| Acquisitions | 5. Acquisitions AMMD On January 27, 2023, TerrAscend closed the acquisition of AMMD, a dispensary in Cumberland, Maryland. Under the terms of the agreement, TerrAscend acquired a 100 % equity interest in AMMD for total consideration of $ 10,000 in cash, in addition to entering into a long-term lease with the option to purchase the real estate. The cash consideration paid included repayments of indebtedness and transaction expenses on behalf of AMMD of $ 160 and $ 29 , respectively. The following table pre sents the fair value of assets acquired and liabilities assumed as of the January 27, 2023 acquisition date and allocation of the consideration to net assets acquired:
Cash and cash equivalents $ 20
Inventory 303
Prepaid expense 4
Operating right of use asset 1,499
Fixed assets 416
Intangible asset 5,330
Goodwill 6,151
Accounts payable and accrued liabilities ( 366 )
Deferred tax liability ( 1,936 )
Corporate income taxes payable ( 291 )
Operating lease liability ( 1,499 )
Net assets acquired $ 9,631
Cash 10,000
Working capital adjustment ( 369 )
Total consideration $ 9,631 The acquired intangible assets include a medical license, which is treated as a definite-lived intangible asset and amortized over a 30-year period. The consideration paid reflected the synergies, economies of scale, and workforce. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill recognized is expected to be deductible for income tax purposes. The accounting for this acquisition has been provisionally determined at September 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, property and equipment, operating right of use assets, lease liabilities, corporate income taxes payable, deferred tax liability, and goodwill have been determined provisionally and are subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in future reporting periods. A n adjustment was made to decrease intangible assets of $ nil for the three months ended September 30, 2023 and of $ 620 for the nine months ended September 30, 2023 due to new information regarding the fair value at January 27, 2023. This resulted in an increase to goodwill of the same amount. Costs related to this transaction were $ 191 , including legal, accounting, due diligence, and other transaction-related expenses. Of the total amount of transaction costs, $ 36 and $ 99 were recorded during the nine months ended September 30, 2023 and 2022, respectively. On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $ 7,956 for the nine months ended September 30, 2023 and net income estimates would have been $ 2,716 . Actual sales and net income for the nine months ended September 30, 2023 since the date of acquisition are $ 7,277 and $ 2,472 , respectively. Peninsula On June 28, 2023, the Company closed the acquisition of Peninsula, a dispensary located in Salisbury, Maryland. Under the terms of the agreement, the Company acquired 100 % of the equity interest in Peninsula for total consideration of $ 15,394 exclusive of assumed financing obligations of $ 7,226 . The consideration was comprised of 5,442,282 common shares of the Company, valued at $ 7,857 ("stock consideration"), a $ 3,646 secured promissory note at an interest rate of 7.25 % maturing on June 28, 2026 , and $ 1,234 in cash. The cash consideration paid included transaction expenses and repayments of indebtedness on behalf of Peninsula of $ 290 and $ 33 , respectively. The stock consideration was subject to a statutory lock-up restriction of 6 months, and, as such, a share restriction discount was considered in determining the fair value of the closing stock payment as at the transaction date. The Company guaranteed that if within 18 months from the transaction d ate of the stock consideration, the aggregate gross proceeds resulting from the sales of the common shares plus the aggregate value of the remaining common shares is less than $ 9,000 , the Company shall pay the difference ("Peninsula contingent consideration"). The fair value of the Peninsula contingent consideration was calculated using the Black-Scholes Option Pricing Model ("Black-Scholes model"). The following table presents the fair value of assets acquired and liabilities assumed as of the June 28, 2023 acquisition date and allocation of the consideration to net assets acquired:
Inventory 370
Prepaid expense 371
Operating right of use asset 1,168
Fixed assets 68
Intangible asset 21,800
Goodwill 840
Accounts payable and accrued liabilities ( 829 )
Loans payable ( 7,226 )
Operating lease liability ( 1,168 )
Net assets acquired $ 15,394
Cash 1,234
Common shares of TerrAscend 7,857
Loans payable 3,646
Contingent consideration 2,657
Total consideration $ 15,394 The acquired intangible assets include a license, which is treated as a definite-lived intangible asset and amortized over a 30-year period. The consideration paid reflected the synergies, economies of scale, and workforce. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill recognized is expected to be deductible for income tax purposes. The accounting for this acquisition has been provisionally determined at September 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, property and equipment, operating right of use assets, lease liabilities, deferred tax liability, and goodwill have been determined provisionally and are subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in future reporting periods. During the three months ended September 30, 2023, an adjustment was made to reflect the the fair market value of the contingent consideration which resulted in an increase to goodwill at June 28, 2023. During the three months ended September 30, 2023, the following adjustments were made to the provisional amounts: • An adjustment was made to decrease the fair value of common shares due to a share restriction in the amount of $ 1,667 . This resulted in a decrease to goodwill of the same amount. • The Peninsula contingent consideration was recorded at the fair value of $ 2,656 . This resulted in an increase to goodwill of the same amount. • An adjustment was made to decrease the fair value of the loans payable in the amount of $ 862 due to new information regarding the fair value at June 28, 2023. This resulted in an decrease to goodwill of the same amount. Costs related to this transaction were $ 623 , including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the nine months ended September 30, 2023. On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $ 12,587 for the nine months ended September 30, 2023 and net income estimates would have been $ 2,574 . Actual sales and net loss for the nine months ended September 30, 2023 since the date of acquisition are $ 5,800 and $ 1,512 , respectively. Blue Ridge On June 30, 2023, the Company closed the acquisition of Blue Ridge, a dispensary located in Parkville, Maryland. The Company has plans to relocate Blue Ridge in the next six months to a new, high-traffic retail center. Under the terms of the agreement, the Company acquired a 100 % equity interest in Blue Ridge for total consideration of $ 6,535 , comprised of a promissory note of $ 3,109 at an interest rate of 7.0 % maturing on June 30, 2027 and $ 3,426 in cash. The cash consideration paid included repayments of indebtedness and transaction expenses on behalf of Blue Ridge of $ 707 and $ 281 , respectively. The following table presents the fair value of assets acquired and liabilities assumed as of the June 30, 2023 acquisition date and allocation of the consideration to net assets acquired:
Inventory 234
Prepaid expense 192
Operating right of use asset 2,325
Intangible asset 5,530
Goodwill 3,803
Deferred tax liability ( 1,952 )
Accounts payable and accrued liabilities ( 679 )
Operating lease liability ( 2,325 )
Other long term liabilities ( 593 )
Net assets acquired $ 6,535
Cash 3,426
Loans payable 3,109
Total consideration $ 6,535 The acquired intangible assets include a license, which is treated as a definite-lived intangible asset and amortized over a 30-year period. The consideration paid reflected the synergies, economies of scale, and workforce. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill recognized is expected to be deductible for income tax purposes. The accounting for this acquisition has been provisionally determined at September 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, operating right of use assets, lease liabilities, deferred tax liability, other long term liabilities, and goodwill have been determined provisionally and are subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in future reporting periods. During the three months ended September 30, 2023, the following adjustments were made to the provisional amounts: • An adjustment was made to decrease intangible assets in the amount of $ 880 due to new information regarding the fair value at June 30, 2023. This resulted in an increase to goodwill for the same amount. • An adjustment was made to decrease the fair value of the loans payable in the amount of $ 641 due to new information regarding the fair value at June 30, 2023. This resulted in an decrease to goodwill for the same amount. • An adjustment was made to increase the cash consideration in the amount of $ 426 primarily due to debt payoff and seller transaction costs. This resulted in an increase to goodwill for the same amount. Costs related to this transaction were $ 401 , including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the nine months ended September 30, 2023. On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $ 3,813 for the nine months ended September 30, 2023 and net income estimates would have been $ 778 . Actual sales and net loss for the nine months ended September 30, 2023 since the date of acquisition are $ 1,815 and $ 406 , respectively. Herbiculture On July 10, 2023, the Company closed the acquisition of Herbiculture Inc. (“Herbiculture”), a dispensary in Maryland. Under the terms of the agreement, the Company acquired 100 % of the equity interest in Herbiculture for total consideration of $ 7,695 , comprised of $ 2,761 in cash, and a promissory note of $ 4,934 at an interest rate of 10.50 % per annum maturing on June 30, 2026 . The cash consideration paid included transaction expenses and repayments of indebtedness on behalf of Herbiculture which w ere $ 616 and $ 1,674 , respectively. The following table presents the fair value of assets acquired and liabilities assumed as of the July 10, 2023 acquisition date and allocation of the consideration to net assets acquired:
Inventory $ 140
Prepaid expense 111
Accounts receivable 10
Fixed assets 231
Operating right of use asset 1,458
Intangible asset 7,580
Goodwill 4,603
Deferred tax liability ( 2,676 )
Accounts payable and accrued liabilities ( 648 )
Corporate income taxes payable ( 199 )
Operating lease liability ( 1,458 )
Other long term liabilities ( 1,457 )
Net assets acquired $ 7,695
Cash 2,761
Loans payable 4,934
Total consideration $ 7,695 The acquired intangible assets include a license, which is treated as a definite-lived intangible asset and amortized over a 30-year period. The consideration paid reflected the synergies, economies of scale, and workforce. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill recognized is expected to be deductible for income tax purposes. The accounting for this acquisition has been provisionally determined at September 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, operating right of use assets, lease liabilities, deferred tax liability, other long term liabilities, and goodwill have been determined provisionally and are subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in future reporting periods. Costs related to this transaction were $ 786 , including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the nine months ended September 30, 2023. On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $ 2,459 for the nine months ended September 30, 2023 and net income estimates would have been $ 110 . Actual sales and net loss for the nine months ended September 30, 2023 since the date of acquisition are $ 603 and $ 82 , respectively. Contingent consideration Contingent consideration recorded relates to the Company’s business acquisitions. Contingent consideration is based upon the potential earnout of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the terms of the agreement. The balance of contingent consideration is as follows:
State Flower Apothecarium Pinnacle Peninsula Total
Carrying amount, December 31, 2022 $ 1,406 $ 3,028 $ 750 $ — $ 5,184
Amount recognized on acquisition — — — 2,657 2,657
Payments of contingent consideration — — ( 750 ) — ( 750 )
Gain on revaluation of contingent consideration — — — ( 645 ) ( 645 )
Carrying amount, September 30, 2023 $ 1,406 $ 3,028 $ — $ 2,012 $ 6,446
Less: current portion ( 1,406 ) ( 3,028 ) — — ( 4,434 )
Non-current contingent consideration $ — $ — $ — $ 2,012 $ 2,012 During the nine months ended September 30, 2023, the Company issued 471,681 shares of common stock to the sellers of its previously acquired Pinnacle business. The issuance of shares fully settles the $ 750 ea rn out consideration provision in the stock purchase agreement. |
