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TLRY Tilray

Filed: 4 May 21, 5:04pm

Exhibit 99.3


Aphria Inc.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020

(Unaudited, expressed in Canadian Dollars, unless otherwise noted)

Aphria Inc.
Condensed Interim Consolidated Financial Statements of Financial Position
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


  Note  
February 28,
2021
  
May 31,
2020
 
Assets         
Current assets         
Cash and cash equivalents    $267,134  $497,222 
Accounts receivable     81,890   55,796 
Prepaids and other current assets  4   34,732   42,983 
Inventory  5   313,794   264,321 
Biological assets  6   27,065   28,341 
Current portion of convertible notes receivable  11   6,089   14,626 
       730,704   903,289 
Capital assets  8   644,711   587,163 
Intangible assets  9   669,703   363,037 
Promissory notes receivable      3,000   -- 
Long-term investments  12   11,292   27,016 
Goodwill  10   745,908   617,934 
      $2,805,318  $2,498,439 
Liabilities            
Current liabilities            
Bank indebtedness  14  $--  $537 
Accounts payable and accrued liabilities  15   168,230   153,652 
Income taxes payable      21,246   6,410 
Current portion of lease liabilities      1,756   1,315 
Current portion of long-term debt  16   25,759   8,467 
       216,991   170,381 
Long-term liabilities            
Lease liabilities      45,004   5,828 
Long-term debt  16   233,356   129,637 
Convertible debentures  17   622,796   270,783 
Contingent consideration  10   76,196   -- 
Deferred tax liability, net  13   44,625   83,468 
       1,238,968   660,097 
Shareholders’ equity            
Share capital  18   2,079,173   1,846,938 
Warrants  19   360   360 
Share-based payment reserve      29,661   27,721 
Accumulated other comprehensive loss      (6,047)  (1,269)
Deficit      (595,182)  (61,215)
       1,507,965   1,812,535 
Non-controlling interests  21   58,385   25,807 
       1,566,350   1,838,342 
      $2,805,318  $2,498,439 

Nature of operations (Note 1),
Commitments and contingencies (Note 32),
Subsequent events (Note 34)

Approved on behalf of the Board:
“Renah Persofsky”
“Irwin Simon”
Signed:  DirectorSigned:  Director

The accompanying notes are an integral part of these condensed interim consolidated financial statements
2

Aphria Inc.
Condensed Interim Consolidated Financial Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

     
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  Note  2021  2020  2021  2020 
Net revenue  22  $153,638  $144,424  $459,859  $391,136 
Cost of goods sold  23   115,872   108,733   335,008   297,403 
Gross profit before fair value adjustments      37,766   35,691   124,851   93,733 
Fair value adjustment on sale of inventory      45,044   16,383   102,600   36,060 
Fair value adjustment on growth of biological assets  6   (38,967)  (40,267)  (124,209)  (86,912)
Gross profit      31,689   59,575   146,460   144,585 
Operating expenses:                    
General and administrative  24   26,095   27,920   82,239   72,301 
Share-based compensation  25   36,271   5,126   54,127   17,645 
Selling      7,632   5,089   22,383   12,731 
Amortization      13,792   5,352   24,848   16,256 
Marketing and promotion      4,041   4,185   15,421   16,611 
Research and development      158   710   586   1,992 
Transaction costs      12,013   2,478   37,637   3,904 
       100,002   50,860   237,241   141,440 
Operating loss      (68,313)  8,715   (90,781)  3,145 
Finance income (expense), net  26   (10,025)  (7,352)  (23,302)  (17,615)
Non-operating income (expense), net  27   (276,507)  9,848   (383,626)  34,719 
(Loss) income before income taxes      (354,845)  11,211   (497,709)  20,249 
Income taxes (recovery)  13   6,151   5,514   (11,020)  6,040 
Net (loss) income      (360,996)  5,697   (486,689)  14,209 
Other comprehensive (loss) income                    
Other comprehensive (loss) income      (5,836)  (734)  (4,778)  (2,729)
Comprehensive (loss) income     $(366,832) $4,963  $(491,467) $11,480 
Total comprehensive income (loss) attributable to:                    
Shareholders of Aphria Inc.      (385,279)  5,893   (538,745)  12,944 
Non-controlling interests  21   18,447   (930)  47,278   (1,464)
      $(366,832) $4,963  $(491,467) $11,480 
Weighted average number of common shares - basic      316,670,951   257,517,234   299,130,624   253,477,710 
Weighted average number of common shares - diluted      316,670,951   257,955,708   299,130,624   254,010,666 
(Loss) income per share - basic  29  $(1.14) $0.02  $(1.63) $0.06 
(Loss) income per share - diluted  29  $(1.14) $0.02  $(1.63) $0.06 
 
The accompanying notes are an integral part of these condensed interim consolidated financial statements
3

Aphria Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

  Number of common shares  
Share capital
(Note 18)
  
Warrants
(Note 19)
  Share-based payment reserve  Accumulated other comprehensive loss  Retained earnings  
Non-controlling interests
(Note 21)
  Total 
Balance at May 31, 2019  250,989,120  $1,655,273  $1,336  $36,151  $(119) $12,103  $28,409  $1,733,153 
Share issuance - January 2020 bought deal  14,044,944   99,727                  99,727 
Share issuance - options exercised  1,105,901   6,783      (2,681)           4,102 
Share issuance - RSUs exercised  667,529   4,428                  4,428 
Share issuance - DSUs exercised  60,342   392                  392 
Share issuance - warrants exercised  766,372   1,150                  1,150 
Cancelled shares  (500,000)  (615)           615       
Expired warrants        (976)        976       
Share-based payments           9,693            9,693 
Nuuvera Malta Ltd. acquisition                 (82)  82    
Comprehensive income (loss) for the period              (2,729)  15,673   (1,464)  11,480 
Balance at February 29, 2020  267,134,208  $1,767,138  $360  $43,163  $(2,848) $29,285  $27,027  $1,864,125 

  Number of common shares  
Share capital
(Note 18)
  
Warrants
(Note 19)
  Share-based payment reserve  Accumulated other comprehensive income (loss)  Deficit  
Non-controlling interests
(Note 21)
  Total 
Balance at May 31, 2020  286,520,265  $1,846,938  $360  $27,721  $(1,269) $(61,215) $25,807  $1,838,342 
Share issuance - legal settlement  2,259,704   12,963                  12,963 
Share issuance - equity financing  17,432,879   128,448                  128,448 
Share issuance - SweetWater acquisition  9,823,183   85,675                  85,675 
Share issuance - options exercised  232,539   1,929      (1,751)           178 
Share issuance - RSUs exercised  526,849   3,220                  3,220 
Share-based payments           3,691            3,691 
Dividend paid to non-controlling interest                    (14,700)  (14,700)
Comprehensive income (loss) for the period              (4,778)  (533,967)  47,278   (491,467)
Balance at February 28, 2021  316,795,419  $2,079,173  $360  $29,661  $(6,047) $(595,182) $58,385  $1,566,350 
The accompanying notes are an integral part of these condensed interim consolidated financial statements
4

Aphria Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited - in thousands of Canadian dollars)

     
For the nine months ended
February 28,
 
  Note  2021  2020 
Cash used in operating activities:         
Net (loss) income for the period    $(486,689) $14,209 
Adjustments for:           
Future income taxes  13   (37,974)  2,040 
Fair value adjustment on sale of inventory      102,600   36,060 
Fair value adjustment on growth of biological assets  6   (124,209)  (86,912)
Unrealized foreign exchange loss (gain)      24,744   3,136 
Amortization  8,9   54,820   34,832 
Loss on promisorry notes receivable         12,000 
Unrealized loss on convertible notes receivable  11   3,786   7,569 
Transaction costs associated with business acquisitions      31,199    
Other non-cash items      (641)  (544)
Share-based compensation  25   54,127   17,645 
Loss on long-term investments  28   5,272   28,144 
Loss (gain) on convertible debentures      352,013   (86,430)
Change in non-cash working capital  30   (43,831)  (102,941)
       (64,783)  (121,192)
Cash provided by (used in) financing activities:            
Share capital issued, net of cash issuance costs      127,163   99,727 
Proceeds from warrants and options exercised      178   5,252 
Proceeds from long-term debt      127,471   79,400 
Repayment of long-term debt      (6,536)  (9,730)
Repayment of lease liabilities      (1,824)  (912)
(Decrease) increase in bank indebtedness      (537)  6,948 
Dividend paid to non-controlling interest      (14,700)   
       231,215   180,685 
Cash used in investing activities:            
Proceeds from disposal of marketable securities         19,861 
Investment in capital and intangible assets      (42,075)  (104,397)
Proceeds from disposal of capital and intangible assets      8,193   1,673 
Promissory notes advances      (3,000)   
Repayment of convertible notes receivable  11   5,000    
Investment in long-term investments and equity investees         (605)
Proceeds from disposal of long-term investments and equity investees  28   10,452   26,177 
Net cash paid on business acquisitions      (354,396)  (34,722)
       (375,826)  (92,013)
Effect of foreign exchange on cash and cash equivalents      (20,694)  (3,175)
Net decrease in cash and cash equivalents      (230,088)  (35,695)
Cash and cash equivalents, beginning of period      497,222   550,797 
Cash and cash equivalents, end of period     $267,134  $515,102 
Cash and cash equivalents are comprised of:            
Cash in bank     $35,218  $514,899 
Short-term deposits      231,916   203 
Cash and cash equivalents     $267,134  $515,102 
The accompanying notes are an integral part of these condensed interim consolidated financial statements
5

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

1.Nature of operations

Aphria Inc. (the "Company" or “Aphria”) is a leading global cannabis company inspiring and empowering the worldwide community to live their very best life. The Company exists under the laws of the Business Corporations Act (Ontario), is licensed to produce and sell medical and adult-use cannabis, cannabis-derived extracts, and derivative cannabis products in Canada under the provisions of The Cannabis Act.

Broken Coast Cannabis Ltd. (“Broken Coast”) is a wholly-owned subsidiary of the Company licensed to produce and sell cannabis under The Cannabis Act.

1974568 Ontario Ltd. (“Aphria Diamond”) is a 51% majority-owned subsidiary of the Company. Aphria Diamond is licensed to produce cannabis under the provisions of The Cannabis Act.

SweetWater Brewing Company, LLC (“SweetWater”) is a wholly-owned subsidiary operating in the beverage alcohol industry in the United States.

The registered office of the Company is located at 1 Adelaide Street East, Suite 2310, Toronto, Ontario.

The Company’s common shares are listed under the symbol “APHA” on the Toronto Stock Exchange (“TSX”) in Canada and the National Association of Securities Dealers Automated Quotations Exchange (“NASDAQ”) in the United States.

These condensed interim consolidated financial statements were approved by the Company’s Board of Directors on April 9, 2021.

2.Basis of preparation


(a)Statement of compliance

The Company’s condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These condensed interim consolidated financial statements do not include all notes of the type normally included within the annual financial report and should be read in conjunction with the audited financial statements of the Company for the year ended May 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and Interpretations of the IFRS Interpretations Committee.


(b)Basis of measurement

These condensed interim consolidated financial statements have been prepared on the going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value and biological assets that are measured at fair value less costs to sell, as detailed in the Company’s accounting policies.


(c)Functional currency

All figures presented in the consolidated financial statements are reflected in Canadian dollars; however, the functional currency of the Company includes the Canadian dollar, United States dollar and the Euro.

Foreign currency transactions are translated to the respective functional currencies of the Company’s entities at the exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the foreign exchange rate applicable at the statement of financial position date. Non-monetary items carried at historical cost denominated in foreign currencies are translated to the functional currency at the date of the transactions. Non-monetary items carried at fair value denominated in foreign currencies are translated to the functional currency at the date when the fair value was determined. Realized and unrealized exchange gains and losses are recognized through profit and loss.
6

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)
On consolidation, the assets and liabilities of foreign operations reported in their functional currencies are translated into Canadian dollars, the Group’s presentation currency, at period-end exchange rates. Income and expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from translating foreign operations are recognized in other comprehensive income and accumulated in equity. The Company and all of its subsidiaries’ functional currency is Canadian dollars, with the exception of SweetWater and CC Pharma GmbH whose functional currency is the United States Dollar and Euro respectively.


(d)Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The following is a list of the Company’s operating subsidiaries:

 SubsidiariesJurisdiction of incorporationOwnership interest
 Broken Coast Cannabis Ltd.British Columbia, Canada100%
 SweetWater Brewing Company, LLCGeorgia, United States of America100%
 ARA – Avanti Rx Analytics Inc.Ontario, Canada100%
 FL Group S.r.l.Italy100%
 ABP, S.A.Argentina100%
 Aphria Germany GmbHGermany100%
 Aphria RX GmbHGermany100%
 CC Pharma GmbHGermany100%
 
CC Pharma Research and
Development GmbH
Germany100%
 Aphria Wellbeing GmbHGermany100%
 Marigold Projects Jamaica LimitedJamaica
95%1
 ASG Pharma Ltd.Malta100%
 ColCanna S.A.S.Colombia90%
 CC Pharma Nordic ApSDenmark75%
 1974568 Ontario Ltd.Ontario, Canada51%

Intragroup balances, and any unrealized gains and losses or income and expenses arising from transactions with jointly controlled entities are eliminated to the extent of the Company’s interest in the entity.

The Company treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Company. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognized in a separate reserve within equity attributable to the owners of the Company.

3.Significant accounting policies

These condensed interim consolidated financial statements have been prepared following the same accounting policies used in the preparation of the audited financial statements of the Company for the year ended May 31, 2020. For comparative purposes, the Company has reclassified certain immaterial items on the condensed interim consolidated statements of financial position and the condensed interim consolidated statements of income (loss) and comprehensive income (loss) to conform with the current period’s presentation.



1 The Company holds 49% of the issued and outstanding shares of Marigold Projects Jamaica Limited through wholly-owned subsidiary Marigold Acquisitions Inc. The Company holds rights through a licensing agreement to 95% of the results of operations of Marigold Projects Jamaica Limited.
7

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

4.Prepaids and other current assets

Prepaids and other current assets are comprised of:

  
February 28,
2021
  
May 31,
2020
 
Sales tax receivable $3,677  $11,670 
Prepaid assets  27,064   23,365 
Other  3,991   7,948 
  $34,732  $42,983 

5.Inventory

Inventory is comprised of:

  
Capitalized
cost
  Fair value adjustment  
February 28,
2021
  
May 31,
2020
 
Cannabis $111,519  $100,715  $212,234  $151,715 
Cannabis trim  6,920      6,920   4,023 
Cannabis oil  23,373   1,095   24,468   43,082 
Cannabis vapes  7,288   319   7,607   7,551 
Packaging and other inventory items  28,427      28,427   22,609 
Beverage alcohol inventory  5,647      5,647    
Distribution inventory  28,491      28,491   35,341 
  $211,665  $102,129  $313,794  $264,321 

The Company’s capitalized cost (decreased) increased by $(3,377) and $25,890 for the three and nine months ended February 28, 2021. The (decrease) increase in capitalized costs is made up of the following: cannabis related inventory increased by $7,473 and $27,093, beverage alcohol inventory increased by $(975) and $5,647 and distribution inventory increased (decreased) by $(9,875) and $(6,850) for the three and nine months ended February 28, 2021.

6.Biological assets

Biological assets are comprised of:

  Amount 
Balance at May 31, 2019 $18,725 
Changes in fair value less costs to sell due to biological transformation  115,255 
Production costs capitalized  131,561 
Transferred to inventory upon harvest  (237,200)
Balance at May 31, 2020 $28,341 
Changes in fair value less costs to sell due to biological transformation  124,209 
Production costs capitalized  94,157 
Transferred to inventory upon harvest  (219,642)
Balance at February 28, 2021 $27,065 

The Company values cannabis plants at cost, which approximates fair value from the date of initial clipping from mother plants until half-way through the flowering cycle of the plants. Measurement of the biological transformation of the plant at fair value less costs to sell begins in the fourth week prior to harvest and is recognized evenly until the point of harvest. The number of weeks in the growing cycle is between twelve and sixteen weeks from propagation to harvest. The Company has determined the fair value less costs to sell of cannabis to be between $2.40 and $2.90 per gram, upon harvest for greenhouse produced cannabis (May 31, 2020 – $3.00 per gram) and between $3.50 and $4.00 per gram (May 31, 2020 - $4.00 per gram), upon harvest for indoor produced cannabis. The Company has determined the fair value increment on cannabis trim to be $nil per gram (May 31, 2020 - $0.01 per gram).
8

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

The fair value of biological assets is determined using a valuation model to estimate expected harvest yield per plant applied to the estimated price per gram less processing and selling costs. Only when there is a material change from the expected fair value used for cannabis does the Company make any adjustments to the fair value used. During the period, the Company amended the fair value based on an expected lower average selling price with the release of the Company’s economy brands, which the Company is using to create demand for lower potency harvested cannabis.

In determining the fair value of biological assets, management has made the following estimates in this valuation model:

The harvest yield is between 20 grams and 60 grams per plant;

The selling price is between $1.50 and $6.50 per gram of cannabis;

Processing costs include drying and curing, testing, post-harvest overhead allocation, packaging and labelling costs between $0.30 and $0.80 per gram;

Selling costs include shipping, order fulfilment, patient acquisition and patient maintenance costs between $0.00 and $1.50 per gram;

Sales prices used in the valuation of biological assets is based on the average selling price of all cannabis products and can vary based on different strains being grown as well as the proportion of sales derived from wholesale compared to retail. Selling costs vary depending on methods of selling and are considered based on the expected method of selling and the determined additional costs which would be incurred. Expected yields for the cannabis plant is also subject to a variety of factors, such as strains being grown, length of growing cycle, and space allocated for growing. Management reviews all significant inputs based on historical information obtained as well as based on planned production schedules.

Management has quantified the sensitivity of the inputs and determined the following:

Selling price per gram – a decrease in the average selling price per gram by 5% would result in the biological asset value decreasing by $674 (May 31, 2020 - $682) and inventory decreasing by $12,215 (May 31, 2020 - $9,895)

Harvest yield per plant – a decrease in the harvest yield per plant of 5% would result in the biological asset value decreasing by $404 (May 31, 2020 - $439)

These inputs are level 3 on the fair value hierarchy and are subject to volatility in market prices and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

7.Related party transactions

Key management personnel compensation for the three and nine months ended February 28, 2021 and February 29, 2020 was comprised of:

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Salaries $1,548  $1,769  $8,528  $4,930 
Stock options vested during the period  145   252   1,317   1,370 
Deferred share units vested in the period  212   220   1,577   806 
Deferred share units revalued in the period  4,039   (149)  4,289   (491)
Restricted share units vested in the period  2,043   331   7,183   474 
Restricted share units revalued in the period  19,486   (42)  24,971   (24)
  $27,473  $2,381  $47,865  $7,065 

Directors and officers of the Company control 0.10% or 332,377 of the voting shares of the Company.

As at February 28, 2021, a balance paid to an officer and director of the Company of $nil (May 31, 2020 - $801) is included within prepaid and other current assets.

During the period, the Company issued 150,000 deferred share units to directors of the Company under the terms of the Company’s Omnibus Long-Term Incentive Plan, all of which vest over one year.
9

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

During the period, the Company issued 866,190 restricted share units to officers and directors of the Company under the terms of the Company’s Omnibus Long-Term Incentive Plan, all of which vest over two years.

During the period, the Company issued 50,000 stock options to officers of the Company, under the terms of the Company’s Omnibus Long-Term Incentive Plan, all of which vest over three years.

8.Capital assets

  Land  Production facility  Equipment  Leasehold improvements  Construction in process  Right-of-use assets  Total capital assets 
Cost                     
At May 31, 2019 $33,153  $232,468  $79,627  $1,236  $174,182  $  $520,666 
IFRS 16 Adjustment                 8,606   8,606 
Additions     4,480   21,034   1,240   101,284   677   128,715 
Transfers  72   37,491   108,730   16,081   (162,414)  40    
Disposals        (7,157)  --   (5,559)     (12,716)
Impairment  (15)  (3,433)  (46)  (119)  (2,147)  (840)  (6,600)
Effect of foreign exchange     14   22   --   114   107   257 
At May 31, 2020  33,210   271,020   202,210   18,438   105,460   8,590   638,928 
Business Acquisition        13,502   523   2,017   39,992   56,034 
Additions  314   3,755   5,419   434   28,576   1,449   39,947 
Transfers     48,659   13,518      (62,177)      
Effect of foreign exchange  3   (37)  (272)  (11)  29   (777)  (1,065)
At February 28, 2021 $33,527  $323,397  $234,377  $19,384  $73,905  $49,254  $733,844 
                             
Accumulated depreciation                            
At May 31, 2019 $  $7,660  $8,919  $189  $  $  $16,768 
Amortization     13,584   19,508   450      1,455   34,997 
At May 31, 2020     21,244   28,427   639      1,455   51,765 
Amortization     13,397   21,501   840      1,630   37,368 
At February 28, 2021 $  $34,641  $49,928  $1,479  $  $3,085  $89,133 
                             
Net book value                            
At May 31, 2019 $33,153  $224,808  $70,708  $1,047  $174,182  $  $503,898 
At May 31, 2020 $33,210  $249,776  $173,783  $17,799  $105,460  $7,135  $587,163 
At February 28, 2021 $33,527  $288,756  $184,449  $17,905  $73,905  $46,169  $644,711 

10

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

9.Intangible assets

  Customer relationships  Corporate website  Licences, permits & applications  Non-compete agreements  Intellectual property, trademarks & brands  
Total
intangible assets
 
Cost                  
At May 31, 2019 $33,030  $905  $275,880  $3,330  $98,530  $411,675 
Additions  112   557   2,893   2   1,944   5,508 
Impairment        (19,363)        (19,363)
Effect of foreign exchange  (540)  (5)  68   (55)  (358)  (890)
At May 31, 2020  32,602   1,457   259,478   3,277   100,116   396,930 
Business acquisition  201,547         13,003   119,628   334,178 
Additions     97   2,410      1,070   3,577 
Disposals              (8,193)  (8,193)
Effect of foreign exchange  (3,484)  7   96   (204)  (1,859)  (5,444)
At February 28, 2021 $230,665  $1,561  $261,984  $16,076  $210,762  $721,048 
                         
Accumulated depreciation                     
At May 31, 2019 $6,003  $417  $859  $1,490  $10,850  $19,619 
Amortization  6,040   437   176   1,348   6,273   14,274 
At May 31, 2020  12,043   854   1,035   2,838   17,123   33,893 
Amortization  7,558   218   387   538   8,751   17,452 
At February 28, 2021 $19,601  $1,072  $1,422  $3,376  $25,874  $51,345 
                         
Net book value                        
At May 31, 2019 $27,027  $488  $275,021  $1,840  $87,680  $392,056 
At May 31, 2020 $20,559  $603  $258,443  $439  $82,993  $363,037 
At February 28, 2021 $211,064  $489  $260,562  $12,700  $184,888  $669,703 

Included in Licences, permits & applications is $254,216 of indefinite lived intangible assets. During the period, the Company disposed of $8,193 of trademarks for proceeds of $8,193.

10.Business Acquisition

Acquisition of SW Brewing Company, LLC

On November 25, 2020, the Company, through its wholly-owned subsidiary Four Twenty Corporation, completed the purchase of all the shares of SW Brewing Company, LLC which is the holding company of 100% of the common shares of SweetWater. The purchase price consisted of cash consideration of $255,543 USD ($332,283 CAD), share consideration of 9,823,183 shares, and additional cash consideration of up to $66,000 USD contingent on SweetWater achieving specified EBITDA targets. The fair value of the shares on the date the Company closed the acquisition was $85,796, the fair value of the contingent consideration on the date the Company closed the acquisition was $58,959 USD ($76,664 CAD). During the quarter, the Company completed their review of the opening net working capital in accordance with the purchase agreement. Based on this review, the Company recorded an adjustment to the purchase price of $1,016 USD ($1,321 CAD) associated with the adjustment to the opening working capital acquired.

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date.
11

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

  Amount 
Consideration   
Cash $332,283 
Shares  85,675 
Contingent consideration  76,664 
Total consideration $494,622 
Net assets acquired    
Current assets    
Cash and cash equivalents  9,086 
Accounts receivable  4,954 
Prepaids and other current assets  686 
Inventory  6,261 
Long-term assets    
Capital assets  56,034 
Customer relationships  201,547 
Intellectual property, trademarks & brands  119,628 
Non-compete agreements  13,003 
Goodwill  130,293 
Total assets  541,492 
Current liabilities    
Accounts payable and accrued liabilities  6,878 
Current portion of lease liabilities  564 
Long-term liabilities    
Lease liabilities  39,428 
Total liabilities  46,870 
Total net assets acquired $494,622 

Revenue and net income and comprehensive net income for the Company would have been higher by approximately $40,000 and $16,000 for the nine months ended February 29, 2021 if the acquisition had taken place on June 1, 2020. In connection with this transaction, the Company expensed transaction costs of $20,870.

The contingent consideration from the acquisition of SweetWater is a fair value measurement and as such is carried at fair value. The fair value has been determined by discounting future expected cash outflows at a discount rate of 5%. The inputs into the future expected cash outflows are level 3 on the fair value hierarchy and are subject to volatility and uncertainty, which could significantly affect the fair value of the contingent consideration in future periods. As at February 28, 2021, the fair value of the contingent consideration was $76,196, expected to be paid in December 2023.

Goodwill is comprised of:
  
February 28,
2021
  
May 31,
2020
 
CannWay Pharmaceuticals Inc. acquisition $1,200  $1,200 
Broken Coast Cannabis Ltd. acquisition  146,091   146,091 
Nuuvera Corp. acquisition  377,221   377,221 
LATAM Holdings Inc. acquisition  87,188   87,188 
CC Pharma GmbH acquisition  6,146   6,146 
SweetWater acquisition  130,293    
Effect of foreign exchange  (2,231)  88 
  $745,908  $617,934 
12

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


During the period ended February 28, 2021, the Company completed its quarterly assessment of indicators of impairment of the Company’s cash-generating units (“CGUs”). The Company determined there were no indicators of impairment and therefore was not required to estimate the recoverable amount of the CGUs.

11.Convertible notes receivable

  
February 28,
2021
  
May 31,
2020
 
HydRx Farms Ltd. (d/b/a Scientus Pharma) $  $6,000 
10330698 Canada Ltd. (d/b/a Starbuds)  2,000   4,728 
High Tide Inc.  4,089   3,898 
   6,089   14,626 
Deduct - current portion  (6,089)  (14,626)
  $  $ 

HydRx Farms Ltd. (d/b/a Scientus Pharma)

On August 14, 2017, Aphria purchased $11,500 in secured convertible debentures of Scientus Pharma (“SP”). The convertible debentures bore interest at 8%, paid semi-annually, matured in two years and included the right to convert the debentures into common shares of SP at $2.75 per common share at any time before maturity. During the period, the Company settled the note receivable for $5,000.

10330698 Canada Ltd. (d/b/a Starbuds)

On December 28, 2018, Aphria purchased $5,000 in secured convertible debentures of Starbuds. The convertible debentures bear interest at 8.5% per annum accruing daily until maturity on December 28, 2020. The debentures are secured against the assets of Starbuds. The debentures and any accrued and unpaid interest are convertible into common shares for $0.50 per common share and matured on December 28, 2020. Starbuds is currently in default under the convertible debentures.

As at February 28, 2021, the fair value of the Company’s secured convertible debentures was $2,000 (May 31, 2020 - $4,728), which includes $465 (May 31, 2020 - $216) of accrued interest. The remaining change resulted in a fair value gain (loss) for the three and nine months ended February 28, 2021 of $(3,384) and $(2,977) (2020 - $172 and (853)).

High Tide Inc.

On April 10, 2019, Aphria purchased $4,500 in unsecured convertible debentures of High Tide Inc. (“High Tide”). The convertible debentures bear interest at 10% per annum, payable annually up front in common shares of High Tide based on the 10-day volume weighted average price (the “Debentures”). The debentures mature on April 10, 2021 and are convertible into common shares of High Tide at a price of $0.75 at the option of the holder. In addition to the debentures, the Company received 6,000,000 warrants in High Tide as part of the purchase of the unsecured convertible debentures (Note 12).

As at February 28, 2021, the fair value of the unsecured convertible debentures was $4,089 (May 31, 2020 - $3,898), which resulted in a fair value gain (loss) for the three and nine months ended February 28, 2021 of $66 and $191 (2019 - $12 and (162)).

Convertible notes receivable

The gain (loss) on convertible notes receivable recognized in the results of operations amounts to $(3,318) and $(3,786) for the three and nine months ended February 28, 2021 (2020 - $(630) and $(7,569)).

The fair value was determined using the Black-Scholes option pricing model using the following assumptions: the risk-free rate of 1.25%; expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of nil; dividend yield of nil; and, the exercise price of the respective conversion feature.
13

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


12.Long-term investments

  
Cost
May 31,
2020
  
Fair value
May 31,
2020
  Investment  Divesture/ Transfer  
Subtotal
February 28, 2021
  
Change in
fair value
  Fair value February 28, 2021 
Level 1 on fair value hierarchy             
        
Tetra Bio-Pharma Inc.  19,057   5,784       
 5,784   (673)  5,111 
Aleafia Health Inc.  10,000   3,320      (3,320)         
Rapid Dose Therapeutics Inc.  5,189   1,730      (1,730)         
Fire & Flower Inc.  389   237      (237)         
High Tide Inc.  450   165      -   165   561   726 
Althea Group Holdings Ltd.  2,206   4,266      (4,266)         
   37,291   15,502      (9,553)  5,949   (112)  5,837 
Level 3 on fair value hierarchy                            
Resolve Digital Health Inc.  718                   
Resolve Digital Health Inc.  282                   
Green Acre Capital Fund I  2,000   2,373         2,373   (173)  2,200 
Weekend Holdings Corp.  1,890   1,379         1,379   (745)  634 
IBBZ Krankenhaus GmbH  1,956   1,993      (1,993)         
Greenwell Brands GmbH  152   155      (155)         
HighArchy Ventures Ltd.  9,995   4,997         4,997   (2,997)  2,000 
Schroll Medical ApS  605   617         617   4   621 
   17,598   11,514      (2,148)  9,366   (3,911)  5,455 
   54,889   27,016      (11,701)  15,315   (4,023)  11,292 

Tetra Bio-Pharma Inc.
The Company owns 26,900,000 common shares and 6,900,000 warrants at a cost of $19,057, with a fair value of $5,111 as at February 28, 2021. Each warrant is exercisable at $1.29 per warrant expiring November 1, 2021.

Aleafia Health Inc. (formerly Emblem Corp.) (“Aleafia”)
During the period, the Company sold 5,823,831 common shares in Aleafia, for proceeds of $3,066 resulting in a loss of $254 (Note 28).

Rapid Dose Therapeutics Inc. (“RDT”)
During the period, the Company sold 6,918,500 common shares in RDT for proceeds of $1,360 resulting in a loss of $370 (Note 28).

Fire & Flower Inc.
During the period, the Company sold 334,525 common shares, for proceeds of $252 resulting in a gain of $15 (Note 28).

High Tide Inc.
The Company owns 943,396 common shares and 6,000,000 warrants in High Tide Inc. at a cost of $450, with a fair value of $726 as at February 28, 2021. Each warrant is exercisable at $0.85 per warrant expiring April 18, 2021.

Althea Group Holdings Ltd. (“Althea”)
During the period, the Company sold 12,250,000 common shares of Althea for proceeds of $5,022 AUD ($4,800 CAD), resulting in a gain of $534 (Note 28).

Resolve Digital Health Inc. (“Resolve”)
The Company owns 2,200,026 common shares and 2,200,026 warrants in Resolve at a total cost of $1,000, with a fair value of $nil as at February 28, 2021. The Company determined the fair value of its investment based on its net realizable value. Each warrant is exercisable at $0.65 per warrant expiring December 1, 2021.
14

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Green Acre Capital Fund I
The Company invested $2,000 to Green Acre Capital Fund I. The Company determined the fair value of its investment, based on its proportionate share of net assets, to be $2,200 as at February 28, 2021. The Company has received $1,560 return of capital since its initial contribution.

Weekend Holdings Corp.
The Company owns 2,040,218 shares in Weekend Holdings Corp. for a total cost of $1,420 USD ($1,890 CAD), with a fair value of $500 USD ($634 CAD) as at February 28, 2021. The Company determined the fair value of its investment based on its net realizable value. The Company recognized a loss from the change in fair value of $745.

IBBZ Krankenhaus GmbH Klinik Hygiea (“Krankenhaus”)
During the period, the Company sold its 25.1% interest in Krankenhaus, which is the owner and operator of Berlin-based Schöneberg Hospital, for proceeds of €400 ($600 CAD), resulting in a loss of $1,393 (Note 28).

Greenwell Brands GmbH (“Greenwell”)
During the period, the Company sold 1,250 common shares of Greenwell for proceeds of €250 ($374 CAD), resulting in a gain of $219 (Note 28).

HighArchy Ventures Ltd. (“HighArchy”)
The Company owns 9,453,168 shares, and has an option to re-acquire control of 10,536,832 shares in HighArchy for a total cost of $9,995, with a fair value of $2,000 as at February 28, 2021. The Company determined the fair value of its investment based on its net realizable value.

Schroll Medical ApS
The Company has contributed capital of €403 ($605 CAD) and owns 3,000 shares in Schroll Medical ApS. The Company determined that the fair value of its investment, based on the most recent financing at the same price, is equal to its carrying value. The Company recognized a gain from the change in fair value of $4 due to changes in the foreign exchange rate.

13.Income taxes and deferred income taxes

A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:

  
For the nine months ended
February 28,
 
  2021  2020 
Net (loss) income before income taxes (recovery) $(497,709) $20,249 
Statutory rate  26.5%  26.5%
         
Expected income tax (recovery) at combined basic federal and provincial tax rate  (131,893)  5,366 
         
Effect on income taxes of:        
Foreign tax differential  (417)  (110)
Permanent differences  45   (224)
Non-deductible share-based compensation and other expenses  14,344   4,537 
Non-taxable portion of loss (gains)  51,496   (4,759)
Other  442   538 
Tax assets not recognized  54,963   692 
  $(11,020) $6,040 
         
Income tax expense (recovery) is comprised of:        
Current $27,143  $4,000 
Future  (38,163)  2,040 
  $(11,020) $6,040 
15

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

The following table summarized the movement in deferred tax:

  Amount 
Balance at May 31, 2019 $87,633 
Future income tax recovery  (3,682)
Income tax recovery on share issuance costs  (483)
Balance at May 31, 2020 $83,468 
Future income tax recovery  (38,163)
Income tax recovery on share issuance costs  (967)
Effect of foreign exchange  287 
Balance at February 28, 2021 $44,625 

The following table summarizes the components of deferred tax:

  
February 28,
2021
  
May 31,
2020
 
Deferred tax assets      
Non-capital loss carry forward $95,464  $46,904 
Capital loss carry forward  2,220   2,556 
Share issuance and financing fees  5,476   6,924 
Unrealized loss  40,783    
Other  8,604   2,483 
Losses not recognized  (61,075)  (6,112)
Deferred tax liabilities        
Net book value in excess of undepreciated capital cost  (12,798)  (11,523)
Intangible assets in excess of tax costs  (94,078)  (95,928)
Unrealized gain     (5,592)
Biological assets and inventory in excess of tax costs  (29,221)  (23,180)
 Net deferred tax liabilities $(44,625) $(83,468)

14.Bank indebtedness

The Company secured an operating line of credit in the amount of $1,000 which bears interest at the lender’s prime rate plus 75 basis points. As at February 28, 2021, the Company has not drawn on the line of credit. The operating line of credit is secured by a first charge on the property at 265 Talbot Street West, Leamington, Ontario and a first ranking position on a general security agreement.

The Company’s subsidiary, CC Pharma, has two operating lines of credit for 3,500 each, which bear interest at Euro Over Night Index Average plus 1.79% and Euro Interbank Offered Rate plus 3.682%. As at February 28, 2021, a total of €nil ($nil CAD) was drawn down from the available credit of €7,000 (May 31, 2020 - €351 ($537 CAD)). The operating lines of credit are secured by a first charge on the inventory held by CC Pharma.

The Company’s subsidiary, Four Twenty Corporation (“420”) has a revolving credit facility for $20,000 USD which bears interest at EURIBOR plus an applicable margin. As at February 28, 2021, the Company has not drawn on the credit facility. The revolving credit facility is secured by all of 420 and SweetWater’s assets and includes a corporate guarantee by the Company.
16

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

15.Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of:

  
February 28,
2021
  
May 31,
2020
 
Trade payables
 $58,218  $56,749
 
RSU and DSU accruals
  55,575
   3,758
 
Other accruals
  54,437
   93,145
 

 $168,230
  $153,652
 


16.Long-term debt

    
February 28,
2021
  
May 31,
2020
 
Credit facility - $80,000 - Canadian prime interest rate plus an applicable margin,      
3-year term, with a 10-year amortization, repayable in blended monthly
payments, due in November 2022
 $78,000  $80,000 
Term loan - $25,000 - Canadian Five Year Bond interest rate plus 2.73% with a        
minimum 4.50%, 5-year term, with a 15-year amortization, repayable in blended monthly payments, due in July 2023  17,566   18,241 
Term loan - $25,000 - 3.95%, compounded monthly, 5-year term with a 15-year        
amortization, repayable in equal monthly instalments of $188 including interest, due in April 2022  21,029   21,975 
Term loan - $1,250 - 3.99%, 5-year term, with a 10-year amortization, repayable in  740   830 
equal monthly instalments of $13 including interest, due in July 2021        
Mortgage payable - $3,750 - 3.95%, 5-year term, with a 20-year amortization,  3,131   3,239 
repayable in equal monthly instalments of $23 including interest, due in
July 2021
        
Vendor take-back mortgage - $2,850 - 6.75%, 5-year term, repayable in equal  221   701 
monthly instalments of $56 including interest, due in June 2021        
Term loan - $100,000 USD - EURIBOR Option, 3-year term, with 3-year  127,410    
amortization, repayable in blended quarterly instalments, due in November 2023        
Term loan - €5,000 - EURIBOR + 1.79%, 5-year term, repayable in quarterly  4,616   5,740 
instalments of €250 plus interest, due in December 2023        
Term loan - €5,000 - EURIBOR + 2.68%, 5-year term, repayable in quarterly  4,616   5,740 
instalments of €250 plus interest, due in December 2023        
Term loan - €1,500 - EURIBOR + 2.00%, 5-year term, repayable in quarterly  2,307   2,296 
instalments of €98 including interest, due in April 2025        
Term loan - €1,500 - EURIBOR + 2.00%, 5-year term, repayable in quarterly  2,307    
instalments of €98 including interest, due in June 2025        
    261,943   138,762 
Deduct - unamortized financing fees  (2,828)  (658)
 - principal portion included in current liabilities  (25,759)  (8,467)
    $233,356  $129,637 
17

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Total long-term debt repayments are as follows:

 Next 12 months  $25,759 
2 years   107,438 
3 years   124,438 
4 years   2,462 
5 years   1,846 
Thereafter    
Balance of obligation  $261,943 

The credit facility of $80,000 was entered into on November 29, 2019 by 51% owned subsidiary Aphria Diamond and is secured by a first charge on the property at 620 County Road 14, Leamington, Ontario, owned by Aphria Diamond, and a guarantee from Aphria Inc. Principal payments started on the credit facility on February 28, 2021.

The term loan of $25,000 was entered into on July 27, 2018 and is secured by a first charge on the property at 223, 231, 239, 265, 269, 271 and 275 Talbot Street West, Leamington Ontario, a first position on a general security agreement, and an assignment of fire insurance to the lender. Principal payments started on the term loan in August 2018. The effective interest rate during the year was 4.68%.

The term loan of $25,000 was entered into on May 9, 2017 and is secured by a first charge on the property at 265 Talbot Street West, Leamington Ontario, a first position on a general security agreement, and an assignment of fire insurance to the lender. Principal payments started on the term loan in March 2018.

The term loan of $1,250 and mortgage payable of $3,750 were entered into on July 22, 2016 and are secured by a first charge on the property at 265 Talbot Street West, Leamington, Ontario and a first position on a general security agreement.

The vendor take-back mortgage payable of $2,850 was entered into on June 30, 2016 in conjunction with the acquisition of the property at 265 Talbot Street West. The mortgage is secured by a second charge on the property at 265 Talbot Street West, Leamington, Ontario.

During the quarter, the Company entered into a term loan for $100,000 USD ($127,410 CAD) through wholly-owned subsidiary 420. The term loan is secured by all of 420 and SweetWater’s assets and includes a corporate guarantee by the Company.

During the period, the Company entered into a term loan for €1,500 ($2,332 CAD) through wholly-owned subsidiary CC Pharma. The term loans for €13,500 ($14,772 CAD) are held through wholly-owned subsidiary CC Pharma. These term loans are secured against the distribution inventory held by CC Pharma.

17.Convertible debentures

  
February 28,
2021
  
May 31,
2020
 
 Opening balance $270,783  $421,366 
 Debt settlement     (91,169)
 Fair value adjustment  352,013   (59,414)
Closing balance $622,796  $270,783 

The unsecured convertible debentures were entered into in April 2019, in the principal amount of $350,000 USD, are due in five years from issuance (the “Notes”). The Notes bear interest at a rate of 5.25% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2019. The Notes are an unsecured obligation and ranked senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the Notes. The Notes will rank equal in right of payment with all liabilities that are not subordinated. The Notes are effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness.
18

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Holders of the Notes may convert all or any portion of their Notes, in multiples of $1 USD principal amount, at their option at any time between December 1, 2023 to the maturity date. The initial conversion rate for the Notes will be 106.5644 common shares of Aphria per $1 USD principal amount of Notes, which will be settled in cash, common shares of Aphria or a combination thereof, at Aphria’s election. This is equivalent to an initial conversion price of approximately $9.38 per common share, subject to adjustments in certain events. In addition, holders of the Notes may convert all or any portion of their Notes, in multiples of $1 USD principal amount, at their option at any time preceding December 1, 2023, if:

(a) the last reported sales price of the common shares for at least 20 trading days during a period of 30 consecutive trading days immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(b) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1 USD principal amount of the Notes for each trading day of the measurement period is less than 98% of the product of the last reported sale price of the Company’s common shares and the conversion rate on each such trading day;

(c) the Company calls any or all of the Notes for redemption or;

(d) upon occurrence of specified corporate event.

The Company may not redeem the Notes prior to June 6, 2022, except upon the occurrence of certain changes in tax laws. On or after June 6, 2022, the Company may redeem for cash all or part of the Notes, at its option, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on and including trading day immediately preceding the date on which the Company provides notice of redemption. The redemption of Notes will be equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date.

As at February 28, 2021 there was $259,240 USD principal outstanding (May 31, 2020 - $259,240 USD).

18.Share capital

The Company is authorized to issue an unlimited number of common shares. As at February 28, 2021, the Company has issued 316,795,419 shares.

Common Shares 
Number of
shares
  Amount 
Balance at May 31, 2020  286,520,265  $1,846,938 
Legal settlement  2,259,704   12,963 
Equity financing  17,432,879   128,448 
SweetWater acquisition  9,823,183   85,675 
Options exercised  232,539   1,929 
RSUs exercised  526,849   3,220 
   316,795,419  $2,079,173 


a)In June 2020 and September 2020, the Company issued 1,658,375 and 601,329 shares as part of legal settlements;

b)In November 2020, the Company completed its at-the-market financing for net proceeds of $128,448 and issued 17,432,879 shares.

c)In November 2020, the Company completed the acquisition of SweetWater (Note 10) in which it issued 9,823,183 shares.

d)Throughout the period, 232,539 shares were issued from the exercise of stock options with exercise prices ranging from $1.64 to $12.77 for a value of $1,929, including any cash consideration; and,

e)Throughout the period, 526,849 shares were issued in accordance with the restricted share unit plan to employees.
19

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

19.Warrants

The warrant details of the Company are as follows:

Type of warrantExpiry date Number of warrants  Weighted average price  Amount 
WarrantSeptember 26, 2021  200,000  $3.14  $360 
WarrantJanuary 30, 2022  7,022,472   9.26    
    7,222,472  $9.09  $360 

  
February 28,
2021
  
May 31,
2020
 
  Number of warrants  Weighted average price  Number of warrants  Weighted average price 
Outstanding, beginning of the period  7,222,472  $9.09   2,292,800  $12.25 
Exercised during the period        (766,372)  1.50 
Issued during the period        7,022,472   9.26 
Expired during the period        (1,326,428)  19.84 
Outstanding, end of the period  7,222,472  $9.09   7,222,472  $9.09 

20.Stock options

The Company adopted a stock option plan under which it is authorized to grant options to officers, directors, employees and consultants enabling them to acquire common shares of the Company. The maximum number of common shares reserved for issuance of stock options that can be granted under the plan is 10% of the issued and outstanding common shares of the Company. The options granted can be exercised for up to a maximum of 10 years and vest as determined by the Board of Directors. The exercise price of each option can not be less than the market price of the common shares on the date of grant.

The Company recognized a share-based compensation expense of $901 and $3,691 during the three and nine months ended February 28, 2021 (2020 - $2,632 and $9,693), related to stock options (Note 25). The total fair value of options granted during the period was $111 (2020 - $6,842).

  
February 28,
2021
  
May 31,
2020
 
  Number of options  Weighted average price  Number of options  Weighted average price 
Outstanding, beginning of the period  5,882,471  $11.95   7,814,996  $11.05 
Exercised during the period  (626,215)  5.80   (1,566,331)  3.86 
Issued during the period  50,000   6.00   1,894,128   7.98 
Forfeited during the period  (797,095)  10.28   (2,260,322)  11.10 
Expired during the period  (142,000)  12.22       
Outstanding, end of the period  4,367,161  $13.06   5,882,471  $11.95 
Exercisable, end of the period  3,557,168  $13.82   3,873,497  $12.26 

In June 2020, the Company issued 50,000 stock options at an exercise price of $6.00 per share, exercisable for 5 years to an officer of the Company. Nil options vested immediately and the remainder vest over 3 years.
20

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

The outstanding option details of the Company are as follows:

Expiry date Weighted average exercise price
Number of
options
Vested and exercisable
January 20212
 $  21.70             10,000             10,000
January 20212
 $  22.89             80,000             80,000
March 2021 $  14.39             20,000             20,000
March 2021 $  9.98           200,000           200,000
May 2021 $  20.19           858,500           858,500
June 2021 $  1.40               1,668               1,668
June 2021 $  11.78             50,000             50,000
October 2022 $  6.90             37,000             37,000
July 2023 $  11.51             53,333             39,999
July 2023 $  11.85           251,334           188,000
September 2023 $  19.38           130,000           103,332
October 2023 $  19.70             40,000             26,666
February 2024 $  12.77             65,001             39,999
February 2024 $  13.31        1,000,000        1,000,000
April 2024 $  11.45             60,000             19,998
June 2024 $  9.15           300,000           100,000
June 2024 $  9.70             50,000             16,666
August 2024 $  9.13           401,155           122,837
October 2024 $  6.63           300,000           300,000
November 2024 $  6.26           250,000           183,333
June 2025 $  6.00             50,000
March 2028 $  12.29           119,378           119,378
March 2028 $  14.38             39,792             39,792
Outstanding, end of the period $  13.06   4,367,161   3,557,168

The Company used the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions: risk-free rate of 0.39% on the date of grant; expected life of 5 years; volatility of 70% based on comparable companies; forfeiture rate of 35%; dividend yield of nil; and, the exercise price of the respective option.



2 At quarter-end and as a result of its proposed transaction with Tilray, the Company remained in a No Trade Period under its Insider Trading Policy. Under the terms of the Company’s Omnibus Long-Term Incentive Program, a No Trade Period freezes any expiry equity awards until the date that is 10 days after the end of the No Trade Period.
21

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


21.Non-controlling interests

The following tables summarise the information relating to the Company’s subsidiaries, CC Pharma Nordic ApS, Aphria Diamond, Marigold Projects Jamaica Limited (“Marigold”), and ColCanna S.A.S. before intercompany eliminations.

Non-controlling interests as at February 28, 2021:

  CC Pharma Nordic ApS  Aphria Diamond  Marigold  ColCanna S.A.S.  
February 28,
2021
 
Current assets $1,050  $49,104  $  $588  $50,742 
Non-current assets $120   183,563      115,663   299,346 
Current liabilities $(1,065)  (39,915)     (78)  (41,058)
Non-current liabilities $(513)  (90,030)     (34,641)  (125,184)
Net assets  (408)  102,722      81,532   183,846 
                     
Non-controlling interests %  25%  49%  5%  10%    
Non-controlling interests $(102) $50,334  $  $8,153  $58,385 

Non-controlling interests as at May 31, 2020:

  Aphria Diamond  Marigold  ColCanna S.A.S.  
May 31,
2020
 
Current assets $51,521  $  $754  $52,275 
Non-current assets  176,507      115,614   292,121 
Current liabilities  (15,630)     (378)  (16,008)
Non-current liabilities  (176,516)     (33,738)  (210,254)
Net assets  35,882      82,252   118,134 
                 
Non-controlling interests %  49%  5%  10%    
Non-controlling interests $17,582  $  $8,225  $25,807 

Non-controlling interests for the nine months ended February 28, 2021:

  CC Pharma Nordic ApS  Aphria Diamond  Marigold  ColCanna S.A.S.  
February 28,
2021
 
Revenue $586  $138,923  $  $  $139,509 
Total expenses (recovery) $994  $42,082     $720   43,796 
Net comprehensive income  (408)  96,841      (720)  95,713 
                     
Non-controlling interests %  25%  49%  5%  10%    
  $(102) $47,452  $  $(72) $47,278 

Non-controlling interests for the nine months ended February 29, 2020:

  Aphria Diamond  CannInvest Africa Ltd.  Verve Dynamics  Marigold  ColCanna S.A.S.  February 29, 2020 
Revenue $2,628  $  $  $53  $  $2,681 
Total expenses (recovery)  5,181  $55  $276   189   (145)  5,556 
Net comprehensive loss  (2,553)  (55)  (276)  (136)  145   (2,875)
Non-controlling interests %  49%  50%  70%  5%  10%    
  $(1,251) $(28) $(193) $(7) $15  $(1,464)
22

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

22.Net revenue

Net revenue is comprised of:

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Cannabis revenue $69,071  $64,974  $239,293  $140,275 
Cannabis excise taxes  (17,336)  (8,858)  (56,156)  (19,216)
Net cannabis revenue  51,735   56,116   183,137   121,059 
                 
Beverage alcohol revenue  15,324      16,259    
Beverage alcohol excise taxes  (516)     (570)   
Net beverage alcohol revenue  14,808      15,689    
                 
Distribution revenue  87,095   88,308   261,033   270,077 
  $153,638  $144,424  $459,859  $391,136 

23.Cost of goods sold

Cost of goods sold is comprised of:

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Cannabis costs $31,463  $31,822  $100,168  $61,905 
Beverage alcohol costs  7,716      8,064    
Acquisition mark-up on inventory sold  1,035      1,035    
Distribution costs  75,658   76,911   225,741   235,498 
  $115,872  $108,733  $335,008  $297,403 

24.General and administrative expenses

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Executive compensation $2,376  $2,355  $8,528  $6,602 
Consulting fees  1,354   1,251   6,239   9,156 
Office and general  4,273   5,186   14,453   11,787 
Professional fees  1,967   761   4,654   4,694 
Salaries and wages  11,021   13,324   33,544   26,935 
Insurance  3,912   3,406   11,489   8,601 
Travel and accommodation  812   1,332   2,364   3,701 
Rent  380   305   968   825 
  $26,095  $27,920  $82,239  $72,301 
23

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


25.Share-based compensation

Share-based compensation is comprised of:

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Stock options vested during the period $901  $2,632  $3,691  $9,693 
Deferred share units vested in the period  212   220   1,577   806 
Deferred share units revalued in the period  4,039   (149)  4,289   (491)
Restricted share units vested in the period  2,700   2,773   9,108   7,423 
Restricted share units revalued in the period  28,419   (350)  35,462   214 
  $36,271  $5,126  $54,127  $17,645 

During the period, the Company issued 150,000 deferred share units to directors of the Company under the terms of the Company’s Omnibus Long-Term Incentive Plan.

During the period, the Company issued 2,674,986 restricted share units to employees, consultants and officers under the terms of the Company’s Omnibus Long-Term Incentive Plan. Nil vested immediately and the remaining vest over two years.

During the period, the Company issued 50,000 stock options to officers of the Company, under the terms of the Company’s Omnibus Long-Term Incentive Plan.

As at February 28, 2021, the Company had 345,738 deferred share units and 3,705,813 restricted share units outstanding, of which 308,238 deferred share units and 914,391 restricted share units were vested.

26.Finance Income (expense), net

Finance income (expense), net is comprised of:

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Interest income $428  $5,294  $1,260  $11,934 
Interest expense  (10,453)  (12,646)  (24,562)  (29,549)
  $(10,025) $(7,352) $(23,302) $(17,615)

27.Non-operating income

Non-operating income is comprised of:

  
For the three months ended
February 28,
  
For the nine months ended
February 28,
 
  2021  2020  2021  2020 
Non-operating income (loss):            
Foreign exchange (loss) gain $(4,817) $4,736  $(29,247) $(3,660)
Loss on promissory notes receivable     (12,000)     (12,000)
Loss on long-term investments  (3,389)  (5,403)  (5,272)  (28,144)
Unrealized (loss) gain on convertible debentures  (264,788)  23,145   (352,013)  86,430 
Other non-operating items, net  (3,513)  (630)  2,906   (7,907)
  $(276,507) $9,848  $(383,626) $34,719 
24

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


28.Gain (loss) on long-term investments

Gain (loss) on long-term investments for the three and nine months ended February 28, 2021 is comprised of:

 Investment Proceeds  Opening fair value / cost  Gain (loss) on disposal  Change in fair value  Total 
Level 1 on fair value hierarchy               
Aleafia Health Inc. $3,066  $3,320  $(254) $  $(254)
Rapid Dose Therapeutics Inc.  1,360   1,730   (370)     (370)
Fire & Flower Inc.  252   237   15      15 
Althea Group Holdings Ltd.  4,800   4,266   534      534 
Level 3 on fair value hierarchy                    
IBBZ Krankenhaus GmbH  600   1,993   (1,393)     (1,393)
Greenwell Brands GmbH  374   155   219      219 
Long-term investments (Note 12)           (4,023)  (4,023)
For the period ended
   February 28, 2021
  10,452   11,701   (1,249)  (4,023)  (5,272)
                     
Less transactions in previous quarter:                 
November 30, 2020  3,318   3,557   (239)  (1,644)  (1,883)
Three months ended
   February 28, 2021
 $7,134  $8,144  $(1,010) $(2,379) $(3,389)

29.Earnings (loss) per share

The calculation of earnings (loss) per share for the three months ended February 28, 2021 was based on the net (loss) income of $(360,996) (2020 – $5,697) and a weighted average number of common shares outstanding of 316,670,951 (2020 – 257,517,234) calculated as follows:

  2021  2020 
Basic earnings (loss) per share:      
Net income (loss) for the period $(360,996) $5,697 
Average number of common shares outstanding during the year  316,670,951   257,517,234 
Earnings (loss) per share - basic $(1.14) $0.02 
         
   2021   2020 
Diluted earnings (loss) per share:        
Net income (loss) for the period $(360,996) $5,697 
         
Average number of common shares outstanding during the year  316,670,951   257,517,234 
"In the money" warrants outstanding during the year     101,401 
"In the money" options outstanding during the year     337,073 
   316,670,951   257,955,708 
Earnings (loss) per share - diluted $(1.14) $0.02 
25

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

The calculation of earnings (loss) per share for the nine months ended February 28, 2021 was based on the net (loss) of $(486,689) (2020 – $14,209) and a weighted average number of common shares outstanding of 299,130,624 (2020 – 253,477,710) calculated as follows:

  2021  2020 
Basic (loss) earnings per share:      
Net income (loss) for the period $(486,689) $14,209 
Average number of common shares outstanding during the period  299,130,624   253,477,710 
Earnings (loss) per share - basic $(1.63) $0.06 
         
   2021   2020 
Diluted (loss) earnings per share:        
Net income (loss) for the period $(486,689) $14,209 
         
Average number of common shares outstanding during the period  299,130,624   253,477,710 
"In the money" warrants outstanding during the period     112,563 
"In the money" options outstanding during the period     420,393 
   299,130,624   254,010,666 
Earnings (loss) per share - diluted $(1.63) $0.06 

30.Change in non-cash working capital

Change in non-cash working capital is comprised of:

  
For the nine months ended
February 28,
 
  2021  2020 
Decrease (increase) in:      
Accounts receivable $(21,140) $(53,406)
Prepaids and other current assets  8,238   (9,564)
Inventory, net of fair value adjustment  (19,629)  (87,230)
Biological assets, net of fair value adjustment  1   (11,735)
Increase (decrease) in:        
Accounts payable and accrued liabilities  (26,137)  58,836 
Income taxes payable  14,836   158 
  $(43,831) $(102,941)

31.Financial risk management and financial instruments

Financial instruments

The Company has classified its financial instruments as described in Note 3 of the Company’s audited financial statements for the year ended May 31, 2020.

The carrying values of accounts receivable, prepaids and other current assets, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.

The Company’s long-term debt of $25,121 is subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for Government of Canada securities of similar duration. In each period thereafter, the incremental premium is held constant while the Government of Canada security is based on the then current market value to derive the discount rate. The fair value of the Company’s long-term debt in repayment as at February 28, 2021 was $24,802.
26

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Fair value hierarchy

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. Cash and cash equivalents are Level 1. The hierarchy is summarized as follows:


Level 1quoted prices (unadjusted) in active markets for identical assets and liabilities

Level 2inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices) from observable market data

Level 3inputs for assets and liabilities not based upon observable market data

  Level 1  Level 2  Level 3  
February 28,
2021
 
Financial assets at FVTPL            
Cash and cash equivalents $267,134  $  $  $267,134 
Convertible notes receivable        6,089   6,089 
Long-term investments  5,837      5,455   11,292 
Financial liabilities at FVTPL                
Convertible debentures        (622,796)  (622,796)
Contingent consideration        (76,196)  (76,196)
Outstanding, end of the period $272,971  $  $(687,448) $(414,477)

  Level 1  Level 2  Level 3  
May 31,
2020
 
Financial assets at FVTPL            
Cash and cash equivalents $497,222  $  $  $497,222 
Convertible notes receivable        14,626   14,626 
Long-term investments  15,502      11,514   27,016 
Financial liabilities at FVTPL                
Convertible debentures        (270,783)  (270,783)
Outstanding, end of the period $512,724  $  $(244,643) $268,081 

The following table presents the changes in level 3 items for the three months ended February 28, 2021:

  
Unlisted
equity securities
  Convertible notes receivable  Convertible debentures  Contingent consideration  Total 
Closing balance May 31, 2020 $11,514  $14,626  $(270,783) $  $(244,643)
Additions     249      (76,664)  (76,415)
Disposals  (2,148)  (5,000)        (7,148)
Unrealized gain (loss) on fair value  (3,911)  (3,786)  (352,013)  468   (359,242)
Closing balance February 28, 2021 $5,455  $6,089  $(622,796) $(76,196) $(687,448)
27

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Financial risk management

The Company has exposure to the following risks from its use of financial instruments: credit; liquidity; currency rate; and, interest rate price.


(a)Credit risk

The maximum credit exposure at February 28, 2021 is the carrying amount of cash and cash equivalents, accounts receivable, prepaids and other current assets, promissory notes receivable and convertible notes receivable. All cash and cash equivalents are placed with major financial institutions.

 Total0-30 days31-60 days61-90 days90+ days
Trade receivables             81,890             67,971               9,838               1,945               2,136
  83%12%2%3%


(b)Liquidity risk

As at February 28, 2021, the Company’s financial liabilities consist of bank indebtedness and accounts payable and accrued liabilities, which have contractual maturity dates within one-year, long-term debt, and convertible debentures which have contractual maturities over the next five years.

Aphria maintains a debt service charge covenant on certain loans secured by its Aphria One facilities that is measured at year-end only. The Company believes that it has sufficient operating room with respect to its financial covenants for the next fiscal year and does not anticipate being in breach of any of its financial covenants.

The Company manages its liquidity risk by reviewing its capital requirements on an ongoing basis. Based on the Company’s working capital position at February 28, 2021, management regards liquidity risk to be low.


(c)Currency rate risk

As at February 28, 2021, a portion of the Company’s financial assets and liabilities held in United States Dollars (“USD”) and Euros consist of cash and cash equivalents, convertible notes receivable, and long-term investments. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in the functional currency. The Company is exposed to currency rate risk in other comprehensive income, relating to foreign subsidiaries which operate in a foreign currency. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time.

The Company is exposed to unrealized foreign exchange risk through its cash and cash equivalents. As at February 28, 2021, approximately $190,000 USD ($240,000 CAD) of the Company’s cash and cash equivalents was in United States dollars. A 1% change in the foreign exchange rate would result in an unrealized gain or loss of approximately $2,400.


(d)Interest rate price risk

The Company manages interest rate risk by restricting the type of investments and varying the terms of maturity and issuers of marketable securities. Varying the terms to maturity reduces the sensitivity of the portfolio to the impact of interest rate fluctuations.


(e)Capital management

The Company’s objectives when managing its capital are to safeguard its ability to continue as a going concern, to meet its capital expenditures for its continued operations, and to maintain a flexible capital structure which optimizes the cost of capital within a framework of acceptable risk. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may issue new shares, issue new debt, or acquire or dispose of assets. The Company is not subject to externally imposed capital requirements.
28

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the year. The Company considers its cash and cash equivalents and marketable securities as capital.

32.Commitments and contingencies

The Company has committed purchase orders outstanding at February 28, 2021 related to capital asset expansion of $1,840, all of which are expected to be paid within the next year.

The following table presents the future undiscounted payment associated with lease liabilities as of February 28, 2021:

 Years ending February 28,
2022               4,054
2023               3,935
2024               3,885
2025               3,847
2026               3,724
Thereafter             54,039
  $  73,484

The Company incurred interest expense associated with its lease liabilities of $662 and $834 (2020 - $80 and $241) for the three and nine months ended February 28, 2021.

From time to time, the Company and/or its subsidiaries may become defendants in legal actions arising out of the ordinary course and conduct of its business.

As of February 28, 2021, the Company was served statements of claims in class action lawsuits against the Company and certain of its officers and former officers. These claims relate to alleged misconduct in connection with the Company’s acquisitions of LATAM Holdings Inc. ("LATAM") and Nuuvera Inc., and the Company’s June 2018 securities offering. At the present time, the representative claimants have been identified and selected in both the U.S. and Canada. The U.S. claims include alleged violations of Section 10(b) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10b-5 under the Exchange Act and Section 20(a) of the Exchange Act. The Canadian claims include alleged statutory and common law misrepresentation and oppression. The Company intends to vigorously defend itself in each of these actions. With respect to the cases commenced in the U.S., the Company pursued a motion to dismiss the U.S. claim. The Company’s motion was denied and the claim was maintained against the Company and certain of its former and current senior officers. The Company is currently pursuing a motion to reconsider during which time, the primary action is stayed pending the decision on the motion to reconsider. In the U.S. action, the Company is self-insured for the costs associated with any award or damages arising from such actions and has entered into indemnity agreements with each of the directors and officers and, subject to certain exemptions, will cover any costs incurred by them in connection with any of the class action claims. Canadian insurance coverage may not be sufficient to fully cover any judgments against the Company. As at February 28, 2021, the Company has not recorded any uninsured amount related to this contingency.

As of July 20, 2020, a proposed class action (the “Langevin Class Action”) has been commenced against a number of Canadian licensed producers including the Company and its subsidiary, Broken Coast (collectively, the “Defendants”) by Lisa Marie Langevin (the “Plaintiff”) on behalf of all persons in Canada who purchased cannabis products that were manufactured, sold, promoted, or distributed by the Defendants and consumed prior to the labelled expiry date of such products on or after June 16, 2010, if such products were used for medicinal purposes and on or after October 17, 2018, if such products were used for recreational purposes (the “Proposed Class”). The Plaintiff specifically alleges that (i) the Defendants marketed medicinal and recreational cannabis products with an advertised content of THC and CBD that was “drastically different” (higher and lower percentages) from the actual amount in the cannabis products and (ii) the Plaintiff suggests that the plastic bottles or caps used to store the cannabis products may have absorbed or degraded the THC or CBD content. The Plaintiff seeks recovery of the money the Proposed Class spent on the Defendants’ products that did not contain what they were advertised to contain and compensatory damages for those who suffered physical or mental injuries as a result of the Defendants’ mislabeling of the products. Amended pleadings were served on the company on December 12, 2020 adding a new plaintiff to the action. The Company intends to vigorously defend itself in each of these actions. Canadian insurance coverage may not be sufficient to fully cover any judgments against the Company. As at February 28, 2021, the Company has not recorded any uninsured amount related to this contingency.
29

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

33.Segment reporting

Information reported to the Chief Operating Decision Maker (“CODM”) for the purpose of resource allocation and assessment of segment performance focuses on the nature of the operations. The Company operates in four segments. 1) cannabis operations, which encompasses the production, distribution and sale of both medical and adult-use cannabis, 2) beverage alcohol operations, which encompasses production, distribution and sale of beverage alcohol products, 3) distribution operations, which encompasses the purchase and resale of products to customers and 4) businesses under development which encompass operations in which the Company has not received final licensing or has not commenced commercial sales from operations. Factors considered in determining the operating segments include the Company’s business activities, the management structure directly accountable to the CODM, availability of discrete financial information and strategic priorities within the organizational structure.

Segment net revenue:

  For the three months ended February 28,  For the nine months ended February 28, 
  2021  2020  2021  2020 
Cannabis business $51,735  $55,800  $183,137  $120,569 
Distribution business  87,066   88,308   259,768   270,077 
Beverage alcohol business  14,808      15,689    
Business under development  29   316   1,265   490 
Total $153,638  $144,424  $459,859  $391,136 

Segment net income (loss):

  For the three months ended February 28,  For the nine months ended February 28, 
  2021  2020  2021  2020 
Cannabis business $(351,989) $8,038  $(465,519) $25,958 
Distribution business  (5,412)  1,704   (7,830)  319 
Beverage alcohol business  (165)     134    
Business under development  (3,431)  (4,045)  (13,474)  (12,068)
Total $(360,997) $5,697  $(486,689) $14,209 

Geographic net revenue:

  For the three months ended February 28,  For the nine months ended February 28, 
  2021  2020  2021  2020 
North America $67,196  $55,815  $198,223  $120,584 
Europe  85,191   87,221   257,296   266,072 
Latin America  1,251   1,388   4,340   4,480 
Total $153,638  $144,424  $459,859  $391,136 
30

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


Geographic capital assets:

  
February 28,
2021
  
May 31,
2020
 
North America $553,218  $519,768 
Europe  85,072   61,143 
Latin America  6,421   6,252 
Total $644,711  $587,163 

Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. As of February 28, 2021, there was a total of 3 major customers within the cannabis business segment (2020 – nil) that represented over $146,000 in the Company’s net revenue.

34.Subsequent events

The following event occurred subsequent to February 28, 2021:


a)On April 6th, 2021, the Company renegotiated its supply agreement with the 51% majority-owned subsidiary, Aphria Diamond. Under the terms of the amended agreement, the company maintains the exclusive supply of cannabis products, over a larger offering of cannabis products on more favourable pricing terms than previously agreed between the parties, wherein such favourable pricing is effective as of June 1, 2020. The transaction will be accounted for through equity and adjustments to non-controlling interest amounts in the period the agreement was reached.

31