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Organigram (OGI) - 2022 Q3 - Quarterly Report

Financial Statements Condensed Consolidated Interim Statements of Financial Position As of May 31, 2022, Organigram Holdings Inc. reported total assets of $583.6 million, a slight increase from $554.0 million at August 31, 2021. The growth was driven by a significant rise in cash to $127.3 million and an increase in intangible assets and goodwill to $57.3 million, primarily due to acquisitions. This was partially offset by a large decrease in short-term investments. Total liabilities decreased slightly to $72.2 million from $74.2 million, mainly due to a reduction in derivative liabilities. Consequently, shareholders' equity increased to $511.4 million from $479.8 million. Consolidated Balance Sheet Summary (in CDN $000's) | Account | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $227,755 | $260,615 | | Total Assets | $583,565 | $554,017 | | Total Current Liabilities | $54,649 | $26,266 | | Total Liabilities | $72,205 | $74,212 | | Total Shareholders' Equity | $511,360 | $479,805 | | Total Liabilities & Equity | $583,565 | $554,017 | - Cash increased significantly to $127.3 million from $55.4 million, while short-term investments decreased from $128.2 million to just $20 thousand2 - Intangible assets and goodwill more than tripled to $57.3 million from $17.0 million, reflecting recent acquisition activity2 - Derivative liabilities saw a substantial decrease to $8.3 million from $37.5 million2 Condensed Consolidated Interim Statements of Operations and Comprehensive Loss For the three months ended May 31, 2022, the company reported a net loss of $2.8 million on net revenue of $38.1 million, a significant improvement from a $4.0 million net loss on $20.3 million revenue in the prior-year period. For the nine-month period, the net loss narrowed dramatically to $8.1 million from $104.7 million year-over-year, primarily due to a large positive change in the fair value of derivative liabilities in 2022 compared to a large negative change in 2021. Gross margin before fair value adjustments turned positive for both the three and nine-month periods. Key Performance Indicators (in CDN $000's, except per share data) | Metric | Three Months Ended May 31, 2022 | Three Months Ended May 31, 2021 | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $38,115 | $20,324 | $100,329 | $54,298 | | Gross Margin | $7,642 | $2,119 | $17,321 | ($31,750) | | Loss from Operations | ($11,938) | ($12,215) | ($34,611) | ($69,700) | | Net Loss | ($2,787) | ($4,008) | ($8,139) | ($104,733) | | Net Loss per Share (basic) | ($0.009) | ($0.014) | ($0.026) | ($0.433) | - Net revenue for the third quarter increased by 88% year-over-year, and by 85% for the nine-month period5 - A significant factor in the reduced nine-month net loss was a $29.2 million gain from the change in fair value of derivative liabilities in 2022, compared to a $35.0 million loss in the same period of 20215 Condensed Consolidated Interim Statements of Changes in Equity Shareholders' equity increased from $479.8 million at the beginning of the period to $511.4 million as of May 31, 2022. The increase was primarily driven by the issuance of shares for business combinations totaling $31.0 million and the exercise of top-up rights for $6.3 million. These additions were partially offset by a net loss of $8.1 million for the nine-month period. Equity Roll-Forward for Nine Months Ended May 31, 2022 (in CDN $000's) | Description | Amount | | :--- | :--- | | Balance - September 1, 2021 | $479,805 | | Shares issued for business combinations | $31,001 | | Share-based compensation | $2,318 | | Exercise of top-up rights, net | $6,334 | | Net loss | ($8,139) | | Other (exercises, etc.) | $41 | | Balance - May 31, 2022 | $511,360 | Condensed Consolidated Interim Statements of Cash Flows For the nine months ended May 31, 2022, the company experienced a net cash increase of $72.0 million, resulting in an ending cash position of $127.3 million. This was a significant improvement from the $33.8 million increase in the prior-year period. The positive change was driven by $83.0 million in net cash provided by investing activities, primarily from the proceeds of short-term investments, which more than offset the $16.5 million used in operating activities. Financing activities provided a modest $5.5 million. Cash Flow Summary for Nine Months Ended (in CDN $000's) | Activity | May 31, 2022 | May 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($16,516) | ($20,890) | | Net cash provided by (used in) financing activities | $5,489 | $174,408 | | Net cash provided by (used in) investing activities | $82,998 | ($119,726) | | Increase in Cash | $71,971 | $33,792 | | Cash, End of Period | $127,336 | $58,392 | - The significant swing in investing cash flow was due to receiving $128.2 million in proceeds from short-term investments in 2022, compared to a net purchase of investments in 202110 - Financing activities in the prior year were substantially higher due to $64.8 million in proceeds from unit financing and $220.0 million from share issue costs, which were absent in the current period10 Notes to the Condensed Consolidated Interim Financial Statements Note 1: Nature of Operations Organigram Holdings Inc. is a publicly traded company on the TSX and NASDAQ under the symbol "OGI". It operates primarily through its wholly-owned subsidiaries, which are licensed producers and processors of cannabis and cannabis-derived products in Canada. - The company's major wholly-owned subsidiaries include: - Organigram Inc. (licensed producer) - 10870277 Canada Inc. (holding company) - The Edibles and Infusions Corporation (EIC) (processor of confectionary goods) - Laurentian Organic Inc. (Laurentian) (producer of artisanal craft cannabis and hash)14 Note 2: Basis of Preparation The unaudited condensed consolidated interim financial statements were prepared in accordance with IAS 34 and should be read with the annual statements. The statements are prepared on a historical cost basis, with exceptions for certain assets and liabilities measured at fair value. The company acknowledges the ongoing uncertainty of the COVID-19 pandemic but did not record any direct adjustments to asset carrying values during the period. - The financial statements were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ("IAS 34")15 - Due to COVID-19 uncertainty, the company notes that estimates in the financial statements could change in the near-term, potentially leading to material impacts such as impairment of inventories and long-lived assets24 Note 3: Significant Accounting Policies The company has not yet adopted several new IFRS standards and amendments that are effective after August 31, 2022. These include changes to IAS 1 (Classification of Liabilities, Disclosure of Accounting Policies), IAS 8 (Definition of Accounting Estimate), IAS 12 (Deferred Tax), IAS 37 (Onerous Contracts), IAS 16 (Property Plant and Equipment), IFRS 9 (Financial Instruments), and IAS 41 (Agriculture). The company is currently evaluating the potential impact of these amendments. - The company is assessing the impact of several upcoming amendments to IFRS standards, including those related to the classification of liabilities, definition of accounting estimates, and disclosure of accounting policies, which are effective for periods beginning on or after January 1, 2023293031 Note 4: Short Term Investments The company's short-term investments decreased dramatically from $128.2 million at August 31, 2021, to $20 thousand at May 31, 2022. The prior year's balance was primarily held in Guaranteed Investment Certificates (GICs) which have since matured. Short-Term Investments (in CDN $000's) | Description | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | GIC - maturing November 2, 2021 | $ — | $ 60,000 | | GIC - maturing May 4, 2022 | $ — | $ 60,138 | | GIC - maturing May 27, 2022 | $ — | $ 8,032 | | Bond - Canada Revenue Agency | $ 20 | $ 20 | | Total | $ 20 | $ 128,190 | Note 5: Accounts Receivable Accounts receivable increased to $34.5 million as of May 31, 2022, from $21.0 million at August 31, 2021. The rise was driven by a significant increase in gross trade receivables, reflecting higher sales. Accounts Receivable Breakdown (in CDN $000's) | Component | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | Gross trade receivables | $ 33,651 | $ 20,915 | | Less: reserves & credit losses | ($671) | ($710) | | Trade receivables | $ 32,980 | $ 20,205 | | Other receivables | $ 1,555 | $ 830 | | Total Accounts Receivable | $ 34,535 | $ 21,035 | Note 6: Loan Receivable The loan receivable from 1812 Hemp, which had a carrying value of $250 thousand at August 31, 2021, was fully impaired during the period. An additional impairment charge of $250 thousand was recorded at November 30, 2021, reducing the balance to zero. - At November 30, 2021, the remaining $250 thousand balance of the loan receivable from 1812 Hemp was fully impaired, reducing the carrying value to $nil41 Note 7: Biological Assets The carrying value of biological assets (cannabis plants) was $12.5 million at May 31, 2022, a slight increase from $12.1 million at August 31, 2021. During the nine-month period, the company recognized an unrealized gain of $24.3 million on changes in the fair value of these assets. The fair value is determined using a model based on expected harvest yield, selling price, and costs to complete. Biological Assets Continuity (in CDN $000's) | Description | Amount | | :--- | :--- | | Balance, August 31, 2021 | $12,122 | | Acquisition through business combination | $183 | | Unrealized gain on changes in fair value | $24,324 | | Production costs capitalized | $35,381 | | Transfer to inventory upon harvest | ($59,477) | | Balance, May 31, 2022 | $12,533 | - As of May 31, 2022, the company's biological assets are expected to yield 20,946 kg of cannabis, a significant increase from the 11,368 kg expected at August 31, 202145 Note 8: Inventories Inventories increased to $48.0 million at May 31, 2022, from $36.7 million at August 31, 2021. The increase was seen across various categories, including packaged inventory and packaging supplies. For the nine months ended May 31, 2022, the amount of inventory expensed in cost of sales was $65.9 million, and inventory provisions and waste totaled $6.8 million. Inventory Breakdown (in CDN $000's) | Category | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | Plants in drying stage | $2,089 | $2,690 | | Dry cannabis | $27,367 | $21,495 | | Formulated extracts | $5,058 | $2,746 | | Packaging and supplies | $8,253 | $6,023 | | Total Carrying Value | $48,046 | $36,696 | - For the nine months ended May 31, 2022, inventory provisions and waste were $6.8 million, significantly lower than the $22.3 million recorded in the same period of 202150 Note 9: Property, Plant and Equipment The net book value of property, plant, and equipment (PP&E) increased to $250.5 million at May 31, 2022, from $235.9 million at August 31, 2021. The increase was driven by additions of $32.8 million and acquisitions through business combinations of $6.2 million, partially offset by depreciation of $16.5 million and disposals. An impairment loss of $2.0 million was recognized on the Moncton chocolate manufacturing line. PP&E Continuity (in CDN $000's) | Description | Amount | | :--- | :--- | | Net Book Value, August 31, 2021 | $235,939 | | Acquisitions through business combinations | $6,240 | | Additions | $32,768 | | Disposals (Net) | ($5,996) | | Impairment | ($2,000) | | Depreciation | ($16,482) | | Net Book Value, May 31, 2022 | $250,469 | - The company recognized a $2.0 million impairment loss on its Moncton chocolate line after making a strategic decision to cease manufacturing chocolate at that location55 Note 10: Intangible Assets and Goodwill The net book value of intangible assets and goodwill surged to $57.3 million at May 31, 2022, from $17.0 million at August 31, 2021. This increase is almost entirely due to acquisitions through business combinations, which added $27.7 million in goodwill and $14.2 million in other intangible assets like licenses and brands. Intangible Assets & Goodwill Continuity (in CDN $000's) | Description | Goodwill | Other Intangibles | Total | | :--- | :--- | :--- | :--- | | Net Book Value, Aug 31, 2021 | $14,321 | $2,725 | $17,046 | | Acquisitions | $27,658 | $14,217 | $41,875 | | Additions | $— | $30 | $30 | | Disposals (Net) | $— | ($11) | ($11) | | Amortization | $— | ($1,678) | ($1,678) | | Net Book Value, May 31, 2022 | $41,979 | $15,283 | $57,262 | Note 11: Other Liabilities Current other liabilities increased significantly to $15.1 million at May 31, 2022, from $4.5 million at August 31, 2021. The increase was primarily due to a rise in contingent consideration related to acquisitions and a higher current portion of lease liabilities. Other Liabilities Breakdown (in CDN $000's) | Component | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | Advance from joint operator | $3,172 | $— | | Contingent consideration | $7,027 | $3,500 | | Current portion lease liability | $4,888 | $984 | | Total | $15,087 | $4,484 | Note 12: Provisions The company maintains a provision for litigation, which stood at $2.6 million as of May 31, 2022, a slight decrease from $2.8 million at August 31, 2021. The provision is related to outstanding legal matters as detailed in Note 23. Legal Provision Continuity (in CDN $000's) | Description | Amount | | :--- | :--- | | Balance - August 31, 2021 | $2,750 | | Additions | $222 | | Payments | ($412) | | Balance - May 31, 2022 | $2,560 | Note 13: Long-Term Debt Total long-term debt, including the current portion, was minimal at $254 thousand as of May 31, 2022, down from $310 thousand at August 31, 2021. The debt consists primarily of a loan from the Atlantic Canada Opportunities Agency (ACOA) and vehicle loans, with scheduled principal repayments extending over the next three years. Principal Repayments Schedule (in CDN $000's) | Period | Amount | | :--- | :--- | | Less than 1 year | $80 | | 1 to 2 years | $80 | | 2 to 3 years | $64 | | 3 to 4 years | $30 | | Total | $254 | Note 14: Derivative Liabilities Derivative liabilities, consisting of warrants and top-up rights, decreased significantly to $8.3 million at May 31, 2022, from $37.5 million at August 31, 2021. The reduction was primarily due to a revaluation of the warrant liabilities, reflecting a lower share price and volatility, resulting in a fair value gain of $29.2 million for the nine-month period. Warrants The fair value of outstanding warrants decreased from $35.0 million at August 31, 2021, to $7.5 million at May 31, 2022. This revaluation resulted in a gain of $27.5 million for the nine months ended May 31, 2022. The change was driven by a lower market price of common shares and decreased expected volatility. Warrant Fair Value Inputs | Input | May 31, 2022 | August 31, 2021 | | :--- | :--- | :--- | | Market price of Common Shares | $1.47 | $3.38 | | Expected future volatility | 95.60% | 100.00% | | Life of Warrants (years) | 1.45 | 2.20 | | Fair value per warrant | $0.44 | $2.07 | Top-up Rights The fair value of Top-up Rights, granted to BAT, decreased from $2.5 million at August 31, 2021, to $0.8 million at May 31, 2022. During the nine-month period, 2.7 million Top-up Rights were exercised for gross proceeds of $6.3 million. The revaluation resulted in a fair value gain of $1.7 million. - During the nine months ended May 31, 2022, 2,659,716 Top-up Rights were exercised for gross proceeds of $6.3 million73 - The fair value of the Top-up Rights liability was revalued to $808 thousand at May 31, 2022, down from $2.5 million at August 31, 202175 Note 15: Share Capital As of May 31, 2022, the company had 313.7 million common shares issued and outstanding, an increase from 298.8 million at August 31, 2021. The increase was primarily due to the issuance of 10.9 million shares for the Laurentian acquisition and 1.0 million shares for the EIC acquisition milestone, as well as the exercise of 2.7 million top-up rights. Share-based compensation expense for the nine months was $2.3 million. Issuances of Share Capital During the nine months ended May 31, 2022, the company issued 10.9 million shares valued at $27.6 million for the acquisition of Laurentian, 1.0 million shares valued at $3.5 million for an EIC milestone, and 2.7 million shares for the exercise of top-up rights, generating $6.3 million in cash. - Issued 10,896,442 Common Shares valued at $27.6 million for the acquisition of Laurentian Organic Inc79 - Issued 1,039,192 Common Shares valued at $3.5 million upon EIC's achievement of its first milestone earnout80 - Issued 2,659,716 shares from the exercise of top-up rights for cash proceeds of $6.3 million86 Share-based Compensation For the nine months ended May 31, 2022, total share-based compensation charges were $2.3 million. As of May 31, 2022, there were 7.8 million stock options, 1.4 million RSUs, and 0.3 million PSUs outstanding. Share-Based Compensation Expense (in CDN $000's) | Period | May 31, 2022 | May 31, 2021 | | :--- | :--- | :--- | | Three Months Ended | $761 | $973 | | Nine Months Ended | $2,318 | $2,746 | Loss per Share Basic and diluted net loss per share for the nine months ended May 31, 2022, was $0.026. A total of 32.8 million securities, including stock options, warrants, and RSUs, were considered anti-dilutive and therefore excluded from the diluted loss per share calculation. Anti-Dilutive Securities (Nine Months Ended May 31, 2022) | Security Type | Number Outstanding | | :--- | :--- | | Stock options | 7,798,872 | | Warrants | 16,943,650 | | Top-up rights | 6,388,579 | | Restricted share units | 1,355,036 | | Performance share units | 275,806 | | Total | 32,761,943 | Note 16: Other Long-Term Liabilities Other long-term liabilities decreased to $5.0 million at May 31, 2022, from $10.2 million at August 31, 2021. The decrease was primarily due to a reduction in the long-term portion of contingent share consideration. The balance consists of contingent share consideration related to acquisitions and long-term lease liabilities. Contingent Share Consideration The company has contingent share consideration liabilities related to the acquisitions of EIC and Laurentian. As of May 31, 2022, the fair value of the EIC liability was revalued to $7.0 million (all current), and the Laurentian liability was revalued to $2.6 million. The revaluation of the Laurentian liability resulted in a fair value gain of $4.4 million for the nine-month period. - The fair value of the contingent liability for the Laurentian acquisition was revalued to $2.6 million, resulting in a gain of $4.4 million for the nine months ended May 31, 2022104 - The fair value of the contingent liability for the EIC acquisition was revalued to $7.0 million, resulting in an expense of $1.5 million for the nine months ended May 31, 2022103 Leases Total lease liabilities increased to $7.3 million at May 31, 2022, from $5.6 million at August 31, 2021. The increase was driven by lease additions of $2.0 million and leases acquired through business combinations. The company holds leases for corporate offices and a manufacturing facility in Winnipeg. Lease Liability Continuity (in CDN $000's) | Description | May 31, 2022 | | :--- | :--- | | Opening balance, September 1 | $5,635 | | Acquisitions through business combinations | $452 | | Lease additions | $1,968 | | Lease payments | ($1,029) | | Interest expense | $305 | | Ending balance | $7,331 | Note 17: Investments in Associates The carrying value of investments in associates increased to $6.8 million at May 31, 2022, from $5.0 million at August 31, 2021. The increase was due to an additional $2.5 million investment in Hyasynth Biologicals Inc. The investment in alpha-cannabis Pharma GmbH remains impaired at a value of $nil. - On December 22, 2021, the company advanced an additional $2.5 million to Hyasynth Biologicals Inc., bringing its total investment to $10.0 million and its potential ownership to 48.9%124 - The investment in alpha-cannabis® Pharma GmbH was previously impaired to $nil during the year ended August 31, 2021, due to financial difficulties and a decline in market share118 Note 18: Related Party Transactions The company incurred $5.2 million in compensation for key management and the Board of Directors for the nine months ended May 31, 2022, up from $4.0 million in the prior year. Additionally, under the Product Development Collaboration Agreement with BAT, the company incurred $4.5 million of direct expenses and capital expenditures related to the Center of Excellence. Key Management Compensation (in CDN $000's) | Component | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Salaries and consulting fees | $2,824 | $2,305 | | Share-based compensation | $2,348 | $1,660 | | Total | $5,172 | $3,965 | - For the nine months ended May 31, 2022, the company incurred $4.5 million in direct expenses and capital expenditures for the Center of Excellence, a joint operation with BAT130 Note 19: Capital Management The company defines its capital as long-term debt, derivative liabilities, and all components of shareholders' equity, which totaled $519.9 million at May 31, 2022. The company manages its capital structure to fund its growth, and its approach has remained unchanged during the period. - The company's managed capital, consisting of debt, derivative liabilities, and equity, was $519.9 million at May 31, 2022, compared to $517.6 million at August 31, 2021132 Note 20: Fair Value of Financial Instruments and Financial Risk Factors The company uses a three-level hierarchy for fair value measurements. Contingent share considerations for EIC and Laurentian, and Top-up Rights are valued using Level 3 inputs (unobservable), making them sensitive to management's expectations and assumptions. Derivative warrant liabilities are valued using Level 1 and 2 inputs. The company is exposed to credit risk, primarily from trade receivables, and liquidity risk, which it manages by monitoring capital requirements. - The fair value of contingent share consideration for the EIC and Laurentian acquisitions is based on Level 3 unobservable inputs, including probabilities of achieving milestones and future EBITDA projections138140 - The company's maximum exposure to credit risk at May 31, 2022, was approximately $196.8 million, primarily from cash, receivables, and restricted funds145 - As of May 31, 2022, the company had contractual commitments for approximately $20.4 million in capital expenditures, mostly for its Moncton Campus149 Note 21: Revenue Net revenue for the nine months ended May 31, 2022, was $100.3 million, an 85% increase from $54.3 million in the prior-year period. The growth was driven by a substantial increase in adult-use recreational wholesale revenue, which grew to $127.1 million (gross) from $64.5 million. International wholesale revenue also saw significant growth. Gross Revenue by Category (in CDN $000's) | Category | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Adult-use recreational wholesale (Canadian) | $127,115 | $64,457 | | Medical revenue (Canadian) | $6,091 | $6,735 | | International wholesale (business to business) | $9,242 | $386 | | Wholesale to licensed producers (Canadian) | $914 | $1,901 | | Other revenue | $90 | $198 | | Gross Revenue | $143,452 | $73,677 | Note 22: Cost of Sales Cost of sales includes the cost of inventories, shipping, and production overhead. For the nine months ended May 31, 2022, the company recorded provisions for excess and obsolete inventories of $2.9 million, a significant reduction from $17.3 million in the prior-year period. Additionally, charges for unabsorbed fixed overhead related to reduced production volumes were $0.7 million, down from $6.7 million year-over-year. - Charges for unabsorbed fixed overhead due to reduced production volumes decreased to $709 thousand for the nine months ended May 31, 2022, compared to $6.7 million in the prior-year period156 Note 23: Contingencies The company is involved in a class-action lawsuit related to product recalls in 2016 and 2017. A settlement agreement has been reached for an aggregate of $2.3 million, pending court approval. The company received insurance proceeds of $532 thousand to cover remaining costs. Another proposed class-action lawsuit in Alberta regarding THC/CBD content is pending certification. A provision of $2.6 million for claims was recorded on the balance sheet. - A settlement agreement for $2.3 million has been reached in the Nova Scotia class-action lawsuit, subject to court approval162 - The company received insurance proceeds of $532 thousand during the quarter, resulting in a net recovery of $310 thousand related to litigation for the period162165 Note 24: General and Administrative Expenses by Nature General and administrative (G&A) expenses for the nine months ended May 31, 2022, totaled $31.4 million, an increase from $22.6 million in the prior-year period. The increase was primarily driven by higher wages and benefits, office and general expenses, and professional fees. G&A Expense Breakdown (in CDN $000's) | Category | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Office and general | $11,851 | $9,965 | | Wages and benefits | $9,161 | $6,631 | | Professional fees | $5,504 | $4,251 | | Depreciation and amortization | $3,770 | $1,618 | | Other | $1,076 | $123 | | Total G&A Expenses | $31,362 | $22,588 | Note 25: Income Taxes As of May 31, 2022, the company recorded income taxes payable of $1.1 million and a deferred tax liability of $4.1 million. Both liabilities arose from the acquisition of Laurentian, specifically related to the temporary differences on the intangible assets acquired. - The company recognized a deferred tax liability of $4.1 million and income taxes payable of $1.1 million, both resulting from the acquisition of Laurentian168 Note 26: Government Subsidies For the nine months ended May 31, 2022, the company did not qualify for federal COVID-19 relief programs like CEWS or CERS. It did, however, receive $154 thousand in wage subsidies from the Manitoba government. This is a significant decrease from the $7.3 million in federal subsidies received in the prior-year period. - The company received $154 thousand in government subsidies for the nine months ended May 31, 2022, compared to $7.3 million in the same period of 2021169 Note 27: Product Development Collaboration The company has a Product Development Collaboration Agreement with BAT, establishing a Center of Excellence (CoE) at the Moncton Campus to develop new cannabis products. The CoE is accounted for as a joint operation, with costs funded equally by both parties. As of May 31, 2022, the balance in restricted funds for CoE obligations was $34.9 million. - The Center of Excellence (CoE) is a 50/50 joint operation with BAT, focused on R&D for next-generation cannabis products170173 - For the nine months ended May 31, 2022, the company recognized $2.0 million as its share of expenses incurred by the CoE173 Note 28: Acquisition of Subsidiaries The company completed the acquisition of Laurentian Organic Inc. on December 21, 2021, for total consideration of $43.1 million, including cash, shares, and contingent consideration, resulting in $29.0 million of goodwill. The acquisition of The Edibles and Infusions Corporation (EIC) from April 2021 involved total consideration of $27.2 million, resulting in $13.0 million of goodwill. Laurentian Organic Inc. On December 21, 2021, the company acquired 100% of Laurentian for $36.0 million in initial consideration ($10.0 million cash, $26.0 million shares), plus contingent consideration valued at $7.0 million at acquisition. The acquisition is expected to enhance the company's position in the craft flower and hash market. The provisional purchase accounting identified $14.1 million in net assets, resulting in $29.0 million of goodwill. Laurentian Acquisition Summary (in CDN $000's) | Component | Fair Value on Acquisition | | :--- | :--- | | Total identifiable net assets | $14,138 | | Consideration Transferred | | | Cash consideration | $10,000 | | Equity instruments | $27,568 | | Contingent share consideration | $6,996 | | Working capital adjustments | ($1,461) | | Total Consideration | $43,103 | | Goodwill arising on acquisition | $28,965 | The Edibles and Infusions Corporation The acquisition of EIC on April 6, 2021, involved initial share consideration of $22.0 million and contingent consideration valued at $5.2 million at acquisition. The purchase accounting, which was finalized in the current period, identified $14.2 million in net assets, resulting in $13.0 million of goodwill. The goodwill is attributed to EIC's skilled workforce and expected synergies. - The acquisition of EIC resulted in $13.0 million of goodwill, attributed to the skills of EIC's workforce and expected synergies192194 - The first milestone of the contingent consideration, valued at $3.5 million, was achieved and settled with shares on September 8, 2021186190 Note 29: Operating Segments The company operates as a single operating segment. The chief operating decision maker reviews financial information on a consolidated basis to make decisions about resource allocation and assess performance. - The company has determined that it has only one operating segment195 Note 30: Comparative Figures Certain figures from the prior period's financial statements have been reclassified to conform with the current period's presentation. These reclassifications, which include separating research and development from G&A and disaggregating fair value adjustments, did not impact net loss or shareholders' equity. - Reclassifications were made to prior period figures to enhance comparability, such as separating Research and Development expenses from General and Administrative expenses196199