Board. The DSUs can be redeemed, at the Company’s sole discretion, for (i) cash; (ii) Common Shares issued from treasury; (iii) common shares purchased in the open market; or (iv) any combination of the foregoing. The
Company is currently authorized to issue a maximum of i500,000 Common Shares under this plan.
i
A
summary of the RSUs and DSUs outstanding are as follows:
(1)As
of June 30, 2022, there were i1,100,563 RSUs and i213,971
DSUs outstanding (June 30, 2021 - i983,161 RSUs and i57,383
DSUs).
/
During the year ended June 30, 2022, the Company recorded share-based compensation of $i7.0 million (year ended June
30, 2021 - $i7.0 million) for RSUs and DSUs granted and vested during the period. This expense is included in the share-based compensation line on the statement of comprehensive loss.
The weighted average fair value of RSUs and DSUs granted in the year ended June 30, 2022 was $i6.98
per unit (year ended June 30, 2021 – $i10.82 per unit).
The following table summarizes the RSUs and DSUs that are outstanding as at June 30, 2022:
At the 2020 AGM, shareholders approved the adoption of the PSU Plan, which was designed to provide compensation that is conditional on the achievement of predetermined performance criteria. The number of units earned is determined at the end of the ithree year term based on Aurora’s ithree
year Total Shareholder Return (“TSR”) relative to a peer group of companies and can vary from i0.0 to i2.0
times the number of PSUs granted. The Company is currently authorized to issue a maximum of i3,000,000 Common Shares under this plan.
During
the year ended June 30, 2022, the Company recorded share-based compensation of $i1.9 million (year ended June 30, 2021 - $i0.8
million) for PSUs granted during the period. This expense is included in the share-based compensation line on the statement of comprehensive loss.
i
PSUs granted during the year ended June 30, 2022 were fair valued based on the following weighted average assumptions:
(1)The risk-free rate is based on Canada government bonds with a remaining term equal to the expected life of the PSUs.
(2)Volatility was
estimated by using the 20-day VWAP historical volatility of Aurora and the peer group of companies.
(3)The expected life in years represents the period of time that the PSUs granted are expected to be outstanding.
(4)The equity correlation is estimated by using 1-year historical equity correlations for the Company and the peer group of companies.
/
The weighted average fair value of PSUs granted during the year ended June
30, 2022 was $i9.90 per unit (year ended June 30, 2021 - $i9.74
per unit).
Note 20 iLoss Per Share
Accounting Policy
The
Company calculates basic (loss) earnings per share by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) earnings per share is determined by adjusting profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares, which comprise convertible debentures, RSU, DSU, warrants and share options issued.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
i
The following is a reconciliation of basic and diluted loss per share:
Basic
and diluted loss per share
Year ended Jun 30,
2022
2021
Net loss from continuing operations attributable to Aurora shareholders
($ii1,717,624/)
($ii692,013/)
Net
loss from discontinued operations attributable to Aurora shareholders
$ii—/
($ii1,612/)
Net
loss attributable to Aurora shareholders
($ii1,717,624/)
($ii693,625/)
Weighted
average number of Common Shares outstanding
i214,912,605
i169,118,540
Basic
loss per share, continuing operations
($ii7.99/)
($ii4.09/)
Basic
loss per share, discontinued operations
$ii0.00/
($ii0.01/)
Basic
loss per share
($ii7.99/)
($ii4.10/)
/
Diluted
loss per share is the same as basic loss per share as the issuance of shares on the exercise of convertible debentures, RSU, DSU, PSU, warrants and share options is anti-dilutive.
Note 21 iOther Gains (Losses)
i
Year
ended Jun 30,
Note
2022
2021
$
$
Share of net income (loss) from investment in associates
8
(i293)
(i509)
Gain
(loss) on deemed disposal of significant influence investment
i—
(i1,239)
Loss
on extinguishment of derivative investment
6(a)
(i9,096)
i—
Unrealized
gain (loss) on derivative investments
7(b)
(i19,951)
i12,758
Unrealized
gain (loss) on derivative liability
16, 18(c)
i90,263
(i19,606)
Unrealized
gain (loss) on changes in contingent consideration fair value
28
(i5)
(i30)
Gain
(loss) on debt modification
i—
(i396)
Gain
(loss) on debt settlement
i—
(i2,195)
Gain
(loss) on disposal of assets held for sale and property, plant and equipment
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 22 iSupplemental
Cash Flow Information
i
The changes in non-cash working capital are as follows:
Year ended Jun 30,
2022
2021
$
$
Accounts
receivable
i18,764
i7,371
Biological
assets
(i78,000)
(i49,249)
Inventory
i99,068
i57,700
Prepaid
and other current assets
i2,675
i2,277
Accounts
payable and accrued liabilities
i3,634
(i28,294)
Income
taxes payable
i331
i13
Deferred
revenue
(i319)
i214
Provisions
i2,213
(i556)
Other
current liabilities
i1,584
i10,921
Changes
in operating assets and liabilities
i49,950
i397
/
i
Additional
supplementary cash flow information is as follows:
Year ended Jun 30,
2022
2021
$
$
Property, plant and equipment in accounts payable
i910
i1,721
Right-of-use
asset additions
i1,340
i2,445
Capitalized
borrowing costs
i—
i2,136
Amortization
of prepaids
i33,511
i32,120
Interest
paid
i27,725
i34,157
Interest
received
i379
i2,198
/
Included
in restricted cash as of June 30, 2022 is $i3.4 million (June 30, 2021 - $i4.4
million) attributed to collateral held for letters of credit and corporate credit cards, $i15.0 million (June 30, 2021 - $i15.0 million) for self- insurance, $i0.2
million (June 30, 2021 - $i0.0 million) attributed to international subsidiaries, and $i32.4
million (June 30, 2021 - $i0.0 million) of funds reserved for the Segregated Cell (Note 2(h)).
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 23 iIncome
Taxes
i
Accounting Policy
Tax expense recognized in profit or loss comprises the sum of current and deferred taxes not recognized in other comprehensive (loss) income or equity.
Current
tax assets and liabilities
Current tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period. Current tax assets arise when the amount paid for taxes exceeds the amount due for the current and prior periods.
Deferred tax assets and liabilities
Deferred taxes are calculated using the liability method on temporary differences between the carrying
amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective periods of realization, provided they are enacted or substantively enacted at the end of the reporting period. Deferred tax liabilities are always provided for in full.
Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation authority.
Changes in deferred tax assets or liabilities
are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
Significant estimates are required in determining the Company’s provision for income taxes and uncertain tax positions. Some of these estimates are based on interpretations of existing tax laws or regulations. Various internal and external factors may have favorable or unfavorable effects on the Company’s future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations
of existing tax laws or regulations, changes in estimates of prior years’ items, results of tax audits by tax authorities, future levels of research and development spending, changes in estimates related to repatriation of undistributed earnings of foreign subsidiaries, and changes in overall levels of pre-tax earnings. The realization of the Company’s deferred tax assets is primarily dependent on whether the Company is able to generate sufficient capital gains and taxable income prior to expiration of any loss carry forward balance. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. The assessment of whether or not a valuation allowance is required
often requires significant judgment with regard to management’s assessment of the long-range forecast of future taxable income and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made.
The Company records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. There is inherent uncertainty in quantifying income tax positions. The Company has recorded tax benefits for those tax positions where it is more likely than not that a tax benefit will result upon ultimate settlement with a tax authority that has
all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will result, no tax benefit has been recognized in the consolidated financial statements.
iThe net tax provision differs from that expected by applying
the combined federal and provincial tax rates of i27.0% (June 30, 2021 - i27.0%) to income (loss) before income tax for the following reasons:/
Non-deductible
(non-taxable) portion of capital items
(i19,518)
i2,678
Non-deductible
loss on conversion of debt
i—
i—
Goodwill
and other impairment items
i246,177
i326
Tax
impact on divestitures
i—
i6,295
Difference
in statutory tax rate
i24,346
i14,755
Effect
of change in tax rates
(i385)
i55
Changes
in deferred tax benefits not recognized
i200,856
i149,368
Income
tax recovery
(i2,141)
(i6,321)
Deferred
taxes reflect the tax effects of temporary differences between the carrying amounts of asset and liabilities for financial reporting purposes and their tax values. iMovements in deferred tax assets (liabilities) at June 30, 2022 and 2021 are comprised of the following:
Deferred
tax assets have not been recognized with respect to the following deductible temporary differences:
2022
2021
$
$
Non-capital losses carried forward
i1,159,836
i570,195
Investment
in associates
i47,983
i—
Capital
losses
i135,259
i132,456
Property,
plant, and equipment
i584,013
i359,455
Intangible
assets
i37,953
i11,701
Goodwill
i32,755
i33,764
Marketable
Securities
i23,744
i28,323
Investment
tax credits
i5,021
i5,028
Derivatives
i12,722
i—
Capital
lease obligations
i1,553
i2,462
Other
i37,365
i55,537
i2,078,204
i1,198,921
/
The
Company has income tax loss carryforwards of approximately $i1,110.6 million (June 30, 2021 - $i881.5. million) which are predominately from Canada and if unused, will expire between 2022 to 2042.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 24 iRelated
Party Transactions
i
Accounting Policy
The Company considers
a person or entity as a related party if they are a member of key management personnel including their close relatives, an associate or joint venture, those having significant influence over the Company, as well as entities that are under common control or controlled by related parties.
The Company’s key management personnel have the authority and responsibility for planning, directing and controlling the activities of the Company and consists of the
Company’s executive management team and management directors. iCompensation expense for key management personnel was as follows:
Year
ended Jun 30,
2022
2021
$
$
Short-term employment benefits (1)
i7,109
i5,080
Termination
benefit
i308
i2,583
Directors’
fees (2)
i335
i458
Share-based
compensation (3)
i11,026
i13,388
Total
management compensation (4)
i18,778
i21,509
(1)Includes
meeting fees and committee chair fees.
(2)Share-based compensation represent the fair value of options granted and vested to key management personnel and directors of the Company under the Company’s share-based compensation plans (Note 19).
(3)As of June 30, 2022, $i1.6
million is payable or accrued for key management compensation (June 30, 2021 - $i0.8 million).
The following is a summary of the significant transactions with related parties:
(1)Production
costs incurred with (i) Capcium and its subsidiary Gelcan, a company where Aurora holds significant influence; and (ii) Sterigenics Radiation Technologies (“Sterigenics”, formerly Iotron Industries Canada Inc.), an associate of the Company’s joint venture company. Aurora does not have the authority or ability to exert power over either Capcium or Sterigenics’ financial and/or operating decisions (i.e. control).
During the year ended June 30, 2021, the Company sold AHE to the subsidiary’s President and former owner (Note 12(b)).
The following amounts were receivable
from (payable to) related parties:
Equipment loan receivable from investments in associates (1)
i—
i10,096
Debenture
and interest receivable from investment in associate (2)
i—
i17,170
Production
costs with investments in associates (3)(4)
i439
i—
i439
i27,266
(1)Relates
to the purchase of production equipment on behalf of the Company’s joint venture, Auralux Enterprises Ltd. (“Auralux”). The loan was fully impaired during the year ended June 30, 2022.
(2)Represents the $i6.0 million secured convertible debenture in Choom Holdings Inc. (“Choom”) plus interest receivable bearing interest at i7.0%
per annum and maturing on December 23, 2024. Balance at June 30, 2021 represents the $i20.0 million unsecured convertible debenture in Choom plus interest receivable, bearing interest at i6.5%
per annum and was to mature on November 2, 2022. Refer to Note 6(a) of the Financial Statements for further details. As of June 30, 2022, the 2021 Debenture had a fair value of $i0.0 million resulting in an unrealized loss of $i6.0
million.
(3)Production costs incurred with (i) Gelcan; and (ii) Sterigenics which provides cannabis processing services to the Company and is party to a common joint venture in Auralux. Pursuant to a manufacturing agreement with Gelcan, the Company is contractually committed to purchase a minimum number of softgels during each calendar year from 2020 and thereafter. If the Company fails to meet the required purchase minimum, then it is required to pay a penalty fee equal to the difference between the actual purchased quantity and the required purchase minimum multiplied by the cost of the softgels. The
Company is committed to purchase i42.7 million capsules in calendar 2022, and i20.0 million
capsules per calendar year until March 31, 2025.
(4)Amounts are due upon the issuance or receipt of invoices, are unsecured and non-interest bearing.
These transactions are in the normal course of operations and are measured at the exchange value, being the amounts agreed to by the parties.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 25 Commitments and Contingencies
(a)Claims and Litigation
From time to time, the Company and/or its subsidiaries
may become defendants in legal actions and the Company intends to take appropriate action with respect to any such legal actions, including by defending itself against such legal claims as necessary. Other than the claims described below, as of the date of this report, Aurora is not aware of any other material or significant claims against the Company.
On November 21, 2019, a purported class action proceeding was commenced in the United States District Court for the District of New Jersey against the Company and certain of its current and former directors and officers on behalf of
persons or entities who purchased, or otherwise acquired, publicly traded Aurora securities between October 23, 2018 and February 6, 2020. An amended complaint was filed on September 21, 2020 which alleges, inter alia, that the Company and certain of its current and former officers and directors violated the federal securities laws by making false or misleading statements, materially overstated the demand and potential market for the Company’s consumer cannabis products; that the Company’s ability to sell products had been materially impaired by extraordinary market
oversupply, that the Company’s spending growth and capital commitments were slated to exceed our revenue growth; that the Company had violated German law mandating that companies receive special permission to distribute medical products exposed to regulated irradiation techniques, and that the foregoing, among others, had negatively impacted the Company’s business, operations, and prospects and impaired the Company’s ability to achieve profitability. A motion to dismiss was filed on November 20, 2020 and granted by the court on July
7, 2021, however, the plaintiffs were given an opportunity to file a second amended complaint no later than September 7, 2021. Pursuant to the July 7, 2021 order, the plaintiffs filed a second amended complaint on September 7, 2021 which included new allegations pertaining to certain alleged financial misrepresentation and improper revenue recognition by the Company. The Company subsequently filed a motion to dismiss on December 6, 2021 and, and a reply to plaintiffs’ opposition on March 25, 2022. The
Company is currently awaiting a decision on the motion to dismiss. While this matter is ongoing, the Company disputes the allegations and intends to continue to vigorously defend against the claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the Company is currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above. iNo
provision has been recognized as at June 30, 2022 (June 30, 2021 - inil).
The Company and its subsidiary, ACE, have been named in a purported class action proceeding which commenced on June 16, 2020 in the Province of Alberta in relation to the alleged mislabeling
of cannabis products with inaccurate THC/CBD content. The class action involves a number of other parties including Aleafia Health Inc., Hexo Corp, Tilray Canada Ltd., among others, and alleges that upon laboratory testing, certain cannabis products were found to have lower THC potency than the labeled amount, suggesting, among other things, that plastic containers may be leeching cannabinoids. While this matter is ongoing, the Company disputes the allegations and intends to vigorously defend against the claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the
Company is currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the matter described above. iNo provision has been recognized as at June 30, 2022 (June 30, 2021 - inil).
A
claim was commenced by a party to a former term sheet on June 15, 2020 with the Queen's Bench of Alberta against Aurora and a former officer alleging a claim of breach of obligations under said term sheet, with the plaintiff seeking $i18.0 million in damages. While this matter is ongoing, the Company believes the action to be without merit and intends to defend the claim. iNo
provision has been recognized as of June 30, 2022 (June 30, 2021 - inil).
On August 10, 2020, a purported class action lawsuit was filed with the Queen's Bench of Alberta against Aurora and certain executive officers in the Province of Alberta on behalf of persons or entities who purchased, or otherwise acquired, publicly traded Aurora securities and
suffered losses as a result of Aurora releasing statements containing misrepresentations during the period of September 11, 2019 and December 21, 2019. The Company disputes the allegations and intends to vigorously defend against the claims. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the Company is currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting
from the matter described above. iNo provision has been recognized as at June 30, 2022 (June 30, 2021 - inil).
On
October 2, 2020, a purported class action lawsuit was commenced in the United States District Court for the District of New Jersey against the Company and certain current and former executive officers on behalf of persons or entities who purchased or otherwise acquired Aurora securities between February 13, 2020 and September 4, 2020. The complaint alleges, inter alia, that the Company and certain current and former executive officers violated the federal securities laws by making false and/or misleading statements and/or failing to disclose that the Company had significantly
overpaid for previous acquisitions and experienced degradation in certain assets, including its production facilities and inventory; the Company’s business transformation plan and cost reset failed to mitigate the foregoing issues; it was foreseeable that the Company would record significant goodwill and asset impairment charges; and as a result, the Company’s public statements were materially false and misleading. The Company disputes the allegations. On November 2, 2021, the plaintiffs voluntarily dismissed this action without prejudice as to all claims. This matter is now concluded.
iNo provision has been recognized as at June 30, 2022 (June 30, 2021 - inil).
On
January 4, 2021, a civil claim was filed with the Queen’s Bench of Alberta against Aurora and Hempco by a former landlord regarding unpaid rent in the amount of $i8.9 million, representing approximately $i0.4 million
for rent in arrears and costs, plus $i8.5 million for loss of rent and remainder of the term. The Company filed a statement of defense on March 24, 2021. While this matter is ongoing, the Company intends to continue to defend against the claims. iNo
provision has been recognized as of June 30, 2022 (June 30, 2021 - inil).
The Company is subject to litigation and similar claims in the ordinary course of our business, including claims related to employment, human resources, product liability and commercial disputes. The
Company has received notice of, or are aware of, certain possible claims against us where the magnitude of such claims is negligible, or it is not currently possible for us to predict the outcome of such claims, possible claims or lawsuits due to various factors including: the preliminary nature of some claims; an incomplete factual record; and the unpredictable nature of
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
opposing
parties and their demands. Management is of the opinion, based upon legal assessments and information presently available, that it is unlikely that any of these claims would result in liability to the Company, to the extent not provided for through insurance or otherwise, would have a material effect on the consolidated financial statements, other than the claims described above.
(b)Commitments
(i)Pursuant to a manufacturing agreement, the Company is contractually committed to purchase a minimum number of softgels each calendar year. If the
Company fails to meet the required purchase minimum, then it is required to pay a penalty fee equal to the difference between the actual purchased quantity and the required purchase minimum multiplied by cost of the softgels. The Company expects to meet the purchase minimum for calendar 2022.
(ii)The Company has various lease commitments related to various office space, production equipment, vehicles, facilities and warehouses expiring up to June 2033. The Company has certain leases with optional renewal terms that the
Company may exercise at its option.
i
In addition to lease liability commitments disclosed in Note 29(b), the Company has the following future capital commitments and purchase commitments payments, which are due in the next five years and thereafter:
$
Next
12 months
i4,304
Over 1 year to 2 years
i5,287
Over
2 years to 3 years
i1,549
i11,140
/
Note
26 iRevenue
i
Accounting
Policy
The Company generates revenue primarily from the sale of cannabis, cannabis related products and provision of services. The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:
2. Identify the performance obligation(s) in the contract;
3.
Determine the transaction price;
4. Allocate the transaction price to the performance obligation(s) in the contract; and
5. Recognize revenue when or as the Company satisfies the performance obligation(s).
Revenue from the sale of cannabis is generally recognized when control over the goods has been transferred to the customer. Payment for medical sales is typically due prior to shipment. Payment for wholesale transactions is due within a specified time period as permitted by the underlying agreement and the Company’s credit policy upon
the transfer of goods to the customer. The Company generally satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.
For bill-and-hold arrangements, revenue is recognized before delivery but only upon transfer of control of the good to the customer. Control is transferred to the customer when the substance of the bill-and-hold arrangement is substantive, the Company cannot sell the goods to another customer, the goods can be identified separately and are ready
for physical transfer to the customer.
Service revenues, including patient referral services, are recognized over a period of time as performance obligations are completed. Payment of the transaction price for patient counselling is typically due prior to the services being rendered and therefore, the transaction price is recognized as a contract liability, or deferred revenue, when payment is received. Contract liabilities are subsequently recognized into revenue as or when the Company fulfills its performance obligation.
Effective October 17,
2018, Canada Revenue Agency (“CRA”) began levying an excise tax on the sale of medical and consumer cannabis products. The Company becomes liable for these excise duties when cannabis products are delivered to the customer. The excise taxes payable is the higher of (i) a flat-rate duty which is imposed when a cannabis product is packaged, and (ii) an advalorem duty that is imposed when a cannabis product is delivered to the customer. Effective May 1, 2019, excise tax calculated on edible cannabis products, cannabis extracts and cannabis topicals will prospectively be calculated as a flat rate based on the quantity of total tetrahydrocannabinol (THC) contained in the final product. There were no changes in the legislation in calculating excise taxes for fresh cannabis, dried cannabis, seeds and plants. Where the excise tax
has been billed to customers, the Company has reflected the excise tax as part of revenue in accordance with IFRS 15. Net revenue from sale of goods, as presented on the consolidated statements of comprehensive (loss) income, represents revenue from the sale of goods less applicable excise taxes. Given that the excise tax payable/paid to CRA cannot be reclaimed and is not always billed to customers, the Company recognizes that the excise tax is an operating cost that affects gross margin to the extent that it is not recovered from its customers.
For certain sale of goods in which the Company earns a manufacturing fee, the
Company records net revenue as an agent on the basis that the Company does not control pricing or bear inventory or credit risk.
(Amounts reflected in thousands of Canadian dollars, except share and per share
amounts)
The Company generates revenue from the transfer of goods and services over time and at a point-in-time from the revenue streams below. Net revenue from sale of goods is reflected net of actual returns and estimated variable consideration for future returns and price adjustments of $i4.3
million for the year ended June 30, 2022 (year ended June 30, 2021 - $7.4 million). The estimated variable consideration is based on historical experience and management’s expectation of future returns and price adjustments. As of June 30, 2022, the net return liability for the estimated variable revenue consideration was $i2.3 million (June 30, 2021 - $i1.5
million) and is included in deferred revenue on the consolidated statements of financial position.
Operating segments are components of the Company that engage in business activities which generate revenues and incur expenses (including intercompany revenues and expenses related to transactions conducted with other components of the Company). The operations of an operating segment are distinct and the operating results are regularly reviewed by the chief operating decision maker (“CODM”) for the purposes of resource allocation decisions and assessing its performance. Reportable segments are Operating segments whose revenues or profit/loss or total assets exceed ten percent or more of those of the combined entity.
Key
measures used by the CODM to assess performance and make resource allocation decisions include revenues, gross profit and net (loss) income. The Company’s operating results are divided into itwo reportable segments plus corporate. The itwo
reportable segments are (i) Canadian Cannabis; and (ii) International Cannabis.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
During
the year ended June 30, 2021, the Company had itwo reportable operating segments: (i) Cannabis and (ii) Horizontally Integrated Businesses. The goodwill associated with all acquisitions were allocated to the Cannabis operating segment. During the year ended June 30, 2022, the Company changed its internal management
reporting and accordingly, identified the following itwo reportable operating segments: (i) Canadian Cannabis; and (ii) International Cannabis. The reorganization of the Company’s reporting structure changed the composition of its reportable segments and required that goodwill be reassigned to the operating segments using a relative fair value allocation approach. Assets and liabilities were also reassigned to the reporting segments based on the assets that would be employed in, or the liabilities
related to, the operations of each reporting segment, and the assets or liabilities that would be considered in determining the fair value of each reporting segment. Immediately after the reorganization, the Company’s reporting segments with goodwill included: (i) Canadian Cannabis; and (ii) International Cannabis. There were no indicators of impairment prior to the change in operating segments. Prior period disclosures have been restated based on the new operating segments.
Income
(loss) from operations before taxes and discontinued operations
(i448,522)
(i38,472)
(i212,804)
(i699,798)
(1)Net
(loss) income under the Corporate allocation includes fair value gains and losses from investments in marketable securities, derivatives and investment in associates. Corporate and administrative expenditures such as regulatory fees, share based compensation and financing expenditures relating to debt issuances are also included under Corporate.
/
(2)Net (loss) income under the Corporate allocation includes fair value gains and losses from investments in marketable securities, derivatives and investment in associates. Corporate and administrative expenditures such as regulatory fees, share based compensation and financing expenditures relating to debt issuances are also included under Corporate.
i
Geographical
Segments
Canada
EU
Other
Total
$
$
$
$
Non-current assets other than financial instruments
Included
in net revenue arising from the Canadian Cannabis operating segment for the year ended June 30, 2022 are net revenues of approximately $i22.9 million from Customer A (year ended June 30, 2021 - Customer A: $i27.7
million, Customer B: $i24.3 million, Customer D: $i40.4 million), each contributing 10% or more to the Company’s net revenue. All of these customers are government bodies
for sales of cannabis in the consumer market.
There were no single customers that contributed 10% or more to the Company’s net revenue arising from the International Cannabis operating segment for the year ended June 30, 2022 (year ended June 30, 2021 - nil).
No other single customers contributed 10% or more to the Company’s net revenue during the year ended June 30, 2022 and 2021.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 28 iFair
Value of Financial Instruments
i
Accounting
Policy
Fair Value Hierarchy
Financial instruments recorded at fair value are classified using a hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 - Inputs for the asset or liability that are not based on observable market data.
The individual fair
values attributed to the different components of a financing transaction, notably marketable securities, derivative financial instruments, convertible debentures and loans, are determined using valuation techniques. The Company uses judgment to select the methods used to make certain assumptions and derive estimates. Significant judgment is also used when attributing fair values to each component of a transaction upon initial recognition, measuring fair values for certain instruments on a recurring basis and disclosing the fair values of financial instruments subsequently carried at amortized cost. These valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of instruments that are not quoted or observable in an active market.
Financial
instruments are measured either at fair value or at amortized cost. The table below lists the valuation methods used to determine fair value of each financial instrument.
Fair Value Method
Financial Instruments Measured at Fair Value
Marketable securities
Closing market price of common shares as of the measurement date (Level 1)
Derivatives
Closing
market price (Level 1) or Black-Scholes, Binomial, Monte-Carlo & FINCAD valuation model (Level 2 or 3)
Contingent consideration payable
Discounted cash flow model (Level 3)
Derivative liability
Closing market price of warrants (Level 1) or Kynex valuation model (Level 2)
Financial Instruments Measured at Amortized Cost
Cash and cash equivalents, restricted
cash, accounts receivable, loans receivable
Carrying amount (approximates fair value due to short-term nature)
Accounts payable and accrued liabilities, other current and long-term liabilities
Carrying amount (approximates fair value due to short-term nature)
Lease receivable, convertible debentures, loans and borrowings, and lease liabilities.
Carrying value discounted at the effective interest rate which approximates fair value
The
Company’s contingent consideration payable is measured at fair value based on unobservable inputs and is considered a Level 3 financial instrument. The determination of the fair value of these liabilities is primarily driven by the Company’s expectations of the respective subsidiaries achieving certain milestones. The expected milestones were assigned probabilities and the expected related cash flows were discounted to derive the fair value of the contingent consideration. If the probabilities of achieving the milestones decreased by ii10/%,
the estimated fair value of the contingent consideration would decrease by $i1.4 million (June 30, 2021 - nominal amount). If the discount rates increased or decreased by iiii5///%,
the estimated fair value of contingent consideration would increase or decrease by $i1.3 million (June 30, 2021 - nominal amount).
.
Note 29 iFinancial
Instruments Risk
The Company is exposed to a variety of financial instrument related risks. The Board mitigates these risks by assessing, monitoring and approving the Company’s risk management processes.
(a)Credit risk
Credit risk is the risk of a potential loss to the Company if a customer or third party to a financial instrument fails to meet its contractual obligations. The
Company is moderately exposed to credit risk from its cash and cash equivalents, accounts receivable and loans receivable. The risk exposure is limited to their carrying amounts reflected on the statement of financial position. The risk for cash and cash equivalents is mitigated by holding these instruments with highly rated Canadian financial institutions. Certain restricted funds in the amount of $i32.4 million are retained by an insurer under the Segregated Accounts Companies Act governed by the Bermuda Monetary Authority. As the
Company does not invest in asset-backed deposits or investments, it does not expect any credit losses. The Company periodically assesses the quality of its investments and is satisfied with the credit rating of the financial institutions and the investment grade of its Guaranteed Investment Certificates (“GICs”). The Company mitigates the credit risk associated with the loans receivable by managing and monitoring the underlying business relationship.
The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk.
Credit risk is generally limited for receivables from government bodies, which generally have low default risk. Credit risk for non-government wholesale customers is assessed on a case-by-case basis and a provision is recorded where required. As of June 30, 2022, $i22.5 million of accounts receivable, net of allowances, are from non-government wholesale customers (June 30, 2021 - $i7.0
million). As of June 30, 2022, the Company recognized a $i4.1 million provision for expected credit losses (June 30, 2021 - $i5.4
million).
i
The Company’s aging of trade receivables was as follows:
In
addition to the commitments outlined in Note 25, the Company has the following undiscounted contractual obligations as at June 30, 2022, which are expected to be payable in the following respective periods:
Total
≤1 year
Over 1 year - 3 years
Over
3 years - 5 years
> 5 years
$
$
$
$
$
Accounts payable and accrued liabilities
i69,874
i69,874
i—
i—
i—
Convertible
notes and interest (1)(2)
i298,768
i14,804
i283,964
i—
i—
Lease
liabilities (2)
i70,870
i9,455
i24,720
i19,648
i17,047
Contingent
consideration payable (3)
i14,500
i14,500
i—
i—
i—
i454,012
i108,633
i308,684
i19,648
i17,047
(1)Assumes
the principal balance of the debentures outstanding at June 30, 2022 remains unconverted and includes the estimated interest payable until the maturity date.
(2)Includes interest payable until maturity date.
(3)Payable in cash, shares, or a combination of both at Aurora’s sole discretion.
/
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with its financial liabilities when they
are due. The Company manages liquidity risk through the management of its capital structure and resources to ensure that it has sufficient liquidity to settle obligations and liabilities when they are due. Our ability to fund our operating requirements depends on future operating performance and cash flows, which are subject to economic, financial, competitive, business and regulatory conditions, and other factors, some of which are beyond our control, such as the potential impact of COVID-19. Our primary short-term liquidity needs are to fund our net operating losses, capital expenditures to maintain existing facilities, and lease payments. Our medium-term liquidity needs primarily relate to debt repayments and lease payments. Our long-term liquidity needs primarily relate to potential strategic plans.
As of
June 30, 2022, the Company has access to the following capital resources available to fund operations and obligations:
•i437.8 million cash and cash equivalents; and
•US$i713.7
million securities registered for sale under the 2021 Shelf Prospectus filed on March 30, 2021 (the “2021 Shelf Prospectus”) for future financings or issuances of securities, including US$i186.2 million remaining securities for sale under the 2021 at-the-market (ATM) program (the “ATM Program”). Volatility in the cannabis industry, stock market and the Company’s share price may impact the amount and our
ability to raise financing under the 2021 Shelf Prospectus.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
From
time-to-time, management may also consider the sale of its marketable securities and shares held in publicly traded investments in associates to support near term cash and liquidity needs.
Based on all of the aforementioned factors, the Company believes that its reduction of operating costs, current liquidity position, and access to the 2021 Shelf Prospectus are adequate to fund operating activities and cash commitments for investing, financing and strategic activities for the foreseeable future.
Market risk
Market risk is the risk that changes in the market related factors, such as foreign exchange rates and interest rates, will affect
the Company’s (loss) income or the fair value of its financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
(i) Currency risk
The operating results and financial position of the Company are reported in Canadian dollars. As the Company operates internationally, certain of the Company’s financial instruments and transactions are denominated in currencies other than the Canadian
dollar. The results of the Company’s operations are, therefore, subject to currency transaction and translation risks.
The Company’s main risk is associated with fluctuations in Euros, Danish Krone, and U.S. dollars. The Company holds cash in Canadian dollars, U.S. dollars, Danish Krone and Euros; investments denominated in U.S. dollars; US$i208.9
million of U.S. dollar denominated Senior Notes; and US$i28.9 million of warrant derivative liabilities exercisable in U.S. dollars. Assets and liabilities are translated based on the Company’s foreign currency translation policy.
The Company has determined that as at June 30, 2022, the
effect of a i10% increase or decrease in Euros, Danish Krone, and U.S. dollars against the Canadian dollar on financial assets and liabilities would result in an increase or decrease of approximately $i24.5
million (June 30, 2021 – $i40.0 million) to net loss and $i9.3
million (June 30, 2021 – $i4.7 million) to comprehensive loss for the year ended June 30, 2022.
At June 30, 2022, the Company
has not entered into any hedging agreements to mitigate currency risks, with respect to foreign exchange rates.
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market interest rates. Cash and cash equivalents bear interest at market rates. During the year ended June 30, 2022, the Company’s financial liabilities consisted of long-term fixed rate debt and as a result are not impacted by changes in market interest rates.
(iii) Price risk
Price
risk is the risk of variability in fair value due to movements in equity or market prices. The Company’s warrant derivative liabilities, marketable securities and investments are susceptible to price risk arising from uncertainties about their future outlook, future values and the impact of market conditions. The fair value of warrant derivative liabilities, marketable securities and derivative investments held in publicly traded entities are based on quoted market prices which the warrants or investment shares can be exchanged for. The fair value of marketable securities and derivatives held in privately-held entities are based on various valuation techniques, as detailed in Note 28, and is dependent on the type and terms of the security.
If the fair value of these financial assets and liabilities were
to increase or decrease by i10% as of June 30, 2022, the Company would incur an associated increase or decrease in net and comprehensive loss of approximately $ii47.9/
million (June 30, 2021 – $ii15.2/
million). Refer to Note 7 of the Financial Statements for details on the fair value of marketable securities and derivatives investments, and Note 18(c) for details on the warrant derivative liabilities.
Note 30 iCapital Management
As
at June 30, 2022, the capital structure of the Company consists of $i0.9 billion (June 30, 2021 - $i2.4
billion) in shareholders’ equity and debt.
The Company’s objectives when managing capital are to ensure that there are adequate capital resources to safeguard the Company’s ability to continue as a going concern and maintain adequate levels of funding to support ongoing operations and future growth such that the Company can continue to deliver returns to shareholders and benefits for other stakeholders.
From time to time, the Company may adjust its capital structure
in light of changes in economic conditions and the risk characteristics of the Company’s underlying assets. In addition, the Company plans to use existing funds, as well as funds from the future sale of products to fund operations and expansion activities.
(Amounts reflected in thousands of Canadian dollars, except share and per share amounts)
Note 31 iSubsequent
Events
On August 25, 2022, a wholly-owned subsidiary of the Company acquired a 50.1% controlling interest in Bevo Agtech (“Bevo”) the sole parent of Bevo Farms Ltd., one of the largest suppliers of propagated vegetables and ornamental plants in North America. The transaction included cash consideration paid of $45 million, and up to $12 million payable over three years in Common Shares or cash (at the election of Aurora), if applicable, based on Bevo successfully achieving certain financial milestones at its Site One facility in Langley, British Columbia. Concurrent with closing of the transaction, Bevo entered into an agreement to acquire the Company's
Aurora Sky facility in Edmonton, Alberta through the acquisition of one of Aurora's wholly-owned subsidiaries (the “Aurora Sky Transaction”). Up to $25 million could be payable over time by Bevo to Aurora in connection with the Aurora Sky Transaction, based on Bevo successfully achieving certain financial milestones at the Aurora Sky Facility. Closing of the Aurora Sky Transaction is conditional upon receipt of certain third-party consents.
The acquisition of a controlling interest in Bevo allows the Company to immediately benefit from a profitable, cash flow positive and growing business, and may have the potential to drive long term value to Aurora's existing cannabis business via the application of Bevo's
industry leading plant propagation expertise. Through the controlling interest, the Company financial consolidated Bevo and has a controlling position on it’s board of directors.
On September 20, 2022, the Company acquired all of the issued and outstanding shares of CannaHealth Therapeutics Inc., a company with assets in the Canadian medical aggregator space, for $i21.9 million
in cash.
On September 19, 2022, the Company gave notice to terminate the previously announced agreement to sell the Aurora Sun facility due to the prospective buyer’s failure to fulfill closing conditions. The Company will continue to evaluate alternative uses for the Aurora Sun facility.
62
Dates Referenced Herein and Documents Incorporated by Reference
