Exhibit 99.1
Condensed Interim Consolidated
Financial Statements
For the three months ended January 31, 2022 and 2021
(Stated in thousands of Canadian dollars, except share and per share amounts)
(Unaudited)
|
High Tide Inc. | |
| Condensed Interim Consolidated Financial Statement |
| For the three months ended January 31, 2022 and 2021 |
Condensed Interim Consolidated Financial Statements for the three months ended January 31, 2022 and 2021.
The accompanying unaudited condensed interim consolidated financial statements of High Tide Inc. (“High Tide” or the “Company”) have been prepared by and are the responsibility of the Company’s management and have been approved by the Audit Committee and Board of Directors of the Corporation.
Approved on behalf of the Board:
| |
(Signed) “Harkirat (Raj) Grover” | (Signed) “Nitin Kaushal” |
President and Chair of the Board | Director and Chair of the Audit Committee |
|
High Tide Inc. | |
| Condensed Interim Consolidated Statements of Financial Position |
| As at January 31, 2022 and October 31, 2021 (Unaudited – In thousands of Canadian dollars) |
| | | | | | |
| | | | | | |
|
| Notes |
| 2022 |
| 2021 |
| | | | $ | | $ |
| | | | | | |
Assets | | | | | | |
Current assets | | | | | | |
Cash | | | | 10,077 | | 14,014 |
Marketable securities | | 18 | | 589 | | 860 |
Trade and other receivables | | 9 | | 8,591 | | 7,175 |
Inventory | | | | 21,557 | | 17,042 |
Prepaid expenses and deposits | | 7 | | 8,353 | | 6,919 |
Current portion of loans receivable | | 8 | | 280 | | 277 |
Total current assets | | | | 49,447 | | 46,287 |
Non-current assets | | | | | | |
Loans receivable | | 8 | | 2,857 | | 2,720 |
Property and equipment | | 5 | | 29,362 | | 24,756 |
Net Investment - Lease | | 21 | | 469 | | 506 |
Right-of-use assets, net | | 21 | | 30,881 | | 27,985 |
Long term prepaid expenses and deposits | | 7 | | 2,079 | | 1,681 |
Intangible assets and goodwill | | 3, 6 | | 175,473 | | 142,280 |
Total non-current assets | | | | 241,121 | | 199,928 |
Total assets | | | | 290,568 | | 246,215 |
Liabilities | | | | | | |
Current liabilities | | | | | | |
Accounts payable and accrued liabilities | | | | 22,161 | | 18,532 |
Notes payable current | | 11 | | 5,600 | | 5,600 |
Current portion of convertible debentures | | 12 | | 946 | | 946 |
Current portion of lease liabilities | | 21 | | 6,962 | | 5,729 |
Current portion of derivative liability | | 3,10 | | 9,168 | | 9,980 |
Total current liabilities | | | | 44,837 | | 40,787 |
Non-current liabilities | | | | | | |
Notes payable | | 11 | | 12,002 | | 11,893 |
Convertible debentures | | 12 | | 6,731 | ��� | 7,217 |
Lease liabilities | | 21 | | 25,924 | | 24,044 |
Derivative liability | | 3,10 | | 8,400 | | 1,693 |
Deferred tax liability | | | | 10,362 | | 8,577 |
Total non-current liabilities | | | | 63,419 | | 53,424 |
Total liabilities | | | | 108,256 | | 94,211 |
Shareholders’ equity | | | | | | |
Share capital | | 14 | | 249,439 | | 208,904 |
Warrants | | 16 | | 10,445 | | 10,724 |
Contributed surplus | | | | 17,219 | | 15,162 |
Convertible debentures – equity | | | | 770 | | 859 |
Accumulated other comprehensive income | | | | 954 | | (648) |
Accumulated deficit | | | | (103,948) | | (87,792) |
Equity attributable to owners of the Company | | | | 174,879 | | 147,209 |
Non-controlling interest | | 23 | | 7,433 | | 4,795 |
Total shareholders’ equity | | | | 182,312 | | 152,004 |
Total liabilities and shareholders’ equity | | | | 290,568 | | 246,215 |
|
3 |
High Tide Inc. | |
| Condensed Interim Consolidated Statements of Loss and Comprehensive Loss |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars) |
| | | | | | | |
|
| |
| |
| ||
| | | | | | | |
| | Notes | | 2022 |
| 2021 |
|
| | | | $ | | $ | |
| |
| |
| |
| |
Revenue |
| 4 |
| 72,218 |
| 38,319 |
|
Cost of sales |
| | | (49,236) |
| (23,551) |
|
Gross profit |
| | | 22,982 |
| 14,768 |
|
Expenses |
|
|
|
|
|
|
|
Salaries, wages and benefits |
| | | (9,887) |
| (5,850) |
|
Share-based compensation |
| 15 |
| (1,902) |
| (553) |
|
General and administration |
| | | (5,861) |
| (2,908) |
|
Professional fees |
| | | (1,000) |
| (1,136) |
|
Advertising and promotion |
| | | (2,403) |
| (71) |
|
Depreciation and amortization |
| 5,6,21 |
| (7,111) |
| (6,094) |
|
Impairment loss | | 6 | | (89) | | - | |
Interest and bank charges |
| | | (876) |
| (201) |
|
Total expenses |
| | | (29,129) |
| (16,813) |
|
Loss from operations |
| | | (6,147) |
| (2,045) |
|
Other income (expenses) |
|
|
|
|
|
|
|
Loss on extinguishment of debenture |
| |
| (18) |
| (516) |
|
Debt restructuring gain |
| |
| - |
| 1,145 |
|
Loss on revaluation of marketable securities | | | | (219) | | 15 | |
Finance and other costs |
| 13 | | (2,460) |
| (4,283) |
|
Gain (loss) on revaluation of derivative liability |
| 3,10,18 |
| 525 |
| (10,484) |
|
Foreign exchange loss |
| | | (97) |
| (89) |
|
Total other income (expenses) |
| | | (2,269) |
| (14,212) |
|
Loss before taxes |
| | | (8,416) |
| (16,257) |
|
Current income tax recovery |
| | | 1,064 |
| - |
|
Deferred income tax expense | | | | - | | (588) | |
Net loss |
| | | (7,352) |
| (16,845) |
|
Other comprehensive loss |
| | |
|
|
|
|
Translation difference on foreign subsidiary |
| | | 1,602 |
| 105 |
|
Total comprehensive loss |
| | | (5,750) |
| (16,740) |
|
Comprehensive (loss) income attributable to: |
| | |
|
|
|
|
Owners of the Company |
| | | (6,228) |
| (16,764) |
|
Non-controlling interest |
| | | 478 |
| 24 |
|
|
| | | (5,750) |
| (16,740) |
|
Loss per share |
|
|
|
|
|
|
|
Basic and diluted |
| 17 |
| (0.14) |
| (0.62) |
|
Subsequent Events (Note 24)
|
4 |
High Tide Inc. | |
| Condensed Interim Consolidated Statements of Changes in Equity |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars) |
| | | | | | | | | | | | | | | | | | | | |
|
| |
| |
| |
| |
| Equity |
| Accumulated | | |
|
|
|
|
|
|
| | | | | | | | | | portion of | | other | | | | Attributable | | | | |
| | | | | | | | Contributed | | convertible | | comprehensive | | Accumulated | | to owners of | |
| |
|
| | Note | | Share capital | | Warrants | | surplus | | debt | | income (loss) | | deficit | | the Company | | NCI | | Total |
|
| |
| $ |
| $ |
| $ |
| $ |
| $ | | $ |
| $ |
| $ |
| $ |
Opening balance, November 1, 2020 |
| |
| 32,552 |
| 5,796 |
| 4,704 |
| 1,965 |
| (487) | | (34,359) |
| 10,171 |
| 1,552 |
| 11,723 |
Acquisition - Meta Growth |
| 3 |
| 35,290 |
| 2,739 |
| 240 |
| 9,008 |
| - | | - |
| 47,277 |
| 2,208 |
| 49,485 |
Prepaid interest paid in shares |
| |
| 1,458 |
| - |
| - |
| - |
| - | | - |
| 1,458 |
| - |
| 1,458 |
Shared-based compensation |
| 15 |
| - |
| - |
| 553 |
| - |
| - | | - |
| 553 |
| - |
| 553 |
Equity portion of convertible debentures |
| |
| - |
| - |
| - |
| 133 |
| - | | - |
| 133 |
| - |
| 133 |
Exercise options |
| |
| 13 |
| - |
| - |
| - |
| - | | - |
| 13 |
| - |
| 13 |
Warrants expired |
| |
| - |
| (3,946) |
| 3,946 |
| - |
| - | | - |
| - |
| - |
| - |
Issued to pay fees in shares |
| |
| 174 |
| - |
| - |
| - |
| - | | - |
| 174 |
| - |
| 174 |
Conversion of convertible debentures |
| |
| 6,759 |
| - |
| 394 |
| (190) |
| - | | - |
| 6,963 |
| - |
| 6,963 |
Warrants |
| |
| 240 |
| (231) |
| 28 |
| - |
| - | | - |
| 37 |
| - |
| 37 |
Cumulative translation adjustment |
| |
| - |
| - |
| - |
| - |
| 105 | | - |
| 105 |
| - |
| 105 |
Comprehensive loss for the period |
| |
| - |
| - |
| - |
| - |
| - | | (16,869) |
| (16,869) |
| 24 |
| (16,845) |
Balance, January 31, 2021 |
| |
| 76,486 |
| 4,358 |
| 9,865 |
| 10,916 |
| (382) | | (51,228) |
| 50,015 |
| 3,784 |
| 53,799 |
Opening balance, November 1, 2021 |
| |
| 208,904 |
| 10,724 |
| 15,162 |
| 859 |
| (648) | | (87,792) |
| 147,209 |
| 4,795 |
| 152,004 |
Acquisition - NuLeaf |
| 3 |
| 35,285 |
| - |
| - |
| - |
| - | | (8,326) |
| 26,959 |
| 2,700 |
| 29,659 |
Issuance of shares through ATM | | | | 811 | | - | | - | | - | | - | | - | | 811 | | - | | 811 |
Share-based compensation |
| 15 |
| - |
| - |
| 1,902 |
| - |
| - | | - |
| 1,902 |
| - |
| 1,902 |
Equity portion of convertible debentures |
| |
| - |
| - |
| - |
| (89) |
| - | | - |
| (89) |
| - |
| (89) |
Exercise options |
| |
| 282 |
| - |
| - |
| - |
| - | | - |
| 282 |
| - |
| 282 |
Warrants expired |
| 16 |
| - |
| (273) |
| 273 |
| - |
| - | | - |
| - |
| - |
| - |
Warrants exercised |
| 14,16 |
| 4,052 |
| (6) |
| - |
| - |
| - | | - |
| 4,046 |
| - |
| 4,046 |
Cumulative translation adjustment |
| |
| - |
| - |
| - |
| - |
| 1,602 | | - |
| 1,602 |
| - |
| 1,602 |
Share issuance costs |
| 14 |
| (13) |
| - |
| - |
| - |
| - | | - |
| (13) |
| - |
| (13) |
Vesting of RSUs |
| 14 |
| 118 |
| - |
| (118) |
| - |
| - | | - |
| - |
| - |
| - |
Partner distributions |
| 23 |
| - |
| - |
| - |
| - |
| - | | - |
| - |
| (540) |
| (540) |
Comprehensive loss for the period |
| |
| - |
| - |
| - |
| - |
| - | | (7,830) |
| (7,830) |
| 478 |
| (7,352) |
Balance, January 31, 2022 |
| |
| 249,439 |
| 10,445 |
| 17,219 |
| 770 |
| 954 | | (103,948) |
| 174,879 |
| 7,433 |
| 182,312 |
| | | | | | |
|
5 |
High Tide Inc. | |
| Condensed Interim Consolidated Statements of Cash Flows |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
| | | | | | |
| | | | | | |
|
| Notes |
| 2022 |
| 2021 |
| | | | $ | | $ |
Operating activities | |
| |
| |
|
Net loss |
| |
| (7,352) |
| (16,845) |
Adjustments for items not effecting cash and cash equivalents |
| |
|
|
|
|
Income tax (recovery) expense |
| |
| (1,064) |
| 588 |
Accretion expense |
| 13 |
| 1,165 |
| 1,584 |
Fee for services and interest paid in shares and warrants |
| |
| - |
| 1,632 |
Depreciation and amortization |
| 5,6,21 |
| 7,111 |
| 6,094 |
Revaluation of derivative liability |
| 3,11,18 |
| (525) |
| 10,484 |
Loss on extinguishment of debenture | | | | 18 | | - |
Debt restructuring gain |
| |
| - |
| (1,145) |
Impairment loss |
| |
| 89 |
| - |
Foreign exchange gain (loss) |
| |
| 97 |
| 89 |
Share-based compensation |
| 15 |
| 1,902 |
| 553 |
Loss on sale of marketable securities |
| |
| - |
| 516 |
Revaluation of marketable securities |
| |
| 219 |
| (15) |
|
| |
| 1,660 |
| 3,535 |
Changes in non-cash working capital |
| |
|
|
|
|
Trade and other receivables |
| |
| (1,179) |
| 1,423 |
Inventory |
| |
| (2,174) |
| (474) |
Prepaid expenses and deposits |
| |
| (1,527) |
| 1,128 |
Accounts payable and accrued liabilities |
| |
| 1,636 |
| (4,165) |
Net cash (used in) provided by operating activities |
| |
| (1,584) |
| 1,447 |
|
| | | | | |
Investing activities |
| |
|
|
|
|
Net additions of property and equipment |
| 5 |
| (2,338) |
| (1,667) |
Net additions of intangible assets |
| 6 |
| (147) |
| (24) |
Loans receivable |
| |
| (140) |
| (292) |
Cash acquired through business combination |
| 3 |
| 565 |
| 10,209 |
Net cash (used in) provided by investing activities |
| |
| (2,060) |
| 8,226 |
|
| | | | | |
Financing activities |
| |
|
|
|
|
Repayment of finance lease obligations |
| |
| - |
| (11) |
Proceeds from convertible debentures net of issue costs |
| |
| - |
| 980 |
Repayment of convertible debentures |
| |
| (890) |
| - |
Interest paid on debentures and loans |
| |
| (386) |
| (742) |
Lease liability payments |
| 21 |
| (2,238) |
| (1,088) |
Share issuance costs | | | | (13) | | - |
Shares issued through ATM | | | | 811 | | - |
Warrants exercised |
| |
| 2,141 | | 240 |
Options exercised |
| |
| 282 |
| - |
Net cash used in financing activities |
| |
| (293) |
| (621) |
|
| | | | | |
Net (decrease) increase in cash |
| |
| (3,937) |
| 9,052 |
Cash, beginning of period |
| |
| 14,014 |
| 7,524 |
Cash, end of period |
| |
| 10,077 |
| 16,576 |
|
6 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
1. | Nature of Operations |
High Tide Inc. (the “Company” or “High Tide”) is a retail-focused cannabis company with bricks-and-mortar as well as global e-commerce assets. The Company’s shares are listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “HITI”(listed as of June 2, 2021), the TSX Venture Exchange (“TSXV”) under the symbol “HITI”, and on the Frankfurt Stock Exchange (“FSE”) under the securities identification code ‘WKN: A2PBPS’ and the ticker symbol “2LYA”. The address of the Company’s corporate and registered office is # 120 – 4954 Richard Road SW, Calgary, Alberta T3E 6L1.
High Tide does not engage in any U.S. cannabis-related activities as defined by the Canadian Securities Administrators Staff Notice 51-352.
COVID-19
The Company’s business could be adversely affected by the effects of the recent outbreak of novel coronavirus (“COVID-19”). Several significant measures have been implemented in Canada and the rest of the world in response to the increased impact from COVID-19. The Company cannot accurately predict the impact COVID-19 will have on third parties’ ability to meet their obligations with the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In particular, the continued spread of COVID-19 globally could materially and adversely impact the Company’s business including without limitation, employee health, workplace productivity, and other factors that will depend on future developments beyond the Company’s control. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries resulting in an economic downturn that could negatively impact the Company’s financial position, financial performance, cash flows, and its ability to raise capital. Since the initial outset of the pandemic, the Company did not experience a significant decline in sales for most of the operating businesses.
2. | Accounting Policies |
A. | Basis of Preparation |
These condensed interim consolidated financial statements (“Financial Statements”) have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). They are condensed as they do not include all of the information required for full annual financial statements, and they should be read in conjunction with the audited consolidated financial statements of the Company for the year ended October 31, 2021 which are available on SEDAR at www.sedar.com.
For comparative purposes, the Company has reclassified certain immaterial items on the comparative condensed interim consolidated statement of financial position and the condensed interim consolidated statement of loss and comprehensive loss to conform with current period’s presentation.
On May 13, 2021, the Company completed a one-for-fifteen (1:15) reverse share split of all of its issued and outstanding common shares (“Share Consolidation”), resulting in a reduction in the issued and outstanding shares from 690,834,719 to 46,055,653. Shares reserved under the Company’s equity and incentive plans were adjusted to reflect the Share Consolidation.
These condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors on March 17, 2022.
|
7 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
B. | Use of estimates |
The estimates and assumptions are reviewed on an ongoing basis. Revisions in accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. Significant judgements, estimates, and assumptions within these condensed interim consolidated financial statements remain the same as those applied to the consolidated financial statements for the year ended October 31, 2021.
C. | Accounting Policies |
The significant accounting policies applied in the preparation of the unaudited condensed interim consolidated financial statements for the three months ended January 31, 2022, and 2021 are consistent with those applied and disclosed in Note 3 and 4 of the Company’s Consolidated Financial Statements for the year ended October 31, 2021 and 2020.
As a result of activities during the three-month period ended January 31, 2022, the following policies have been updated:
Inventory
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is accounted for as follows:
Raw Materials, work in progress and finished goods that arise from the extraction process under NuLeaf include raw materials and manufacturing overheads. Raw materials are calculated on a weighted average cost basis and includes expenditures incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition. Manufacturing overheads such as labour and other manufacturing expenditures are overheads based on the normal operating capacity.
Finished goods purchased from third parties are measured at the lower of cost and net realizable value. The cost of inventories is calculated on a weighted average cost basis and includes expenditures incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and costs necessary to make the sale. The Company reviews inventory for obsolete, redundant, and slow-moving inventory items and any such items are written down to net realizable value. Any write-downs of inventory to net realizable value are recorded in consolidated statement of loss and other comprehensive loss of the related year.
|
8 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
3. | Business Combinations |
In accordance with IFRS 3, Business Combinations, these transactions meet the definition of a business combination and, accordingly, the assets acquired, and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date.
A. | NuLeaf Naturals, LLC Acquisition |
| | |
Total consideration |
| $ |
Common Shares | | 35,285 |
|
| 35,285 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 565 |
Accounts receivable | | 216 |
Other receivables | | 21 |
Inventory | | 2,341 |
Prepaid expenses | | 305 |
Property, plant and equipment | | 4,190 |
Right of Use Asset | | 3,144 |
Intangible assets - software | | 211 |
Intangible assets - brand |
| 10,168 |
Goodwill |
| 24,486 |
Accounts payable and accrued liabilities |
| (1,450) |
Other liabilities |
| (105) |
Lease liabilities |
| (2,984) |
Deferred tax liability | | (3,123) |
Non-controlling interest |
| (2,700) |
|
| 35,285 |
On November 29, 2021, the Company closed the acquisition of 80% of the outstanding common shares of NuLeaf Naturals LLC. (“NuLeaf”). Pursuant to the terms of the Arrangement, the consideration was comprised of 4,429,809 common shares of High Tide, having an aggregate value of $35,285.
The acquisition agreement also includes a call and put option that could result in the Company acquiring the remaining 20% of common shares in NuLeaf not acquired upon initial acquisition. The Company analyzed the value in the call option and considers it to be at fair value, and therefore has no value related to the acquisition. As the put option is a contractual obligation, it gives rise to a financial liability calculated with reference to the agreement and is discounted to its present value at each reporting date using the discounted cash flow model. The initial obligation under the put option was recorded as a current liability with the offset recorded as equity on the Condensed Interim Consolidated Statements of Financial Position, at its fair value at acquisition of $8,326 assuming a risk-free rate of 15% and an exercise date of May 29, 2023. For the period ended January 31, 2022, the Company recognized $74 as a loss on revaluation of derivative liability in the statement of net loss and comprehensive loss.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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 working capital, right of use assets, lease liabilties, identifiable intangible assets, income taxes, the allocation of goodwill and the non-controlling interest. The goodwill is primarily related to the opportunities to grow the business, expanded access to capital and greater financial flexibility. For the three months ended January 31, 2022, NuLeaf accounted for $4,109 in revenues and $542 in net income. If the acquisition had been completed on November 1, 2021, the Company estimates it would have recorded an increase of $1,440 in revenues and an increase of $722 in net income for the three months ended January 31, 2022. The Company also incurred $71 in transaction costs for the three months ended January 31, 2022, which have been expensed to finance and other costs during the period.
|
9 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
B. | Meta Growth Corp. Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Common shares |
| 35,290 |
Conversion feature of convertible debt |
| 9,008 |
Warrants |
| 2,739 |
Options |
| 86 |
Restricted stock units |
| 154 |
|
| 47,277 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 10,209 |
Trade and other receivables |
| 2,015 |
Inventory |
| 3,547 |
Prepaid expenses |
| 2,479 |
Marketable securities |
| 635 |
Notes receivable |
| 262 |
Property and equipment |
| 6,849 |
Loan receivable |
| 756 |
Intangible assets - license |
| 30,900 |
Right of use asset |
| 12,490 |
Goodwill |
| 32,247 |
Non-controlling interest |
| (1,821) |
Accounts payable and accrued liabilities |
| (6,336) |
Deferred tax liability |
| (1,933) |
Lease liability |
| (12,887) |
Convertible debenture |
| (18,809) |
Notes payable |
| (13,326) |
|
| 47,277 |
On November 18, 2020, the Company closed the acquisition of 100% of the outstanding common shares of Meta Growth Corp (“Meta Growth” or “META”). Pursuant to the terms of the Arrangement, holders of common shares of META (“META Shares“) received 0.824 (the “Exchange Ratio“) High Tide Shares for each META Share held. In total, High Tide acquired 237,941,274 META Shares in exchange for 196,063,610 High Tide Shares pre-consolidation (13,070,907 post-consolidation shares), resulting in former META shareholders holding approximately 45.0% of the total number of issued and outstanding High Tide Shares.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management gathered the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was allocated based on the Company’s estimated fair value of the identifiable assets acquired on the acquisition date. Management finalized its purchase price allocation for the fair value of identifiable intangible assets, property plant and equipment, right of use asset, non-controlling interest, income taxes and the allocation of goodwill. The goodwill is primarily related to the opportunities to grow the retail cannabis business, expanded access to capital and greater financial flexibility. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, Meta Growth accounted for $63,016 in revenues and $11,451 in net loss. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $3,422 in revenues and an increase of $401 in net loss for the year ended October 31, 2021. The Company also incurred $1,359 in transaction costs for the year ended October 31, 2021, which were expensed to finance and other costs during that period.
|
10 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
C. | Smoke Cartel, Inc. Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 2,512 |
Common shares |
| 8,396 |
Contingent consideration |
| 1,319 |
|
| 12,227 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 1,680 |
Intangible assets - Brand |
| 3,820 |
Intangible assets - Software |
| 7,217 |
Goodwill |
| 2,594 |
Deferred tax liability |
| (1,093) |
Accounts payable and accrued liabilities |
| (1,991) |
|
| 12,227 |
On March 24, 2021, the Company closed the acquisition of 100% of the outstanding common shares of Smoke Cartel Inc. (“Smoke Cartel”). Pursuant to the terms of the Arrangement, the consideration was comprised of: (i) 9,540,754 common shares of High Tide pre-consolidation (636,050 post-consolidation shares), having an aggregate value of $8,396; (ii) $2,512 in cash; and (iii) a contingent consideration depending on certain revenue targets being achieved by December 31, 2021. Contingent consideration of $1,319 was calculated using Monte Carlo simulation due to the uncertain nature of the potential future revenues of the Company. During the year ended October 31, 2021, the Company finalized the future obligation owed and recorded a loss on the contingent consideration of $1,671 through profits and loss.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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 working capital. The goodwill acquired is primarily related to the opportunities to grow the business, expanded access to capital and greater financial flexibility. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, Smoke Cartel accounted for $7,535 in revenues and $52 in net loss. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $5,846 in revenues and a decrease of $743 in net loss for the year ended October 31, 2021. The Company also incurred $97 in transaction costs for the year ended October 31, 2021, which were expensed to finance and other costs during that period.
|
11 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
D. | 2686068 Ontario Inc. Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 5,980 |
|
| 5,980 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 3 |
Inventory |
| 120 |
Property and equipment |
| 274 |
Intangible assets - license |
| 5,627 |
Right of use asset |
| 1,148 |
Goodwill |
| 1,611 |
Lease liability |
| (1,148) |
Accounts payable and accrued liabilities |
| (164) |
Deferred tax liability |
| (1,491) |
|
| 5,980 |
On April 28, 2021, the Company closed the acquisition of 100% of the outstanding common shares of 2686068 Ontario Inc. (“2686068”). Pursuant to the terms of the Arrangement, the consideration was comprised of $5,980 in cash.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management gathered the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was allocated based on the Company’s estimated fair value of the identifiable assets acquired on the acquisition date. Management finalized its purchase price allocation for the fair value of identifiable intangible assets, income taxes and the allocation of goodwill. The goodwill is primarily related to the opportunities to grow the retail cannabis business. For the year ended October 31, 2021, 2686068 accounted for $1,117 in revenues and $1,407 in net loss. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $1,107 in revenues and an increase of $123 in net loss for the year ended October 31, 2021.
|
12 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
E. | Fab Nutrition, LLC. Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 15,193 |
Common Shares | | 3,439 |
|
| 18,632 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 642 |
Accounts receivable | | 125 |
Inventory |
| 403 |
Property and equipment |
| 22 |
Intangible assets - brand |
| 7,801 |
Goodwill |
| 13,584 |
Accounts payable and accrued liabilities |
| (552) |
Deferred tax liability | | (2,131) |
Non-controlling interest |
| (1,262) |
|
| 18,632 |
On May 10, 2021, the Company closed the acquisition of 80% of the outstanding common shares of Fab Nutrition, LLC. (“FABCBD”). Pursuant to the terms of the Arrangement, the consideration was comprised of: (i) $15,193 in cash; and (ii) 6,151,915 pre-consolidation common shares of High Tide (410,128 post-consolidation), having an aggregate value of $3,439.
In connection with the acquisition agreement, 9,679,778 pre-consolidation common shares of the Company (645,319 post-consolidation) were placed in escrow for a period of 24 months. Every 6 months 25% of escrow shares are released to the minority shareholder of FABCBD. Over the 24 month period, as the shares are earned by passage of time, the Company recognizes share-based compensation expense through profit and loss.
The acquisition agreement also includes a call and put option that could result in the Company acquiring the remaining 20% of common shares in FABCBD not acquired upon initial acquisition. The Company analyzed the value in the call option and considers it to be at fair value, and therefore has no value related to the acquisition. As the put option is a contractual obligation, it gives rise to a financial liability calculated with reference to the agreement and is discounted to its present value at each reporting date using the discounted cash flow model. The initial obligation under the put option was recorded as a current liability with the offset recorded as equity on the Consolidated Statements of Financial Position, at its fair value at acquisition of $3,722. For the three months ended January 31, 2022, the Company recognized $225 as a gain on revaluation of derivative liability in the statement of net loss and comprehensive loss.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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 working capital. The goodwill acquired is primarily related to the opportunities to grow the business, expanded access to capital and greater financial flexibility. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, FABCBD accounted for $4,746 in revenues and $640 in net income. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $7,790 in revenues and a decrease of $306 in net loss for the year ended October 31, 2021. The Company also incurred $872 in transaction costs for the year ended October 31, 2021, which were expensed to finance and other costs during that period.
|
13 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
F. | DHC Supply LLC. Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 4,045 |
Common Shares | | 7,767 |
|
| 11,812 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 1,054 |
Trade and other receivables | | 66 |
Inventory |
| 1,270 |
Prepaid expenses | | 18 |
Property and equipment |
| 10 |
Intangible assets - brand |
| 2,671 |
Goodwill | | 8,201 |
Right of use asset |
| 592 |
Lease liability |
| (592) |
Accounts payable and accrued liabilities |
| (1,478) |
|
| 11,812 |
On July 6, 2021, the Company closed the acquisition of 100% of the outstanding common shares of DHC Supply LLC. (“DHC”). Pursuant to the terms of the Arrangement, the consideration was comprised of: (i) 839,820 post-consolidation commons shares of High Tide (12,597,300 pre-consolidation), having an aggregate value of $7,767; (ii) $4,045 in cash.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, DHC accounted for $3,399 in revenues and $14 in net income. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $7,513 in revenues and an increase of $301 in net loss for the year ended October 31, 2021.
|
14 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
G. | 102105699 Saskatchewan Ltd. Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 698 |
Common Shares | | 2,018 |
|
| 2,716 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 7 |
Trade and other receivables | | 7 |
Inventory | | 46 |
Prepaid expenses | | 55 |
Property and equipment |
| 136 |
Intangible assets - license |
| 879 |
Goodwill |
| 1,966 |
Right of use asset |
| 691 |
Lease liability |
| (691) |
Accounts payable and accrued liabilities |
| (143) |
Deferred tax liability |
| (237) |
|
| 2,716 |
On August 6, 2021 the Company closed the acquisition of 100% of the issued and outstanding common shares of 10210569 Saskatchewan Ltd. (“OneLeaf”). Pursuant to the terms of the Arrangement, the consideration was comprised of: (i) 254,518 post-consolidation common shares of High Tide, having an aggregate value of $2,018; and (ii) $698 in cash.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price was provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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, income taxes and the allocation of goodwill. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, OneLeaf accounted for $90 in revenues and $83 in net loss. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $254 in revenues and an increase of $72 in net loss for the year ended October 31, 2021.
|
15 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
H. | DS Distribution Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 5,013 |
|
| 5,013 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 115 |
Inventory |
| 160 |
Prepaid expenses |
| 158 |
Property and equipment |
| 69 |
Intangible assets - brand |
| 1,375 |
Goodwill |
| 4,384 |
Right of use asset |
| 299 |
Lease liability |
| (299) |
Accounts payable and accrued liabilities | | (863) |
Deferred tax liability | | (385) |
|
| 5,013 |
On August 12, 2021 the Company closed the acquisition of 100% of all the issued and outstanding common shares of DS Distribution Inc. (“DankStop”). Pursuant to the terms of the Arrangement, the consideration was comprised of 612,087 post-consolidation shares of High Tide, having an aggregate value of $5,013.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price is provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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, income taxes and the allocation of goodwill. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, DankStop accounted for $380 in revenues and $117 in net loss. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $6,473 in revenues and an decrease of $311 in net loss for the year ended October 31, 2021.
|
16 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
I. | Blessed CBD Acquisition (Prior year) |
| | |
Total consideration |
| $ |
Cash |
| 7,165 |
Common Shares | | 4,432 |
Working capital adjustment | | 1,086 |
|
| 12,683 |
Purchase price allocation |
|
|
Cash and cash equivalents |
| 2,155 |
Trade and other receivables |
| 472 |
Inventory |
| 293 |
Property and equipment |
| 19 |
Intangible asset - brand |
| 3,884 |
Goodwill |
| 9,225 |
Accounts payable and accrued liabilities |
| (1,530) |
Deferred tax liability |
| (971) |
Non-controlling interest | | (864) |
|
| 12,683 |
On October 19, 2021, the Company closed the acquisition of 80% of the issued and outstanding common shares of Enigmaa Ltd. (“Blessed CBD”). Pursuant to the terms of the Arrangement, the consideration was comprised of: (i) 607,064 post-consolidation shares of High Tide, having an aggregate value of $4,432; (ii) $7,165 in cash, and (iii) and working capital adjustment of $1,086.
In connection with the acquisition agreement, 529,487 post-consolidation common shares of the Company were placed in escrow for a period of 24 months. Every 12 months 50% of escrow shares are released to the minority shareholder of Blessed CBD. This share issuance was initially recorded through equity. Over the 24 month period, as the shares are earned by passage of time, the Company recognizes share-based compensation expense through profit and loss.
The acquisition agreement also includes a call and put option that could result in the Company acquiring the remaining 20% of common shares in Blessed CBD not acquired upon initial acquisition. The Company analyzed the value in the call option and considers it to be at fair value, and therefore has no value related to the acquisition. As the put option is a contractual obligation, it gives rise to a financial liability calculated with reference to the agreement and is discounted to its present value at each reporting date using the discounted cash flow model. The initial obligation under the put option was recorded as a current liability with the offset recorded as equity on the Consolidated Statements of Financial Position, at its fair value at acquisition of $4,323 assuming a risk-free rate of 7.5% and an exercise date of October 19, 2022. For the three months ended January 31, 2022, the Company recognized $108 as a loss on revaluation of derivative liability in the statement of net loss and comprehensive loss.
In accordance with IFRS 3, Business Combinations (“IFRS 3”), the substance of this transaction constituted a business combination. Management is in the process of gathering the relevant information that existed at the acquisition date to determine the fair value of the net identifiable assets acquired. As such, the initial purchase price is provisionally allocated based on the Company’s estimated fair value of the identifiable assets acquired 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, income taxes, the allocation of goodwill and the non-controlling interest. The goodwill is primarily related to the opportunities to grow the business, expanded access to capital and greater financial flexibility. Goodwill is not deductible for tax purposes. For the year ended October 31, 2021, Blessed CBD accounted for $296 in revenues and $130 in net income. If the acquisition had been completed on November 1, 2020, the Company estimates it would have recorded an increase of $10,083 in revenues and a decrease of $2,382 in net loss for the year ended October 31, 2021. The Company also incurred $360 in transaction costs for the year ended October 31, 2021, which were expensed to finance and other costs during that period.
|
17 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
4. | Revenue from Contracts with Customers |
| | | | | | | | | | | | | | | | |
For the three months ended January 31 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| | Retail | | Retail | | Wholesale | | Wholesale | | Corporate | | Corporate | | Total | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
Primary geographical markets (i) | | | | | | | | | | | | | | | | |
Canada | | 51,678 | | 33,282 | | 725 | | 908 | | 39 | | 11 | | 52,442 | | 34,201 |
USA | | 16,956 | | 3,266 | | 488 | | 643 | | - | | - | | 17,444 | | 3,909 |
International | | 2,332 | | 209 | | - | | - | | - | | - | | 2,332 | | 209 |
Total revenue | | 70,966 | | 36,757 | | 1,213 | | 1,551 | | 39 | | 11 | | 72,218 | | 38,319 |
| | | | | | | | | | | | | | | | |
Major products and services | |
| |
| |
| |
| |
| |
| |
| |
|
Cannabis | | 54,199 | | 30,377 | | - | | - | | - | | - | | 54,199 | | 30,377 |
Consumption accessories |
| 11,574 |
| 4,382 |
| 1,205 |
| 1,527 |
| - |
| - |
| 12,779 |
| 5,909 |
Data analytics services |
| 4,676 |
| 1,488 |
| - |
| - |
| - |
| - |
| 4,676 |
| 1,488 |
Other revenue |
| 517 |
| 510 |
| 8 |
| 24 |
| 39 |
| 11 |
| 564 |
| 545 |
Total revenue |
| 70,966 |
| 36,757 |
| 1,213 |
| 1,551 |
| 39 |
| 11 |
| 72,218 |
| 38,319 |
| | | | | | | | | | | | | | | | |
Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in time |
| 70,966 |
| 36,757 |
| 1,213 |
| 1,551 |
| 39 |
| 11 |
| 72,218 | | 38,319 |
Total revenue |
| 70,966 |
| 36,757 |
| 1,213 |
| 1,551 |
| 39 |
| 11 |
| 72,218 |
| 38,319 |
(i) | Represents revenue based on geographical locations of the customers who have contributed to the revenue generated in the applicable segment. |
|
18 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
5. | Property and Equipment |
| | | | | | | | | | | | |
|
| Office equipment | | Production |
| Leasehold |
| |
| |
| |
| | and computers | | equipment | | improvements (iv) | | Vehicles | | Buildings | | Total |
Cost | | $ | | $ | | $ | | $ | | $ | | $ |
Balance, October 31, 2020 | | 778 | | - | | 12,980 | | 167 | | 2,800 | | 16,725 |
Additions | | 626 | | - | | 9,923 | | 14 | | - | | 10,563 |
Additions from business combinations | | 1,857 | | - | | 5,516 | | 5 | | - | | 7,378 |
Disposal (i) (ii) | | (146) | | - | | (1,061) | | (170) | | - | | (1,377) |
Impairment loss (iii) | | (4) | | - | | (129) | | - | | - | | (133) |
Foreign currency translation | | (11) | | - | | (5) | | - | | - | | (16) |
Balance, October 31, 2021 |
| 3,100 | | - |
| 27,224 |
| 16 |
| 2,800 |
| 33,140 |
Additions |
| 127 | | 5 |
| 2,206 |
| - |
| - |
| 2,338 |
Additions from business combinations |
| 54 | | 2,812 |
| 1,324 |
| - |
| - |
| 4,190 |
Foreign currency translation | | - | | - | | 2 |
| - |
| - | | 2 |
Balance, January 31, 2022 |
| 3,281 | | 2,817 |
| 30,756 |
| 16 |
| 2,800 |
| 39,670 |
| | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | |
Balance, October 31, 2020 |
| 252 | | - |
| 3,218 |
| 158 |
| 12 |
| 3,640 |
Depreciation |
| 1,044 | | - |
| 4,192 |
| 9 |
| 44 |
| 5,289 |
Disposal (i) (ii) | | (89) | | - |
| (291) |
| (158) |
| - | | (538) |
Foreign currency translation | | (2) | | - |
| (5) |
| - |
| - | | (7) |
Balance, October 31, 2021 |
| 1,205 | | - |
| 7,114 |
| 9 |
| 56 |
| 8,384 |
Depreciation |
| 240 | | 83 |
| 1,546 |
| 2 |
| 54 |
| 1,925 |
Foreign currency translation | | (1) | | - |
| - |
| - |
| - | | (1) |
Balance, January 31, 2022 |
| 1,444 | | 83 |
| 8,660 |
| 11 |
| 110 |
| 10,308 |
| | | | | | | | | | | | |
Balance, October 31, 2021 | | 1,895 | | - | | 20,110 | | 7 | | 2,744 | | 24,756 |
Balance, January 31, 2022 | | 1,837 | | 2,734 | | 22,096 | | 5 | | 2,690 | | 29,362 |
(i) | During the year ended October 31, 2021, the Company sold it’s 49% interest in two of the joint ventures under META that operated as retail cannabis stores in Manitoba. The Company recognized $647 as a gain on the sale at October 31, 2021. |
(ii) | On July 15, 2021, the Company completed the sale of three of its KushBar retail cannabis stores to Halo Collective Inc. (“Halo” formerly Halo Labs Inc.) for total gross proceeds of $5,700. In the prior year, the Company was paid a deposit of $3,500 by way of issuance of 13,461,538 common shares of Halo at a deemed price of $0.26 per common share. During the fiscal year 2020, the Company had sold those shares and received a net amount of $1,700. On the date of close, July 15, 2021, the Company received a convertible promissory note (Note 8) issued by Halo Collective Inc. in the principal amount of $1,800 with a conversion rate of $0.16 per Halo common share. The promissory note was recorded at a fair value through profit and loss of $1,522 based on risk adjusted discount rate of 15%. For the year ended October 31, 2021, the Company recognized $2,654 as a gain on the sale of assets. |
(iii) During the year-ended October 31, 2021, the Company identified two locations from the Meta acquisition that would not be operated due to market pressures and increased competition, which resulted in impairment of $133.
(iv) During the three months ended January 31, 2022, there were additions of $659 (January 31, 2021 $1,194) in assets under construction, largely related to cannabis retail locations not yet in operation.
|
19 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
6. | Intangible Assets and Goodwill |
| | | | | | | | | | |
|
| Software |
| Licenses |
| Brand Name |
| Goodwill |
| Total |
Cost | | $ | | $ | | $ | | $ | | $ |
Balance, October 31, 2020 | | 2,282 | | 9,976 | | 1,502 | | 6,061 | | 19,821 |
Additions | | 150 | | - | | - | | - | | 150 |
Additions from business combinations (Note 3) | | 7,217 | | 37,406 | | 19,552 | | 73,812 | | 137,987 |
Disposals (i) | | - | | (1,230) | | - | | - | | (1,230) |
Impairment loss (ii) | | - | | (1,390) | | - | | - | | (1,390) |
Foreign currency translation | | (186) | | - | | 21 | | 73 | | (92) |
Balance, October 31, 2021 | | 9,463 | | 44,762 | | 21,075 | | 79,946 | | 155,246 |
Additions |
| 147 |
| - |
| - |
| - |
| 147 |
Additions from business combinations |
| 211 |
| - |
| 10,168 |
| 24,486 |
| 34,865 |
Impairment loss | | (89) |
| - |
| - |
| - | | (89) |
Foreign currency translation | | 182 |
| - |
| 444 |
| 827 | | 1,453 |
Balance, January 31, 2022 |
| 9,914 |
| 44,762 |
| 31,687 |
| 105,259 |
| 191,622 |
| | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | |
Balance, October 31, 2020 |
| 606 |
| 1,188 |
| - |
| - |
| 1,794 |
Amortization |
| 1,215 |
| 10,161 |
| - |
| - |
| 11,376 |
Disposals |
| - |
| (160) |
| - |
| - |
| (160) |
Foreign currency translation | | (44) |
| - |
| - |
| - | | (44) |
Balance, October 31, 2021 |
| 1,777 |
| 11,189 |
| - |
| - |
| 12,966 |
Amortization |
| 504 |
| 2,661 |
| - |
| - |
| 3,165 |
Foreign currency translation | | 18 |
| - |
| - |
| - | | 18 |
Balance, January 31, 2022 |
| 2,299 |
| 13,850 |
| - |
| - |
| 16,149 |
| | | | | | | | | | |
Balance, October 31, 2021 |
| 7,686 |
| 33,573 |
| 21,075 |
| 79,946 |
| 142,280 |
Balance, January 31, 2022 |
| 7,615 |
| 30,912 |
| 31,687 |
| 105,259 |
| 175,473 |
(i) | During the year ended October 31, 2021, the Company sold it’s 49% interest in one of the joint ventures under META that operates as a retail cannabis store in Manitoba, resulting in a loss of control. As a result of the loss in control, the Company has deconsolidated all net assets related to the joint venture and derecognized related non-controlling interest of $892 for the period ending October 31, 2021 and recognized $343 as a gain on the sale. |
(ii) During the year ended October 31, 2021, the Company performed indicator assessments over CGUs with property and equipment, right of use assets, and finite intangible assets. The Company identified one CGU, 2686068 Ontario Inc., as potentially impaired and performed an impairment test at October 31, 2021. As a result of the impairment test performed, the recoverable amount was determined to be lower than the carrying value, resulting in an impairment of $1,390 at October 31, 2021 (2020 - $nil).
7. | Prepaid expenses and deposits |
| | | | |
|
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Deposits on cannabis retail outlets | | 1,326 | | 996 |
Prepaid insurance and other |
| 4,290 |
| 3,352 |
Prepayment on inventory |
| 4,816 |
| 4,252 |
Total |
| 10,432 |
| 8,600 |
Less current portion |
| (8,353) |
| (6,919) |
Long-term |
| 2,079 |
| 1,681 |
|
20 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
8. | Note receivable |
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Term loan (i) | | 214 | | 233 |
Loans receivable (ii) |
| 1,339 |
| 1,242 |
Halo - Note receivable (iii) |
| 1,584 |
| 1,522 |
Total |
| 3,137 |
| 2,997 |
Less current portion |
| (280) |
| (277) |
Long-term |
| 2,857 |
| 2,720 |
(i) | Term loans is due from franchisee and relates to acquisitions of the sub-lease location from the Company and initial inventory. The term loan is secured by a promissory note, which bears interest of 6.95% per annum and requires blended payments of principal and interest between $6 and $8 monthly. The Company maintains the head lease of a franchisee location. |
(ii) | Included in loans receivable, as part of the acquisition of META, the Company acquired a loan receivable of $1,064 that was advanced to one of the winners of the Ontario cannabis lottery for new cannabis retail locations in Guelph, Scarborough and Toronto to fund the build out and start-up operations of the retail locations. Pursuant to the terms of the agreement, the loan has an interest rate of 3% per annum. The principal balance is due and payable on the fifth anniversary date of the loan. |
(iii) | As part of total consideration received for the sale of the KushBar assets, a note receivable was issued to the Company in the amount of $1,800. The note has a two year term and bears an interest rate of 6% per annum with a maturity date of July 23, 2023. The Company has the option to convert this note into common shares of Halo for $0.16 per share. The note fails the solely payment of principal and interest test (“SPPI”) due to the conversion feature of the promissory note, therefore this note will be subsequently recognized at fair value through profit or loss. The note was recorded at its fair value of $1,522, at October 31, 2021, using a discount rate of 15% over 2 years. At January 31, 2022, the loan was revalued to $1,584, though profit and loss. |
9. | Trade and other receivables |
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Trade accounts receivable | | 8,012 | | 6,494 |
Sales tax receivable |
| 579 |
| 681 |
Total |
| 8,591 |
| 7,175 |
|
21 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
10. Derivative Liability
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Windsor derivative liability (i) | | - | | 1,693 |
FABCBD Put Option derivative liability (ii) |
| 2,413 |
| 2,638 |
Blessed Put Option derivative liability (iii) |
| 4,421 |
| 4,313 |
Smoke Cartel consideration liability (iv) |
| 2,334 |
| 3,028 |
NuLeaf Put Option derivative liability (v) | | 8,400 |
| - |
Total |
| 17,568 |
| 11,672 |
Less current portion |
| (9,168) |
| (9,980) |
Long-term |
| 8,400 |
| 1,692 |
(i) | On January 6, 2020, the Company entered into a loan agreement with Windsor Private Capital (“Windsor”), a Toronto-based merchant bank, for a senior secured, non-revolving term credit facility (“the Facility”) in the amount of up to $10,000. In connection with the loan agreement, the Company also issued common share purchase warrants, that hold a cashless exercise feature, such that each subscriber received one warrant for each $0.17 original principal amount of its debenture, resulting in 58,823,529 warrants being issued as part of the offering. Each warrant entitles the holder to acquire fifteen shares at an exercise price of $3.83 per share for two years from the date of issuance. As share purchase warrants are exercised by Windsor, the Company revalues the remaining fair value of the derivative liability associated, through the Black-Scholes model. During the three month period ended January 31, 2022, Windsor exercised all of the remaining outstanding warrants, and the Company recorded a loss on the exercise of warrants of $220. |
(ii) | On May 9, 2021, the Company acquired 80% of the outstanding shares of FABCBD. The acquisition agreement also included a call and put option that could result in the Company acquiring the remaining 20% of common shares of FABCBD not acquired upon initial acquisition. The initial obligation under the put option was valued at $3,722. At January 31, 2022, the Company revalued the fair value of the put option and recognized an unrealized gain of $225 in the statements of net loss and comprehensive loss. |
(iii) | On October 19, 2021, the Company acquired 80% of the outstanding shares of Blessed CBD. The acquisition agreement also included a call and put option that could result in the Company acquiring the remaining 20% of common shares of Blessed CBD not acquired upon initial acquisition. The initial obligation under the put option was valued at $4,323. At January 31, 2022, the Company revalued the fair value of the put option and recognized an unrealized loss of $108 in the statements of net loss and comprehensive loss. |
(iv) | On March 24, 2021, the Company acquired all of the outstanding common shares of Smoke Cartel where the consideration was comprised of cash, common shares, and a contingent consideration that was dependent on certain revenue targets being achieved by December 31, 2021, with the total amount payable being finalized in the fourth quarter of 2021. On January 31, 2022, the Company revalued the derivative liability based on the Company’s current stock price and recorded a gain of $693 in the statements of net loss and comprehensive loss. |
(v) | On November 29, 2021, the Company acquired 80% of the outstanding shares of NuLeaf. The acquisition agreement also included a call and put option that could result in the Company acquiring the remaining 20% of common shares of NuLeaf not acquired upon initial acquisition. The initial obligation under the put option was valued at $8,326. At January 31, 2022, the Company revalued the fair value of the put option and recognized an unrealized loss of $74 in the statements of net loss and comprehensive loss. |
|
22 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
11. | Notes Payable |
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Term loans | | 1,600 | | 1,600 |
OCN – notes payable (i) |
| 11,738 |
| 11,650 |
ATB Loan (ii) |
| 4,000 |
| 4,000 |
Dreamweavers – notes payable |
| 88 |
| 78 |
Long term contract liability |
| 39 |
| 39 |
Government loan (iii)(iv) |
| 137 |
| 126 |
Total |
| 17,602 |
| 17,493 |
Less current portion |
| (5,600) |
| (5,600) |
Long-term |
| 12,002 |
| 11,893 |
(i) | On November 18, 2020, the Company acquired all of the issued and outstanding shares of Meta which included notes payable to Opaskwayak Cree Nation (“OCN”). Notes payable were valued at $12,783 at the date of acquisition by discounting it over two years at market interest rate of 15%. On January 6, 2021, the Company entered into another amended loan agreement with OCN to remove the annual administration fee and extend the maturity date of the loan until December 31, 2024. The carrying value of the loan balance as at January 31, 2022 amounts to $11,738. |
(ii) | On October 18, 2021 the Company entered into a revolving credit facility with ATB Financial (“Lender”) in an amount of up to $25,000, comprised of an initial $10,000 limit and $15,000 accordion. The revolving credit facility bears interest at a variable rate, which is dependent on the Company’s adjusted debt to Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) ratio. |
Adjusted debt includes all outstanding debt other than postponed debt if it postponed on terms and in a manner acceptable to the Lender, notes payable to Dreamweavers (include annual principal payment), debt restructured on July 24, 2020 (include annual principal payment), debt of an excluded foreign subsidiary, and debt of subsidiaries with minority interest.
EBITDA is calculated on a twelve-month trailing basis and the following adjustments:
a) | Amounts deducted in the calculation of Net Income in respect of any non-capitalized transaction costs and expenses associated with the closing of the revolving credit facility and other contemplated transactions approved by the Lender. |
b) | Amounts deducted in the calculation of Net Income in respect of extraordinary and non-recurring cash losses to the extent acceptable to the Lender. |
c) | Amounts deducted in the calculation of Net Income in respect of all non-cash losses and expenses, including, foreign exchange translation losses, fair value changes relating to inventory, debt restructuring, revaluation of derivative liability, settlement of convertible debenture, extinguishment of debenture, impairment loss, share-based compensation, write-downs due to revaluation of marketable securities, extinguishment of financial liability, related party balances written-off, disposal of property and equipment and discount on accounts receivable. |
d) | Amounts deducted in the calculation of Net Income in respect of any other unusual or non-recurring cash charges, expenses, or losses with the prior written consent of the Lender. |
e) | Amounts deducted in the calculation of Net Income in respect of losses attributable to minority interests in any Person. |
f) | Distributions received in cash in respect of any minority interest in any Person. |
g) | All non-recurring extraordinary gains acceptable to the Lender. |
h) | All non-cash gains and income, including, foreign exchange translation gains or write-ups. |
i) | Earnings attributable to minority interests in any Person. |
Based on the Company’s adjusted debt to EBITDA ratio at January 31, 2022, the interest on the credit agreement is prime rate plus 325 basis points. The credit agreement will mature on October 18, 2024. At January 31, 2022, $4,000 had been drawn on the credit facility which is included in the current portion of Notes Payable.
As at October 31, 2021, the Company did not meet the covenants in the original agreement relating to the adjusted debt to EBITDA ratio, the interest coverage ratio and the restriction on the ability to make investments, without obtaining a letter of consent. On January 25, 2022, the Lender waived the covenants that the Company is required to maintain under this facility from October 31, 2021 to October 31, 2022. The waived covenants include adjusted debt to EBITDA ratio, interest coverage ratio (ratio of EBITDA to interest expense), and investments other than permitted investments by the Lender. Under the terms of the waiver, the Company agreed to pay back the outstanding balance of $4,000, of which $1,000 is to be paid by April 1, 2022 and the remaining $3,000 is to
|
23 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
11. | Notes Payable (continued) |
be paid back by May 1, 2022. Subsequent to January 31, 2022, the remaining $3,000 payment date was amended to May 31, 2022. The Company also agreed to maintain a minimum cash balance of $7,500 as at October 31, 2021, $10,000 for the months ended November 30, 2021 and December 21, 2021, $7,000 for the months ending January 31, 2022 up to and including the month ending December 31, 2022, and $10,000 for the month ending January 31, 2023 and all months thereafter. The Company is not permitted to make any borrowings under the credit facility until the Company amends the condition of waiver with the approval of the Lender.
(iii) | During the second quarter of 2021, the Company obtained a government loan under the Canada Emergency Response Benefit, part of Canada’s COVID-19 economic response plan. The loan bears no interest and has a maturity date of December 31, 2025. |
(iv) | On August 12, 2021, the Company acquired all of the issued and outstanding shares of DankStop which included a loan from the U.S. Small Business Administration under the Secured Disaster Loans for Covid-19 relief. The loan bears an interest rate of 3.75% per annum and has a maturity date of May 21, 2050. |
During the three months ended, January 31, 2022, the Company incurred accretion of $105 (2021 - $111) and paid interest in the amount of $386 (2021 - $297) in relation to the outstanding notes payable.
12. | Convertible Debentures |
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Convertible debentures, beginning of year | | 8,163 | | 25,822 |
Debt assumed |
| - |
| 18,951 |
Revaluation on amendment of debenture |
| - |
| 683 |
Cash advances from debt |
| - |
| 980 |
Conversion of debenture into equity |
| - |
| (35,172) |
Transfer of conversion component to equity |
| - |
| (946) |
Repayment of debt(i) |
| (890) |
| (4,906) |
Accretion on convertible debentures(ii) |
| 404 |
| 2,751 |
Total |
| 7,677 |
| 8,163 |
Less current portion |
| (946) |
| (946) |
Long-term |
| 6,731 |
| 7,217 |
(i) | During the three months ended, January 31, 2022, the Company made payments on the principal balances of $890 on unsecured convertible debentures. |
(ii) | For the three months ended January 31, 2022 the Company recorded accretion of $404 related to convertible debentures. |
|
24 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
13. | Finance and other costs |
Finance and other costs are comprised of the following:
| | | | | |
|
| 2022 |
| 2021 | |
| | $ | | $ | |
Accretion convertible debt | | 404 | | 804 | |
Interest on convertible debt | | — | | 1,021 | |
Accretion on notes payable |
| 105 |
| 111 | |
Interest on notes payable |
| 386 |
| 297 | |
Accretion of lease liability |
| 656 |
| 469 | |
Transaction cost |
| 909 |
| 1,581 | |
Total |
| 2,460 |
| 4,283 | |
14. | Share Capital |
(a) | Issued: |
| | | | |
Common shares: | | | |
|
| | Number of shares | | Amount |
|
| # |
| $ |
Balance, October 31, 2020 |
| 240,090,196 |
| 32,552 |
Acquisition - Meta Growth (Note 3) |
| 196,063,610 | | 35,290 |
Acquisition - Smoke Cartel, Inc. (Note 3) |
| 9,540,754 | | 8,396 |
Acquisition - FAB Nutrition (Note 3) |
| 6,151,915 | | 3,439 |
Escrow share based compensation (Note 3) |
| 9,002,194 | | 5,804 |
Issued to pay fees via shares |
| 1,480,099 | | 467 |
Issued to pay interest via shares |
| 8,077,940 | | 1,458 |
Shares issued through equity financing | | 47,916,665 | | 18,293 |
Exercise convertible debt | | 146,960,503 | | 40,532 |
Share issuance costs | | - | | (3,205) |
Exercise options | | 2,498,160 | | 817 |
Exercise warrants | | 22,208,027 | | 10,677 |
Vested restricted share units | | 844,655 | | 154 |
Balance, May 13, 2021 - pre-consolidation | | 690,834,718 | | 154,674 |
Balance, May 13, 2021 - post-consolidation | | 46,055,653 | | 154,674 |
Acquisition - Daily High Club (Note 3) | | 839,820 | | 7,767 |
Acquisition - 102 Saskatchewan (Note 3) | | 254,518 | | 2,018 |
Acquisiton - DankStop (Note 3) | | 612,087 | | 5,013 |
Acqusition - Blessed CBD (Note 3) | | 607,064 | | 4,432 |
Escrow share based compensation (Note 3) | | 529,487 | | 3,866 |
Shares issued through equity financing | | 2,415,000 | | 20,273 |
Exercise convertible debt | | 1,596,434 | | 4,954 |
Share issuance costs | | - | | (2,390) |
Exercise options | | 158,824 | | 717 |
Exercise warrants | | 1,291,141 | | 7,580 |
Balance, October 31, 2021 |
| 54,360,028 | | 208,904 |
Acquisition - NuLeaf (Note 3) |
| 4,429,809 | | 35,285 |
Issuance of shares through ATM | | 130,197 | | 811 |
Share issuance costs | | - | | (13) |
Exercise options |
| 43,834 | | 282 |
Exercise warrants | | 530,423 | | 4,052 |
Vested restricted share units |
| 17,500 | | 118 |
Balance, January 31, 2022 |
| 59,511,791 | | 249,439 |
|
25 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
15. | Share – Based Compensation |
(a) | Stock Option Plan: |
The Company’s stock option plan limits the number of common shares reserved under the plan from exceeding a “rolling maximum” of ten (10%) percent of the Company’s issued and outstanding common shares from time to time. The stock options vest at the discretion of the Board of Directors, upon grant to directors, officers, employees and consultants of the Company and its subsidiaries. All options that are outstanding will expire upon maturity, or earlier, if the optionee ceases to be a director, officer, employee or consultant or there is a merger, amalgamation or change in control of the Company. The maximum exercise period of an option shall not exceed 10 years from the grant date. Changes in the number of stock options, with their weighted average exercise prices, are summarized below:
| | | | | | | | |
| | | | | | | | |
|
| January 31, 2022 | | October 31, 2021 | ||||
| | Number of | | Weighted Average | | Number of | | Weighted Average |
| | options |
| Exercise Price ($) |
| options |
| Exercise Price ($) |
Balance, beginning of year |
| 1,906,129 |
| 7.50 |
| 620,666 |
| 7.50 |
Granted |
| 121,390 |
| 7.07 |
| 2,058,885 |
| 6.12 |
Forfeited |
| (89,003) |
| 6.74 |
| (448,051) |
| 9.51 |
Exercised |
| (43,834) |
| 6.42 |
| (325,371) |
| 3.73 |
Balance, end of period |
| 1,894,682 |
| 6.25 |
| 1,906,129 |
| 7.50 |
Exercisable, end of period |
| 820,066 |
| 5.86 |
| 596,666 |
| 7.55 |
For the three month period ended January 31, 2022, the Company recorded share-based compensation related to options of $628 (2021 - $553).
(b) | Restricted Share Units (“RSUs”) plan |
For the three months ended January 31, 2022, the Company recorded share-based compensation related to RSUs of $171 (2021 – nil). The number of outstanding RSUs outstanding at January 31, 2022 amounts to 167,413.
(c) | Escrow Shares |
For the three months ended January 31, 2022, the Company recorded share-based compensation related to Escrow Shares of $1,103 (2021 – nil).
|
26 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
16. | Warrants |
| | | | | | | | | | | | |
|
| |
| |
| |
| |
| Weighted |
| |
| | Number of | | Warrants | | Derivative | | Weighted | | average | | |
| | warrants | | amount | | liability | | average | | number of | | Expiry dates |
| | | | | | amount | | exercise price | | years to | | |
| | | | | | | | | | expiry | | |
|
| # |
| $ |
| $ |
| $ |
| |
| |
Opening balance, November 1, 2020 |
| 131,064,114 |
| 5,796 |
| 266 |
| 0.4159 |
| 2.07 |
|
|
Issued warrants for acquisition - Meta |
| 741,600 |
| 3 |
| - |
| 1.3110 |
| - |
|
|
Issued warrants for acquisition - Meta |
| 40,076,411 |
| 2,616 |
| - |
| 0.3520 |
| 0.49 |
| February 6, 2023 |
Issued warrants for acquisition - Meta |
| 4,120,000 |
| 120 |
| - |
| 1.1040 |
| 0.06 |
| April 11, 2023 |
Revaluation of derivative liability |
| — |
| — |
| 11,697 |
| — |
| - |
| December 31, 2022 |
Warrants issued - equity financing |
| 27,878,919 |
| 6,210 |
| - |
| 0.5800 |
| 0.55 |
| February 22, 2024 |
Warrants issued - equity financing |
| 21,207,720 |
| 3,546 |
| - |
| 12.2500 |
| 0.03 |
| May 26, 2024 |
Warrants cancelled or expired |
| (59,578,382) |
| (5,457) |
| - |
| — |
| — |
| |
Warrants exercised |
| (54,268,198) |
| (2,110) | | (10,270) | | — | | — | | |
Balance October 31, 2021 |
| 111,242,184 | | 10,724 | | 1,693 | | 2.5995 | | 2.01 | |
|
Revaluation of derivative liability |
| - | | - | | 220 | | — | | — | | |
Warrants cancelled or expired |
| (17,248,015) | | (273) | | - | | — | | — | | |
Warrants exercised |
| (7,956,345) | | (6) | | (1,913) | | — | | — | | |
Balance January 31, 2022 |
| 86,037,824 | | 10,445 | | — | | — | | — | |
|
As at January 31, 2022, 86,037,824 warrants were exercisable, on a basis of 15 warrants for 1 common share, with the exception of warrants issued through the acquisition of META, which were exercisable on a basis of 18.2 warrants for 1 common share.
17. | Loss Per Share |
(a) | Current Period Earnings Per Share |
| | | | | |
|
| 2022 |
| 2021 | |
|
| $ |
| $ | |
Net loss for the period | | (7,352) | | (16,845) | |
Non-controlling interest | | (478) | | (24) | |
Net loss for the period attributable to owners of the Company | | (7,830) | | (16,869) | |
| | # | | # | |
Weighted average number of common shares - basic and diluted | | 57,390,661 | | 27,090,872 | |
Basic and Diluted loss per share | | (0.14) | | (0.62) | |
18. | Financial Instruments and Risk Management |
The Company’s activities expose it to a variety of financial risks. The Company is exposed to credit, liquidity, and market risk due to holding certain financial instruments. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.
Risk management is carried out by senior management in conjunction with the Board of Directors.
Fair value
The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
- | Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities |
|
27 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
18. Financial Instruments and Risk Management (continued)
- | Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
- | Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs) |
The Company assessed that the fair values of cash, accounts receivable, loans receivable, accounts payable and accrued liabilities, and other current liabilities approximate their carrying amounts largely due to the short-term nature of these instruments.
The following methods and assumptions were used to estimate the fair value:
- | Marketable securities are determined based on level 1 inputs, as the prices for the marketable securities are quoted in public exchanges. |
- | Derivative warrant liabilities are designated as FVTPL and are measured using level 2 inputs. The fair value of the derivative warrant liabilities are measured each reporting period with changes in the fair value recognized in the consolidated statement of loss and comprehensive loss. Assumptions used to calculate the fair value include stock price, volatility, and risk-free interest rate. |
- | Long-term fixed-rate notes receivables and loans payable are initially recorded at fair value and are evaluated by the Company based on level 2 inputs such as discounted future interest and principal payments using current market interest rates of instruments using similar terms. These instruments are subsequently measured through amortized cost, through accretion and interest income recognized through the statement of loss and comprehensive loss. |
- | The obligation related to the Smoke Cartel business combination is determined using level 1 inputs, as the price of the Company’s stock is quoted on public exchanges. |
- | The Convertible debentures are evaluated by the Company based on level 2 inputs such as the effective interest rate and the market rates of comparable securities. The convertible debentures are initially measured at amortized cost and at each reporting period accretion incurred in the period is recorded to transaction costs in the consolidated statement of loss and comprehensive loss. |
- | The Halo convertible promissory note receivable is a non-derivative financial asset with fixed or determinable payments that are not quoted in an active market and is recorded at fair value based on level 2 inputs. The fair value of these assets were estimated on discounted future interest and principal payments using current market interest rates of instruments using similar terms. The promissory note failed the SPPI test due to the conversion feature of the note, therefore this note will be subsequently recognized at fair value through profit or loss on the consolidated statement of loss and comprehensive loss. |
- | The liabilities associated with the put options included in the acquisitions of FABCBD, Blessed and NuLeaf have been recorded at fair value based on level 3 inputs. The valuation model considers the present value of the future obligation using a multiple of forecasted trailing twelve month EBITDA for FABCBD and NuLeaf, and forecasted twelve month revenue for Blessed CBD, and a risk-adjusted discount rate for FABCBD, Blessed and NuLeaf. Significant unobservable inputs include expected cash flows and the risk adjusted interest rate. The estimated fair value would increase (decrease) if the expected cash flows were higher (lower) or the risk adjusted interest rate were lower (higher). |
|
28 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
18. | Financial Instruments and Risk Management (continued) |
| | |
|
| Derivative Liability measured through FVTPL |
| | $ |
Balance at November 1, 2020 | | — |
Contingent consideration from acquisition of Smoke Cartel | | 1,319 |
Put obligation liability from acquisition of FABCBD | | 3,722 |
Put obligation liability from acquisition of Blessed CBD | | 4,323 |
Loss included in 'Loss on revaluation of derivative liability' | | 577 |
Balance at October 31, 2021 |
| 9,941 |
Put obligation liability from acquisition of NuLeaf |
| 8,326 |
Gain included in 'Gain on revaluation of derivative liability' |
| (699) |
Balance at January 31, 2022 |
| 17,568 |
| | |
Sensitivity Analysis |
| |
| | $ |
Expected cash flows (10% movement) |
| 1,539 |
Marketable securities
In connection with the Company’s acquisition of META on November 18, 2020, the Company acquired 2,996,612 shares of Epsilon Healthcare Limited (“Epsilon” formerly ‘THC Global Group Limited’). The fair value of the Epsilon shares amounting to $169 has been recognized as a marketable security, based on the trading price of Epsilon’s shares. In addition, to this the Company has also acquired 400,000 shares of Pathway Health Corp. (“Pathway”) which were granted as part of consideration for an asset sale agreement with Meta prior to acquisition amounting to $200, which were updated to fair value of $64 at January 31, 2022, as well as recorded $200 in GICs as a marketable security.
Credit risk
Credit risk arises when a party to a financial instrument will cause a financial loss for the counter party by failing to fulfill its obligation. Financial instruments that subject the Company to credit risk consist primarily of cash, accounts receivable, marketable securities and loans receivable. The credit risk relating to cash and cash equivalents and restricted marketable securities balances is limited because the counterparties are large commercial banks. The amounts reported for accounts receivable in the statement of consolidated financial position is net of expected credit loss and the net carrying value represents the Company’s maximum exposure to credit risk. Accounts receivable credit exposure is minimized by entering into transactions with creditworthy counterparties and monitoring the age and balances outstanding on an ongoing basis. Sales to retail customers are required to be settled in cash or using major credit cards, mitigating credit risk.
The following table sets forth details of the aging profile of accounts receivable and the allowance for expected credit loss:
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Current (for less than 30 days) |
| 6,518 |
| 3,794 |
31 – 60 days |
| 618 |
| 533 |
61 – 90 days |
| 415 |
| 333 |
Greater than 90 days |
| 593 |
| 1,978 |
Less allowance |
| (132) |
| (144) |
|
| 8,012 |
| 6,494 |
|
29 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
18. | Financial Instruments and Risk Management (continued) |
For the three months ended January 31, 2022, $0 in trade receivables were written off against the loss allowance due to bad debts (January 31, 2021 – $190). Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. The remaining accounts receivable are evaluated by the Company based on parameters such as interest rates, specific country risk factors, and individual creditworthiness of the customer. Based on this evaluation, allowances are taken into account for the estimated losses of these receivables.
The Company performs a regular assessment of collectability of accounts receivables. In determining the expected credit loss amount, the Company considers the customer’s financial position, payment history and economic conditions. For the period ended January 31, 2022, management reviewed the estimates and have not created any additional loss allowances on trade receivable.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company generally relies on funds generated from operations, equity and debt financings to provide sufficient liquidity to meet budgeted operating requirements and to supply capital to expand its operations. The Company continues to seek capital to meet current and future obligations as they come due. Maturities of the Company’s financial liabilities are as follows:
| | | | | | | | | | |
|
| Contractual cash flows |
| Less than one year |
| 1-3 years |
| 3-5 years |
| Greater than 5 years |
| | $ | | $ | | $ | | $ | | $ |
October 31, 2021 | |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | | 18,532 |
| 18,532 |
| - |
| - |
| - |
Notes payable | | 17,493 |
| 5,600 |
| 78 |
| 11,755 |
| 60 |
Derivative liability | | 11,673 |
| 9,980 |
| 1,693 |
| - |
| - |
Convertible debentures | | 8,163 | | 946 | | - | | 7,217 | | - |
Undiscounted lease obligations | | 35,201 | | 8,454 | | 12,773 | | 6,382 | | 7,592 |
Total | | 91,062 |
| 43,512 |
| 14,544 |
| 25,354 |
| 7,652 |
January 31, 2022 | |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | | 22,161 |
| 22,161 |
| - |
| - |
| - |
Notes payable | | 17,602 |
| 5,600 |
| 88 |
| 11,850 |
| 64 |
Derivative liability | | 17,568 | | 9,168 | | 8,400 | | - | | - |
Convertible debentures | | 7,677 | | 946 | | - | | 6,731 | | - |
Undiscounted lease obligations | | 35,201 |
| 8,454 |
| 12,773 |
| 6,382 |
| 7,592 |
Total | | 100,209 |
| 46,329 |
| 21,261 |
| 24,963 |
| 7,656 |
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in the market interest rate related primarily to the Company’s current credit facility with variable interest rates.
At January 31, 2022, approximately 84% of the Company’s borrowings are at a fixed rate of interest (2021: 84%).
Foreign currency risk
Foreign currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company maintains cash balances and enters into transactions denominated in foreign currencies, which exposes the Company to fluctuating balances and cash flows due to variations in foreign exchange rates.
|
30 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
18. | Financial Instruments and Risk Management (continued) |
The Canadian dollar equivalent carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities as at January 31, 2022 was as follows:
| | | | | | | | | | |
(Canadian dollar equivalent amounts of US dollar and Euro balances) |
| January 31, 2022 |
| January 31, 2022 |
| January 31, 2022 |
| January 31, 2022 | | October 31, |
| | (GBP) | | (Euro) | | (USD) | | Total | | 2021 |
| | $ | | $ | | $ |
| $ | | $ |
Cash | | 1,258 | | 307 |
| 3,785 | | 5,350 | | 4,032 |
Accounts receivable | | 360 | | (81) |
| 1,003 | | 1,282 | | 889 |
Accounts payable and accrued liabilities | | (314) | | (1,393) |
| (3,881) | | (5,588) | | (4,406) |
Net monetary assets | | 1,304 | | (1,167) |
| 907 | | 1,044 | | 515 |
Assuming all other variables remain constant, a fluctuation of +/- 5.0 percent in the exchange rate between the United States dollar and the Canadian dollar would impact the carrying value of the net monetary assets by approximately +/- $36 (October 31, 2021 - $21). Maintaining constant variables, a fluctuation of +/- 5.0 percent in the exchange rate between the Euro and the Canadian dollar would impact the carrying value of the net monetary assets by approximately +/- $41 (October 31, 2021 - $29), and a fluctuation of +/- 5.0 percent in the exchange rate between the GBP and Canadian dollar would impact the carrying value of the net monetary assets by approximately +/- $38 (October 31, 2021 - $37). To date, the Company has not entered into financial derivative contracts to manage exposure to fluctuations in foreign exchange rates.
19. | Segmented Information |
Segments are identified by management based on the allocation of resources, which is done on a basis of selling channel rather than by legal entity. As such, the Company has established two main segments, being retail and wholesale, with a Corporate segment which includes oversight and start up operations of new entities until such time as revenue generation commences. The reportable segments are managed separately because of the unique characteristics and requirements of each business.
| | | | | | | | | | | | | | | | |
|
| Retail | | Retail | | Wholesale | | Wholesale | | Corporate | | Corporate | | Total | | Total |
For the three months ended January 31, | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| | ($) |
| ($) |
| ($) |
| ($) |
| ($) |
| ($) |
| ($) |
| ($) |
Total revenue |
| 70,966 |
| 36,757 |
| 1,213 |
| 1,551 |
| 39 |
| 11 |
| 72,218 |
| 38,319 |
Gross profit |
| 22,768 |
| 14,195 |
| 179 |
| 562 |
| 35 |
| 11 |
| 22,982 |
| 14,768 |
(Loss) income from operations |
| (567) |
| 1,238 |
| (318) |
| (222) |
| (5,262) |
| (3,061) |
| (6,147) |
| (2,045) |
| | | | | | | | | | | | | | | | |
Total assets | | 270,989 | | 94,642 | | 9,910 | | 5,932 | | 9,669 | | 66,000 | | 290,568 | | 166,574 |
Total liabilities | | 68,337 | | 38,470 | | 2,190 | | 2,111 | | 37,729 | | 72,194 | | 108,256 | | 112,775 |
| | | | | | | | | | | | | | | | |
|
| Canada |
| Canada |
| USA |
| USA |
| International |
| International |
| Total |
| Total |
For the three months ended January 31, | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) |
Total revenue |
| 52,442 |
| 34,202 |
| 15,090 |
| 643 |
| 4,686 |
| 3,474 |
| 72,218 |
| 38,319 |
Gross profit |
| 11,952 |
| 12,984 |
| 8,391 |
| 219 |
| 2,639 |
| 1,565 |
| 22,982 |
| 14,768 |
(Loss) income from operations |
| (8,735) |
| (2,489) |
| 1,138 |
| (114) |
| 1,450 |
| 558 |
| (6,147) |
| (2,045) |
| | | | | | | | | | | | | | | | |
Total assets | | 160,734 | | 155,673 | | 106,294 | | 2,554 | | 23,540 | | 8,347 | | 290,568 | | 166,574 |
Total liabilities | | 88,234 | | 98,739 | | 16,003 | | 765 | | 4,019 | | 13,271 | | 108,256 | | 112,775 |
|
31 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
20. | Related Party Transactions |
As at January 31, 2022, the Company had the following transactions with related parties as defined in IAS 24 – Related Party Disclosures, except those pertaining to transactions with key management personnel in the ordinary course of their employment and/or directorship arrangements and transactions with the Company’s shareholders in the form of various financing.
Operational transactions
An office and warehouse unit has been developed by Grover Properties Inc., a company that is related through a common controlling shareholder and the President & CEO of the company. The office and warehouse space were leased to High Tide to accommodate the Company’s operational expansion. The lease was established by an independent real estate valuations services company at prevailing market rates and has annual lease payments totaling $386 per annum. The primary lease term is 5 years with two additional 5-year term extensions exercisable at the option of the Company.
An office and warehouse unit located in Savannah, Georgia has been leased out by 2G Realty, LLC, a company that is related through the Chief Technology Officer of the company. The office and warehouse space were leased to accommodate the Company’s operational needs for Smoke Cartel. The lease was established at prevailing market rates and has annual lease payments totaling $52 per annum. The primary lease term is 1 year with one additional 1-year term extension exercisable at the option of the Company.
21. | Right of Use Assets and Lease Obligations |
The Company entered into various lease agreements predominantly to execute its retail platform strategy. The Company leases properties such as various retail stores and offices. Lease contracts are typically made for fixed periods of 5 to 10 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
| | |
Right of use assets |
|
|
|
| $ |
Balance at November 1, 2021 | | 27,985 |
Net additions | | 4,917 |
Depreciation expense for the period | | (2,021) |
Balance at January 31, 2022 | | 30,881 |
| | |
Lease Liabilities |
|
|
|
| $ |
Balance at November 1, 2021 | | 29,773 |
Net additions | | 4,695 |
Cash outflows in the period | | (2,238) |
Accretion (Interest) expense for the period ended | | 656 |
Balance at January 31, 2022 | | 32,886 |
Current | | (6,962) |
Non-current | | 25,924 |
As at January 31, 2022, $469 (October 31, 2021 - $506) is due to the Company in respect of sublease arrangements for franchise cannabis retail locations. For the period ended January 31, 2022, $99 was received in respect of sublease arrangements, which was recognized as other revenue. During the period ended January 31, 2022, the Company also paid $659 in variable operating costs associated to the leases which are expensed under general and administrative expenses.
|
32 |
High Tide Inc. | |
| Notes to the Condensed Interim Consolidated Financial Statements |
| For the three months ended January 31, 2022 and 2021 (Unaudited – In thousands of Canadian dollars, except share and per share amounts) |
22. | Contingent liability |
In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Company’s business, financial condition or results of the operations.
23. | Non-controlling interest |
The following table presents the summarized financial information for the Company’s subsidiaries which have non-controlling interests. This information represents amounts before intercompany eliminations.
| | | | |
|
| 2022 |
| 2021 |
| | $ | | $ |
Total current assets |
| 6,491 |
| 6,137 |
Total non-current assets |
| 42,479 |
| 38,577 |
Total current liabilities |
| (4,772) |
| (6,731) |
Total non-current liabilities |
| (3,128) |
| (456) |
Revenues for the period ended |
| 4,110 |
| 17,869 |
Net income for the period ended |
| 542 |
| 1,930 |
The net change in non-controlling interests is as follows:
| | | | |
As at |
| January 31, 2022 |
| October 31, 2021 |
| | $ | | $ |
Balance, beginning of year | | 4,795 | | 1,552 |
Share of (loss) gain for the period - Saturninus Partners | | (108) | | 346 |
Share of gain for the period - Meta | | 14 | | 235 |
Share of gain for the period - FABCBD | | 221 | | 78 |
Share of gain for the period - Blessed | | 243 | | 21 |
Share of gain for the period - NuLeaf | | 108 | | - |
Purchase of Meta (Note 3) | | - | | 1,821 |
Purchase of FABCBD (Note 3) | | - | | 1,262 |
Purchase of Blessed (Note 3) | | - | | 864 |
Purchase of NuLeaf (Note 3) | | 2,700 | | - |
Distribution - Saturninus Partners | | - | | (500) |
Distribution - FABCBD | | (204) | | - |
Distribution - Blessed | | (239) | | - |
Distribution - NuLeaf | | (97) | | - |
Loss of control | | - | | (884) |
| | 7,433 | | 4,795 |
24. | Subsequent events |
(i) | On February 10, 2022, the Company acquired all of the issued and outstanding shares of Bud Room Inc. (“Bud Room”) as well as assignments of the vendor’s shareholder loans, for $3,600, and acquired all the rights to the customized FastendrTM retail kiosk and smart locker technology and Bud Room’s retail cannabis store located in Ottawa Ontario. The consideration was comprised of 674,650 common shares of High Tide, having an aggregate value of $3,600. Due to the nature of the acquisition, the allocation of the purchase price has not been provided because that information has not yet been finalized. |
(ii) | On March 3, 2022, the Company entered into an agreement to purchase four operating retail cannabis locations in Ontario under the name Crossroads Cannabis for $2,500. |
|
33 |