EX-99.1 2 ex991.htm Q2 FINANCIAL STATEMENTS

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

  

 

AURORA CANNABIS INC.

 

Condensed Consolidated Interim Financial Statements

(Unaudited)

 

 

 

For the three and six months ended December 31, 2020 and 2019

(in Canadian Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

Table of Contents

Condensed Consolidated Interim Statements of Financial Position 3
Condensed Consolidated Interim Statements of Comprehensive Loss 4
Condensed Consolidated Interim Statements of Changes in Equity 6
Condensed Consolidated Interim Statements of Cash Flows 8
Notes to the Condensed Consolidated Interim Financial Statements  

 

Note 1 Nature of Operations 9   Note 15 Convertible Debentures 25
Note 2 Significant Accounting Policies and Judgments 9   Note 16 Loans and Borrowings 25
Note 3 Accounts Receivable 12   Note 17 Share Capital 27
Note 4 Government Grant 12   Note 18 Share-Based Compensation 29
Note 5 Strategic Investments 13   Note 19 Loss Per Share 32
Note 6 Marketable Securities and Derivatives 16   Note 20 Other (Losses) Gains 32
Note 7 Investments in Associates and Joint Ventures 18   Note 21 Supplemental Cash Flow Information 33
Note 8 Biological Assets 18   Note 22 Commitments and Contingencies 33
Note 9 Inventory 19   Note 23 Revenue 35
Note 10 Property, Plant and Equipment 20   Note 24 Segmented Information 36
Note 11 Assets Held for Sale and Discontinued Operations 21   Note 25 Fair Value of Financial Instruments 37
Note 12 Business Combinations 22   Note 26 Financial Instruments Risk 39
Note 13 Non-Controlling Interests 22   Note 27 Subsequent Events 41
Note 14 Intangible Assets and Goodwill 23        
             
             

 

 
 

AURORA CANNABIS INC.

Condensed Consolidated Interim Statements of Financial Position

As at December 31, 2020 and June 30, 2020

(Unaudited – Amounts reflected in thousands of Canadian dollars)

 

   Notes  December 31, 2020  June 30, 2020
         $    $ 
Assets               
Current               
Cash and cash equivalents        384,386    162,179 
Restricted cash   16(a)   50,000    —   
Accounts receivable   3, 26(a)    76,520    54,110 
Income taxes receivable        29    —   
Marketable securities   6(a)   4,268    7,066 
Derivatives   6(b)   381    11,791 
Biological assets   8    17,403    35,435 
Inventory   9    183,412    121,827 
Prepaids and other current assets        24,255    22,137 
Assets held for sale   11(a)   1,925    6,194 
         742,579    420,739 
                
Property, plant and equipment   10    712,190    946,380 
Derivatives   6(b)   47,359    41,791 
Deposits        3,143    12,329 
Loan receivable        8,469    3,643 
Investments in associates and joint ventures   7    906    18,114 
Intangible assets   14    392,179    412,267 
Goodwill   14    923,365    927,882 
Total assets        2,830,190    2,783,145 
                
Liabilities               
Current               
Accounts payable and accrued liabilities   26(b)   69,002    95,574 
Income taxes payable        16    —   
Deferred revenue   23    3,938    3,505 
Convertible debentures   15    32,828    32,110 
Loans and borrowings   16    41,793    120,508 
Contingent consideration payable   25    256    19,054 
Deferred gain on derivatives        —      20 
Provisions   22(b)(v)   2,000    1,485 
         149,833    272,256 
                
Convertible debentures   15    288,727    294,928 
Loans and borrowings   16    130,025    83,701 
Derivative liability   15, 17(c)    60,318    1,827 
Other long-term liability        37    37 
Deferred tax liability        4,069    3,946 
Total liabilities        633,009    656,695 
                
Shareholders’ equity               
Share capital   17    6,289,374    5,785,395 
Reserves        137,807    145,395 
Accumulated other comprehensive loss        (204,914)   (187,197)
Deficit        (4,025,086)   (3,592,787)
Total equity attributable to Aurora shareholders        2,197,181    2,150,806 
Non-controlling interests   13    —      (24,356)
Total equity        2,197,181    2,126,450 
Total liabilities and equity        2,830,190    2,783,145 

 

Nature of Operations (Note 1)

Strategic Investments (Note 5)

Commitments and Contingencies (Note 22)

Subsequent Events (Notes 27)

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

  

  3 

 

AURORA CANNABIS INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

      Three months ended December 31,  Six months ended December 31,
              Restated - Note
2(e) and 11(b)
         Restated - Note
2(e) and 11(b)
 
    Notes    2020    2019    2020    2019 
         $    $    $    $ 
Revenue from sale of goods   23    79,025    62,778    161,092    144,560 
Revenue from provision of services   23    550    1,355    1,149    3,199 
Excise taxes        (11,902)   (8,995)   (26,756)   (18,907)
                          
Net revenue        67,673    55,138    135,485    128,852 
                          
Cost of sales        50,644    36,937    93,938    71,080 
                          
Gross profit before fair value adjustments        17,029    18,201    41,547    57,772 
                          
Changes in fair value of inventory sold        5,942    13,223    9,246    34,528 
Unrealized gain on changes in fair value of biological assets   8    (6,262)   (7,932)   (11,669)   (33,831)
                          
Gross profit        17,349    12,910    43,970    57,075 
                          
Expense                         
General and administration        27,834    58,429    57,123    108,980 
Sales and marketing        14,138    28,872    29,173    50,727 
Acquisition costs        —      2,059    1,104    3,023 
Research and development        2,432    6,775    5,016    12,823 
Depreciation and amortization   10, 14    14,006    20,739    28,080    38,717 
Share-based compensation   18(a)(b)(c)   5,987    19,694    12,848    44,251 
         64,397    136,568    133,344    258,521 
                          
Loss from operations        (47,048)   (123,658)   (89,374)   (201,446)
                          
Other (expense) income                         
Legal settlement and contract termination fees   22(a), (b)(i)    (800)   —      (44,072)   —   
Interest and other income        1,865    1,997    3,132    2,886 
Finance and other costs        (18,872)   (23,833)   (33,563)   (41,709)
Foreign exchange (“FX”) gain (loss)        (527)   (961)   6,900    (3,901)
Other (losses) gains   20    8,065    (168,807)   (2,638)   (41,151)
Restructuring charges        —      —      (210)   —   
Impairment of deposits        (10,266)   —      (10,266)   —   
Impairment of property, plant and equipment   10, 11(a)    (221,643)   (44,897)   (222,302)   (44,897)
Impairment of investment in associates   6    —      (46,226)   —      (46,226)
Impairment of intangible assets and goodwill   14    (395)   (920,926)   (3,777)   (920,926)
         (242,573)   (1,203,653)   (306,796)   (1,095,924)
                          
Loss from operations before taxes and discontinued operations        (289,621)   (1,327,311)   (396,170)   (1,297,370)
                          
Income tax recovery (expense)                         
 Current        118    123    225    4,702 
Deferred, net        (3,285)   25,013    (4,003)   1,730 
         (3,167)   25,136    (3,778)   6,432 
                          
Net loss from continuing operations        (292,788)   (1,302,175)   (399,948)   (1,290,938)
Net loss from discontinued operations, net of tax        —      (9,943)   (2,366)   (13,743)
                          
Net loss        (292,788)   (1,312,118)   (402,314)   (1,304,681)
                          

 

  4 

 

AURORA CANNABIS INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

(Continued)

      Three months ended December 31,  Six months ended December 31,
              Restated - Note
2(e) and 11(b)
         Restated - Note
2(e) and 11(b)
 
    Notes    2020    2019    2020    2019 
         $    $    $    $ 
Other comprehensive (loss) income (“OCI”) that will not be reclassified to net loss                         
Deferred tax recovery        —      1,179    —      3,085 
Unrealized loss on marketable securities   6(a)   (6,744)   (11,481)   (14,100)   (30,555)
         (6,744)   (10,302)   (14,100)   (27,470)
                          
Other comprehensive (loss) income that may be reclassified to net loss                         
Share of income (loss) from investment in associates   7    (15)   69    250    (23)
Foreign currency translation loss        (2,191)   (3,701)   (3,867)   (5,497)
         (2,206)   (3,632)   (3,617)   (5,520)
Total other comprehensive loss        (8,950)   (13,934)   (17,717)   (32,990)
                          
Comprehensive loss from continuing operations        (301,738)   (1,316,138)   (418,203)   (1,323,980)
Comprehensive loss from discontinued operations        —      (9,914)   (1,828)   (13,691)
Comprehensive loss        (301,738)   (1,326,052)   (420,031)   (1,337,671)
                          
Net loss from continuing operations attributable to:                         
Aurora Cannabis Inc.        (292,788)   (1,282,406)   (398,484)   (1,268,783)
Non-controlling interests        —      (19,769)   (1,464)   (22,155)
                          
Net loss from discontinued operations attributable to:                         
Aurora Cannabis Inc.   11(b)   —      (9,943)   (2,366)   (13,743)
Non-controlling interests        —      —      —      —   
                          
Comprehensive loss attributable to:                         
Aurora Cannabis Inc.        (301,738)   (1,306,184)   (419,362)   (1,315,509)
Non-controlling interests        —      (19,868)   (669)   (22,162)
                          
Net loss per share - basic and diluted                         
Continuing operations   19   ($1.74)  ($14.14)  ($2.79)  ($14.43)
Discontinued operations   19   $—     ($0.11)  ($0.02)  ($0.16)
Total operations   19   ($1.74)  ($14.25)  ($2.81)  ($14.59)

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

 

 

 

  5 

 

AURORA CANNABIS INC.

Condensed Consolidated Interim Statements of Changes in Equity

Six months ended December 31, 2020

(Unaudited - Amounts reflected in thousands of Canadian dollars, except share amounts)

 

      Share Capital  Reserves  AOCI         
   Note  Common Shares  Amount  Share-Based
Compensation
  Compensation
Options/
Warrants
  Convertible
Notes
  Change in
Ownership
Interest
  Total
Reserves
  Fair
Value
  Deferred
Tax
  Associate OCI Pick-up  Foreign Currency Translation  Total
AOCI
  Retained
Earnings
(Deficit)
 

Non-

Controlling Interests

  Total
         #    $    $    $    $    $    $    $    $    $    $    $    $    $    $ 
Balance, June 30, 2020        115,228,811    5,785,395    188,803    42,973    419    (86,800)   145,395    (194,637)   18,919    (27)   (11,452)   (187,197)   (3,592,787)   (24,356)   2,126,450 
Shares released for earn out payments   17(b)   2,639,172    35,152    —      (15,792)   —      —      (15,792)   —      —      —      —      —      —      —      19,360 
Shares issued for services        44,094    552    —      —      —      —      —      —      —      —      —      —      —      —      552 
Shares issued through equity financing   17(b)   65,359,118    471,154    —      —      —      —      —      —      —      —      —      —      —      —      471,154 
Equity financing transaction costs        —      (16,948)   —      —      —      —      —      —      —      —      —      —      —      —      (16,948)
Deferred tax on transaction costs        —      3,777    —      —      —      —      —      —      —      —      —      —      —      —      3,777 
Exercise of stock options   18(a)   5,084    30    (11)   —      —      —      (11)   —      —      —      —      —      —      —      19 
Exercise of RSUs and DSUs   18(b)   104,404    4,633    (4,633)   —      —      —      (4,633)   —      —      —      —      —      —      —      —   
Share-based compensation (1)   18    —      —      11,568    1,280    —      —      12,848    —      —      —      —      —      —      —      12,848 
Shares returned to treasury        (50,282)   —      —      —      —      —      —      —      —      —      —      —      —      —      —   
Change in ownership interests in subsidiaries   13    830,287    5,629    —      —      —      —      —      —      —      —      —      —      (31,449)   25,820    —   
Comprehensive income (loss) for the period        —      —      —      —      —      —      —      (14,100)   —      250    (3,867)   (17,717)   (400,850)   (1,464)   (420,031)
Balance, December 31, 2020        184,160,688    6,289,374    195,727    28,461    419    (86,800)   137,807    (208,737)   18,919    223    (15,319)   (204,914)   (4,025,086)   —      2,197,181 
(1)Included in share-based compensation is nil and $1.3 million expense relating to milestone payments for the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - $2.4 million and $8.0 million). Of the total $12.8 million share-based compensation reserve, nil was capitalized to property, plant and equipment for the three and six months ended December 31, 2020 (three and six months ended December 31, 2019 - $0.4 million and $1.1 million).

 

As at December 31, 2020, there were no common shares in held escrow (June 30, 2020 - 50,282 common shares). These securities were originally deposited in escrow on November 30, 2017 in connection with the acquisition of H2 Biopharma Inc. The escrowed common shares were to be released upon receipt of relevant licenses to cultivate and sell cannabis, both of which were obtained, and milestones were met, during the year ended June 30, 2020. During the three and six months ended December 31, 2020, the Company cancelled and returned to treasury 50,282 escrowed common shares remaining (three and six months ended December 31, 2019 - released 9,989 common shares upon achievement of milestones).

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

 

 

  6 

 

AURORA CANNABIS INC.

Condensed Consolidated Interim Statements of Changes in Equity

Six months ended December 31, 2019

(Unaudited - Amounts reflected in thousands of Canadian dollars, except share amounts)

 

   Share Capital (1)  Reserves  AOCI         
   Common Shares  Amount  Share-Based
Compensation
  Compensation
Options/
Warrants
  Convertible Notes  Change in
Ownership
Interest
  Total
Reserves
  Fair
Value
  Deferred
Tax
  Associate OCI Pick-up  Foreign Currency Translation  Total
AOCI
  Retained Earnings 

Non-

Controlling Interests

  Total
    #    $    $    $    $    $    $    $    $    $    $    $    $    $    $ 
Balance, June 30, 2019   84,786,562    4,673,118    143,947    40,495    41,685    (86,800)   139,327    (156,249)   18,295    352    (5,568)   (143,170)   (286,311)   4,410    4,387,374 
Shares issued for earn out payments   27,411    4,075    —      (2,893)   —      —      (2,893)   —      —      —      —      —      —      —      1,182 
Shares issued through equity financing   6,458,991    325,183    —      —      —      —      —      —      —      —      —      —      —      —      325,183 
Equity financing transaction costs   —      (7,101)   —      —      —      —      —      —      —      —      —      —      —      —      (7,101)
Conversion of convertible notes   5,761,260    433,177    —      —      (41,266)   —      (41,266)   —      —      —      —      —      —      —      391,911 
Deferred tax on convertible notes   —      688    —      —      1,888    —      1,888    —      —      —      —      —      —      —      2,576 
Exercise of stock options   78,189    6,092    (3,468)   —      —      —      (3,468)   —      —      —      —      —      —      —      2,624 
Exercise of warrants   986    102    —      (29)   —      —      (29)   —      —      —      —      —      —      —      73 
Exercise of RSUs   18,194    921    (921)   —      —      —      (921)   —      —      —      —      —      —      —      —   
Share-based compensation   —      —      37,840    7,983    —      —      45,823    —      —      —      —      —      —      —      45,823 
Choom marketable securities transferred to
investment in associate
   —      —      —      —      —      —      —      5,225    —      —      —      5,225    (5,225)   —      —   
Change in ownership interests in subsidiaries   217,554    20,363    —      —      —      —      —      —      —      —      —      —      (18,263)   (2,100)   —   
Comprehensive income (loss) for the period   —      —      —      —      —      —      —      (30,555)   3,085    (23)   (5,497)   (32,990)   (1,282,526)   (22,155)   (1,337,671)
Balance, December 31, 2019   97,349,147    5,456,618    177,398    45,556    2,307    (86,800)   138,461    (181,579)   21,380    329    (11,065)   (170,935)   (1,592,325)   (19,845)   3,811,974 
(1)Common share amounts have been adjusted for all prior periods to reflect the Share Consolidation effected on May 11, 2020. Refer to Note 2(a) - Basis of Presentation and Measurement for more information.

 

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

 

 

  7 

 

AURORA CANNABIS INC.

Condensed Consolidated Interim Statements of Cash Flows

Six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars)

 

      Six months ended December 31,
              Restated - Note
2(e) and 11(b)
 
    Notes    2020    2019 
         $    $ 
Operating activities               
Net loss from continuing operations        (399,948)   (1,290,938)
Adjustments for non-cash items:               
Unrealized gain on changes in fair value of biological assets   8    (11,669)   (33,831)
Changes in fair value included in inventory sold        9,246    34,528 
Depreciation of property, plant and equipment   10    28,953    39,858 
Amortization of intangible assets   14    18,374    21,121 
Share-based compensation        12,848    44,251 
Impairment of deposits        10,266    —   
Impairment of property, plant and equipment   10    222,302    44,897 
Impairment of investment in associate   7    —      46,226 
Impairment of intangible assets and goodwill   14    3,777    920,926 
Accrued interest and accretion expense   15, 16    14,475    9,636 
Interest and other income        (191)   —   
Deferred tax expense        3,778    (6,432)
Other losses   20    2,638    41,151 
Foreign exchange (gain) loss        (20,944)   3,900 
Changes in non-cash working capital   21    (63,339)   (95,670)
Net cash used in operating activities from discontinued operations        (3,238)   (9,238)
Net cash used in operating activities        (172,672)   (229,615)
                
Investing activities               
Investment in derivatives        —      (2,000)
Proceeds from disposal of marketable securities   6    6,135    84,770 
Loan receivable        (4,826)   (3,312)
Purchase of property, plant and equipment and intangible assets   10    (29,661)   (233,633)
Disposal of property, plant and equipment        5,844    2,100 
Payment of contingent consideration        —      (1,607)
Deposits        (2,169)   (15,874)
Net cash provided by investing activities from discontinued operations        1,698    8,485 
Net cash used in investing activities        (22,979)   (161,071)
                
Financing activities               
Proceeds from long-term loans        —      64,394 
Repayment of long-term loans        (22,542)   (3,750)
Payments of principal portion of lease liabilities   16(b)   (2,840)   (6,327)
Restricted cash        (50,000)   1,064 
Financing fees        (1,389)   (941)
Shares issued for cash, net of share issue costs        493,438    320,779 
Net cash used in financing activities from discontinued operations        —      (164)
Net cash provided by financing activities        416,667    375,055 
Effect of foreign exchange on cash and cash equivalents        1,191    (762)
Increase (decrease) in cash and cash equivalents        222,207    (16,393)
Cash and cash equivalents, beginning of period        162,179    172,727 
Cash and cash equivalents, end of period        384,386    156,334 

 

Supplemental cash flow information (Note 21)

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

  

  8 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

Note 1     Nature of Operations

 

Aurora Cannabis Inc. (the “Company” or “Aurora”) was incorporated under the Business Corporations Act (British Columbia) on December 21, 2006 as Milk Capital Corp. Effective October 2, 2014, the Company changed its name to Aurora Cannabis Inc. The Company’s shares are listed on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) under the trading symbol “ACB”, and on the Frankfurt Stock Exchange (“FSE”) under the trading symbol “21P”.

 

The Company’s head office and principal address is 4818 31 Street East, Edmonton International Airport, Alberta, Canada, T9E 0V6. The Company’s registered and records office address is Suite 1500 - 1055 West Georgia Street, Vancouver, BC V6E 4N7.

 

The Company’s principal strategic business lines are focused on the production, distribution and sale of cannabis related products in Canada and internationally. Aurora currently conducts the following key business activities in the jurisdictions listed below:

 

Production, distribution and sale of medical and consumer cannabis products in Canada pursuant to the Cannabis Act;
Distribution of wholesale medical cannabis in the European Union (“EU”) pursuant to the German Medicinal Products Act and German Narcotic Drugs Act; and
Distribution and sale of hemp-derived CBD products in the United States (“U.S.”) market.

 

The U.S. represents the largest cannabis and hemp-derived cannabidiol (“CBD”) market globally and as such, Aurora continues to evaluate its alternatives to establishing an operating footprint in the U.S. During the year ended June 30, 2020, the Company acquired Reliva, LLC, a U.S Company based in Massachusetts specialized in the sale of hemp-derived CBD (Note 12) as an entry into this market. As part of the U.S. market strategy, we are considering how various state and federal regulations will affect the Company’s business prospects. The Company is committed to only engage in activities which are permissible under both state and federal laws.

 

During the year ended June 30, 2020, the Company announced a business transformation plan intended to better align the business financially with the current realities of the cannabis market in Canada while maintaining a sustainable platform for long-term growth. These actions include the rationalization of selling, general and administrative expenses through a reduction in corporate and production staff. The Company has also initiated a plan to wind down and close operations at four Canadian facilities including Aurora Prairie, Aurora Mountain, Aurora Vie, and Aurora Eau.

 

Note 2     Significant Accounting Policies and Judgments

 

(a)       Basis of Presentation and Measurement

 

The condensed consolidated interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Accounting Standards 34, “Interim Financial Reporting” (“IAS34”) as issued by the International Accounting Standards Board (“IASB”), and interpretations of the IFRS Interpretations Committee (“IFRIC”). Unless otherwise noted, all amounts are presented in thousands of Canadian dollars, except share and per share data.

 

The condensed consolidated interim financial statements are presented in Canadian dollars and are prepared in accordance with the same accounting policies, critical estimates and methods described in the Company’s annual consolidated financial statements, except for the adoption of new accounting policies and estimates for provisions (Notes 2(d) and 22(b)(v)), government grant (Note 4), impairment of property, plant and equipment (Note 10), impairment testing of cash generating units and goodwill (Note 14), and share purchase warrants (Note 17(c)). Given that certain information and footnote disclosures, which are included in the annual audited consolidated financial statements, have been condensed or excluded in accordance with IAS 34, these financial statements should be read in conjunction with our annual audited consolidated financial statements as at and for the year ended June 30, 2020, including the accompanying notes thereto.

 

For comparative purposes, the Company has reclassified certain immaterial items on the comparative consolidated statement of financial position and the consolidated statement of comprehensive loss to conform with current period’s presentation.

 

On May 11, 2020, the Company completed a one-for-twelve (1:12) 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 1,321,072,394 to 110,089,377. Shares reserved under the Company’s equity and incentive plans were adjusted to reflect the Share Consolidation. All share and per share data presented in the Company’s consolidated financial statements have been adjusted to reflect the Share Consolidation unless otherwise noted.

 

(b)       COVID-19 Estimation Uncertainty

 

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Government measures to limit the spread of COVID-19, including the closure of non-essential businesses, did not materially disrupt the Company’s operations during the six months ended December 31, 2020 and the year ended June 30, 2020. The production and sale of cannabis have been recognized as essential services across Canada and Europe. As of December 31, 2020, we have also not observed any material impairments of our assets or a significant change in the fair value of assets due to the COVID-19 pandemic.

 

Due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on our business, financial position and operating results in the future. In addition, it is possible that estimates in the Company’s financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets including intangibles and goodwill. The Company is closely monitoring the impact of the pandemic on all aspects of its business.

 

 

  9 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

(c)       Basis of Consolidation

 

The condensed consolidated interim financial statements include the financial results of the Company and its subsidiaries. Subsidiaries include entities which are wholly-owned as well as entities over which Aurora has the authority or ability to exert power over the investee’s financial and/or operating decisions (i.e. control), which in turn may affect the Company’s exposure or rights to the variable returns from the investee. The condensed consolidated interim financial statements include the operating results of acquired or disposed entities from the date control is obtained or the date control is lost, respectively. All intercompany balances and transactions are eliminated upon consolidation.

 

The Company’s principal subsidiaries are as follows:

Major subsidiaries Percentage Ownership Functional Currency
1769474 Alberta Ltd. (“1769474”) 100% Canadian Dollar
2105657 Alberta Inc. (“2105657”) 100% Canadian Dollar
Aurora Cannabis Enterprises Inc. (“ACE”) (1) 100% Canadian Dollar
Aurora Deutschland GmbH (“Aurora Deutschland”) 100% European Euro
Aurora Nordic Cannabis A/S (“Aurora Nordic”) 100% Danish Krone
H2 Biopharma Inc. (“H2” or “Aurora Eau”) 100% Canadian Dollar
Peloton Pharmaceuticals Inc. (“Peloton” or “Aurora Vie”) 100% Canadian Dollar
Whistler Medical Marijuana Corporation (“Whistler”) 100% Canadian Dollar
(1)Effective July 1, 2020, ACE amalgamated with MedReleaf Corp. and CanniMed Therapeautics Inc. with ACE being the surviving entity.

 

All shareholdings are of ordinary shares or other equity. Other subsidiaries, while included in the condensed consolidated interim financial statements, are not material and have not been reflected in the table above.

 

(d)       Provision

 

The Company recognizes a provision if there is a present legal or constructive obligation as a result of a past event, it is probable that the Company will be required to settle that obligation, and the obligation can be reliably estimated. The amount recognized as a provision reflects management’s best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.

 

An onerous contract provision is recorded when the Company has a contract under which it is more likely than not that the unavoidable costs of meeting the contractual obligations will be greater than the economic benefits that the Company expects to receive under the contract. An onerous contract provision represents the lesser of the cost of exiting from the contract and the cost of fulfilling it.

 

(e)       Change in Accounting Policy

 

Effective April 1, 2020, the Company elected to change its accounting policy for inventory costing of by-products. The process of growing and harvesting dried cannabis produces trim, which is now considered to be a by-product. Inventories of harvested cannabis, which now excludes trim, are transferred from biological assets to inventory at fair value less costs to sell at the point of harvest, which becomes the deemed cost. Historically, the Company pro-rated this deemed cost of inventory based on the total grams harvested. The Company now measures by-products at their net realizable value at point of harvest and deducts this value from the total deemed cost to derive a net cost for the main product. Additionally, the Company has elected to change its accounting policy with respect to the allocation of production management staff salaries, previously charged to general administrative expense, and now charged to inventory and cost of sales. The Company now allocates and capitalizes a portion of these salaries to inventory as opposed to expensing them directly in general and administrative expenses. The Company believes that the revised policies and presentation provides more accurate and relevant financial information to users of the condensed consolidated interim financial statements.

 

Management has applied the change in accounting policy retrospectively. The following is a summary of the impacts to the statement of comprehensive loss for the three months ended December 31, 2019:

 

 

  10 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

December 31, 2019
As previously reported
  Inventory Adjustments  Discontinued Operations
(Note 11(b))
  December 31, 2019
Restated
Condensed Consolidated Interim Statement of Comprehensive Loss         
Cost of sales   33,214    3,830    (107)   36,937 
Gross profit (loss) before fair value adjustments   22,813    (3,830)   (782)   18,201 
                     
Changes in fair value of inventory sold   22,778    (9,555)   —      13,223 
Unrealized gain on changes in fair value of biological assets   (29,880)   21,948    —      (7,932)
Gross profit (loss)   29,915    (16,223)   (782)   12,910 
                     
General and administration   70,751    (7,879)   (4,443)   58,429 
                     
Income tax (recovery) expense   (24,279)   (2,124)   1,267    (25,136)
                     
Net loss from continuing operations   (1,305,898)   (6,220)   9,943    (1,302,175)
Net loss attributable to Aurora shareholders   (1,286,129)   (6,220)   —      (1,292,349)
Loss per share (basic and diluted) (1)   (14.18)   (0.07)   —      (14.25)
(1)Loss per share (basic and diluted) has been recalculated to reflect the Share Consolidation effected on May 11, 2020. Refer to Note 2(a) - Basis of Presentation and Measurement for more information.

 

The following is a summary of the impacts to the statement of comprehensive loss and the statement of cash flows for the six months ended December 31, 2019:

 

December 31, 2019
As previously reported
  Inventory Adjustments  Discontinued Operations
(Note 11(b))
  December 31, 2019
Restated
Condensed Consolidated Interim Statement of Comprehensive Loss         
Cost of sales   65,953    6,800    (1,673)   71,080 
Gross profit (loss) before fair value adjustments   65,319    (6,800)   (747)   57,772 
                     
Changes in fair value of inventory sold   41,312    (6,784)   —      34,528 
Unrealized gain on changes in fair value of biological assets   (59,616)   25,785    —      (33,831)
Gross profit (loss)   83,623    (25,801)   (747)   57,075 
                     
General and administration   129,872    (13,523)   (7,369)   108,980 
                     
Income tax (recovery) expense   (5,038)   (3,125)   1,731    (6,432)
                     
Net loss from continuing operations   (1,295,528)   (9,153)   13,743    (1,290,938)
Net loss attributable to Aurora shareholders   (1,273,373)   (9,153)   —      (1,282,526)
Loss per share (basic and diluted) (1)   (14.48)   (0.11)   —      (14.59)
(1)Loss per share (basic and diluted) has been recalculated to reflect the Share Consolidation effected on May 11, 2020. Refer to Note 2(a) - Basis of Presentation and Measurement for more information.

 

December 31, 2019
As previously reported
  Inventory Adjustments  Discontinued Operations
(Note 11(b))
  December 31, 2019
Restated
Condensed Consolidated Interim Statement of Cash Flows         
Unrealized gain on changes in fair value of biological assets   (59,616)   25,785    —      (33,831)
Changes in fair value of inventory sold   41,312    (6,784)   —      34,528 
Income tax expense   (5,038)   (3,125)   1,731    (6,432)
Changes in non-cash working capital   (91,369)   (6,723)   2,422    (95,670)
Net cash used in operating activities   (229,615)   —      —      (229,615)

 

 

  11 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

(f)    Adoption of New Accounting Pronouncements

 

Amendments to IFRS 3: Definition of a Business

 

In October 2018, the IASB issued “Definition of a Business (Amendments to IFRS 3)”. The amendments clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendment provides an assessment framework to determine when a series of integrated activities is not a business. The amendments are effective for business combinations occurring on or after the beginning of the first annual reporting period beginning on or after January 1, 2020. The Company adopted the Amendments to IFRS 3 effective July 1, 2020 with no impact to the Company’s condensed consolidated interim financial statements.

 

Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform

 

The amendments revise the existing requirements for hedge accounting and are designed to support the provision of useful financial information by companies during the period of uncertainty arising from the phasing out of interest-rate benchmarks such as Interbank Offered Rates (“IBOR”). The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The amendments are effective for annual periods beginning on or after January 1, 2020, with earlier application permitted. The Company adopted the Amendments to IFRS 9, IAS 39 and IFRS 7 effective July 1, 2020 with no impact to the Company’s condensed consolidated interim financial statements.

 

(g)       New Accounting Pronouncements

 

The following IFRS standards have been recently issued by the IASB. Pronouncements that are irrelevant or not expected to have a significant impact have been excluded.

 

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

 

The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2022. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.

 

Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract

 

The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.

 

Note 3     Accounts Receivable

   Notes  December 31, 2020  June 30, 2020
         $    $ 
Trade receivables   26(a)   44,390    45,199 
Sales taxes receivable        3,476    5,912 
Consideration receivable from divestiture   11(b)   2,022    —   
Government grant receivable   4    23,678    —   
Other receivables (1)        2,954    2,999 
         76,520    54,110 
(1)Includes interest receivable from the secured convertible debenture held in Choom Holdings Inc. and High Tide (Note 5(e) and 5(c)).

 

 

Note 4     Government Grant

 

Accounting Policy

 

The Company recognizes government grants when there is reasonable assurance that it will comply with the conditions required to qualify for the grant, and that the grant will be received. Government grants related to income are recognized as other (losses) gains in the statement of comprehensive loss while government grants related to assets, including non-monetary grants at fair value, are recognized as a reduction to the related asset’s carrying amount.

 

 

  12 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) program. CEWS provides a wage subsidy on eligible remuneration, subject to limits per employee, to eligible employers based on certain criteria, including the demonstration of revenue declines. The Company has determined that it has qualified for this subsidy and has applied for CEWS. For the three and six months ended December 31, 2020, the Company has recognized $23.7 million in government grant income within other (losses) gains in the statement of comprehensive loss.

 

Note 5     Strategic Investments

 

(a)Cann Group Limited (“Cann Group”)

 

Cann Group is a public company listed on the Australian Stock Exchange and is licensed in Australia for research and cultivation of medical cannabis for human use.

 

As of June 30, 2020, the Company held an aggregate of 31,956,347 shares in Cann Group. On July 23, 2020, the Company no longer held significant influence over Cann Group, as the Company’s percentage ownership interest was diluted to approximately 18% (June 30, 2020 - 22.4%). As a result, the $17.0 million carrying value of the Company’s equity investment was derecognized from investment in associates (Note 7) and reclassified to marketable securities (Note 6(a)) at its fair value of $15.5 million, calculated based on the July 23, 2020 quoted market price of A$0.51. This resulted in the recognition of a nil and $1.4 million loss on the deemed disposal of the investment in associate during the three and six months ended December 31, 2020, respectively (Note 20).

 

On October 9, 2020, the Company sold all of its 31,956,347 common shares held in Cann Group at A$0.20 per share for net proceeds of $5.9 million. The fair value of the Cann Group shares on October 9, 2020 was $6.0 million, which resulted in a cumulative loss of $6.8 million and $9.5 million recognized through OCI during the three and six months ended December 31, 2020.

 

(b)Capcium Inc. (“Capcium”)

 

Capcium is a Montreal-based private company which is in the business of manufacturing soft-gels.

 

During the six months ended December 31, 2020, the Company subscribed to 1,851,086 Series B preferred shares in Capcium for $1.9 million. In the event of a Liquidity Event, which is the occurrence of a merger or consolidation and a sale, lease, transfer, exclusive license or other disposal of all or substantially all of the assets of Capcium, Series B preferred shareholders shall receive a cash payment equal to twice the initial investment and the Series B preferred shares shall automatically convert into a number of common stock based on the fair market value at that time. In the event of an IPO Liquidity Event, which is the occurrence of either a public offering or a reverse take-over, the Series B preferred shares shall automatically convert into a number of common stock based on the fair market value at that time. In conjunction with the Company’s investment, the parties amended an existing manufacturing agreement to reduce the Company’s annual minimum purchase commitment by 20.0 million capsules (Note 22(b)(ii)). As at December 31, 2020, the Series B preferred shares had a nominal fair value resulting in an unrealized loss of nil and $1.9 million for the three and six months ended December 31, 2020, respectively.

 

During the six months ended December 31, 2020, the Company converted its existing convertible debentures with a principal investment of $5.4 million and a fair value of nil (June 30, 2020 - nil), into 5,371,300 Series A preferred shares. The Series A preferred shares accrue an annual per share dividend of 8% and rank subordinate to the Series B preferred shares. In the event of a Liquidity Event, the Series A preferred shares shall automatically convert into a number of common stock equal to fifteen percent of the issued and outstanding common stock on a fully diluted basis. As at December 31, 2020, the Series A preferred shares had a nominal fair value resulting in an unrealized loss of nil for the three and six months ended December 31, 2020.

 

(c)High Tide Inc. (“High Tide”)

 

High Tide is an Alberta based, retail focused cannabis and lifestyle accessories company.

 

On July 23, 2020, the Company entered into an amended restated secured convertible debenture (the “July 2020 Debenture”) agreement for its $10.8 million unsecured convertible debentures originally bearing an interest rate of 8.5% per annum, convertible into common shares of High Tide at $0.75 per share at the option of the Company at any time after June 12, 2019 and maturing on December 12, 2020 (the “December 2018 Debentures”). Under the terms of the amendment, the July 2020 Debenture is secured against the assets and properties of High Tide, bear no interest, are convertible into common shares of High Tide at $0.425 per share at the option of the Company at any time, and mature on January 1, 2025. The Company has also entered into a debt restructuring agreement whereby High Tide will pay a 0.5% royalty payment on all non-Aurora product revenue generated by High Tide beginning November 1, 2021, with an automatic increase of an additional 0.5% each subsequent year. Payments under the July 2020 Debentures can be offset against other obligations between Aurora and High Tide. The conversion of the July 2020 Debenture is subject to Aurora holding no more than a 25% ownership interest in High Tide in accordance with the ownership restriction applicable to licensed producers under the Cannabis Retail Regulations in Ontario.

 

As of December 31, 2020, the convertible debentures had a fair value of $13.7 million (June 30, 2020 - $12.7 million) resulting in an unrealized gain of $2.5 million and $1.2 million for the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - $0.0 million and $0.6 million). The fair value of the convertible debentures were estimated using the FINCAD model based on the following weighted average assumptions: share price of $0.25 (June 30, 2020 - $0.16); dividend yield of 0% (June 30, 2020 - 0%); stock price volatility of 96.2% (June 30, 2020 - 106.0%); credit spread of 11.9% (June 30, 2020 - 12.3%); and an expected life of 3.25 years (June 30, 2020 - 0.63 years).

 

 

  13 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

(d)Australis Capital Inc. (“ACI”)

 

ACI is a public company that is focused on investments and acquisitions in the cannabis space and more specifically, investment in the growing U.S. cannabis market. ACI was previously wholly-owned by Aurora and was spun-out to Aurora shareholders on September 19, 2018. As of December 31, 2020, the Company holds the following restricted back-in right warrants:

 

(a)22,628,751 warrants exercisable at $0.20 per share expiring September 19, 2028; and
(b)The number of warrants equal to 20% of the number of common shares issued and outstanding in ACI as of the date of exercise. The warrants are exercisable at the five-day volume weighted average trading price (“VWAP”) of ACI’s shares and have an expiration date of September 19, 2028.

 

Aurora is restricted from exercising the back-in right warrants unless all of ACI’s business operations in the U.S. are permitted under applicable U.S. federal and state laws and Aurora has received consent of the TSX and any other stock exchange on which Aurora may be listed, as required. As of December 31, 2020, the warrants remain un-exercisable.

 

As of December 31, 2020, the warrants had a fair value of $2.9 million (June 30, 2020 - $3.2 million) estimated using the Binomial model with the following assumptions: share price of $0.17 (June 30, 2020 - $0.22); risk-free interest rate of 1.05% (June 30, 2020 - 0.93%); dividend yield of 0% (June 30, 2020 - 0%); stock price volatility of 113.92% (June 30, 2020 - 116.01%); an expected life of 7.72 years (June 30, 2020 - 8.23 years); and adjusted for a probability factor of legalization of cannabis in the U.S. under federal and certain state laws. As a result, the Company recognized a $1.3 million unrealized gain and a $0.3 million unrealized loss on fair value during the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - $2.8 million and $4.7 million) (Note 6(b)).

 

(e)Choom Holdings Inc. (“Choom”)

 

Choom is an emerging consumer cannabis company that is developing retail networks across Canada. Choom is publicly listed on the Canadian Securities Exchange.

 

(i)Common Shares and Investment in Associate

 

As of December 31, 2020, the Company held an aggregate of 9,859,155 common shares in Choom (June 30, 2020 - 9,859,155) representing a 3.4% (June 30, 2020 - 4.4%) ownership interest with a fair value of $0.7 million (June 30, 2020 - $1.4 million) based on the closing stock price of $0.07 (June 30, 2020 - $0.14).

 

(ii)Convertible Debenture

 

As of December 31, 2020, the secured convertible debenture had a fair value of $15.9 million (June 30, 2020 - $20.5 million) resulting in an unrealized loss of $0.2 million and $4.6 million for the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - $0.2 million and $0.8 million) (Note 6(b)). The fair value of the convertible debenture was estimated using the FINCAD model based on the following assumptions: share price of $0.07 (June 30, 2020 - $0.14); credit spread of 20.33% (June 30, 2020 - 8.58%); dividend yield of 0% (June 30, 2020 - 0%); stock price volatility of 99.41% (June 30, 2020 - 121.88%); and an expected life of 1.84 years (June 30, 2020 - 2.34 years).

 

(iii)Share Purchase Warrants

 

On November 2, 2020, the Company’s 96,464,248 share purchase warrants in Choom with a fair value of nil (June 30, 2020 - nil) expired unexercised.

 

 

  14 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

Note 6     Marketable Securities and Derivatives

 

(a)Marketable securities

 

At December 31, 2020, the Company held the following marketable securities:

Financial asset hierarchy level  Level 1  Level 1  Level 3  Level 3   
Marketable securities designated at fair value through other comprehensive income (“FVTOCI”)  Radient 

Cann Group

Note 5(a)

 

Capcium

Note 5(b)

  Other immaterial investments  Total
    $    $    $    $    $ 
Balance, June 30, 2020   6,021    —      —      1,045    7,066 
Additions (disposals)   —      (6,013)   1,851    (61)   (4,223)
Transfer from investment in associates   —      15,525    —      —      15,525 
Unrealized (loss) gain on changes in fair value   (2,823)   (9,512)   (1,851)   86    (14,100)
Balance, December 31, 2020   3,198    —      —      1,070    4,268 
                          
Unrealized (loss) gain on marketable securities                         
Three months ended December 31, 2020                         
OCI unrealized (loss) gain   —      (6,769)   —      25    (6,744)
                          
Three months ended December 31, 2019                         
OCI unrealized loss   (8,093)   —          (3,388)   (11,481)
                          
Six months ended December 31, 2020                         
OCI unrealized (loss) gain   (2,823)   (9,512)   (1,851)   86    (14,100)
                          
Six months ended December 31, 2019                         
OCI unrealized loss   (14,869)   —      —      (15,686)   (30,555)

 

 

  15 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

  

(b)Derivatives

 

At December 31, 2020, the Company held the following derivative investments:

Financial asset hierarchy level  Level 2  Level 2  Level 2  Level 3  Level 2  Level 2   
Derivatives and convertible debentures at fair value through profit or loss (“FVTPL”)  TGOD 

ACI

Note 5(d)

 

Choom

Note 5(e)

  Investee-B 

High Tide

Note 5(c)

  Other immaterial investments  Total
    $    $    $    $    $    $    $ 
Balance, June 30, 2020   1,132    3,178    20,499    16,102    12,660    11    53,582 
Repayment   —      —      —      —      (236)   —      (236)
Unrealized (loss) gain on changes in fair value   (751)   (294)   (4,626)   (177)   1,240    (11)   (4,619)
Foreign exchange   —      —      —      (987)   —      —      (987)
Balance, December 31, 2020   381    2,884    15,873    14,938    13,664    —      47,740 
Current portion   (381)   —      —      —      —      —      (381)
Long-term portion   —      2,884    15,873    14,938    13,664    —      47,359 
                                    
Unrealized (loss) gain on derivatives                                   
Three months ended December 31, 2020                                   
Foreign exchange   —      —      —      (683)   —      —      (683)
Unrealized (loss) gain on changes in fair value   (84)   1,253    (165)   37    2,456    —      3,497 
    (84)   1,253    (165)   (646)   2,456    —      2,814 
                                    
Three months ended December 31, 2019                                   
Foreign exchange   —      —      —      24    —      —      24 
Inception gains amortized   —      —      —      —      —      324    324 
Unrealized (loss) gain on changes in fair value   (10,175)   (2,759)   (210)   (44)   634    (7,907)   (20,461)
    (10,175)   (2,759)   (210)   (20)   634    (7,583)   (20,113)
                                    
Six months ended December 31, 2020                                   
Foreign exchange   —      —      —      (987)   —      —      (987)
Unrealized (loss) gain on changes in fair value   (751)   (294)   (4,626)   (177)   1,240    (11)   (4,619)
    (751)   (294)   (4,626)   (1,164)   1,240    (11)   (5,606)
                                    
Six months ended December 31, 2019                                   
Foreign exchange   —      —      —      24    —      —      24 
Inception gains amortized   —      —      —      —      —      709    709 
Unrealized (loss) gain on changes in fair value   (22,112)   (4,742)   (847)   126    640    (8,029)   (34,964)
    (22,112)   (4,742)   (847)   150    640    (7,320)   (34,231)

 

 

  16 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

Note 7     Investments in Associates and Joint Ventures

 

The carrying value of investments in associates and joint ventures consist of:

   Cann Group  CTT Pharmaceutical  Choom 
   Note 5(a)  Holdings Inc.  Note 5(e)  Total
    $    $    $    $ 
Balance, June 30, 2020   16,917    381    816    18,114 
Share of net loss(1)   (226)   (33)   (231)   (490)
Disposition / reclassification   (16,968)   —      —      (16,968)
OCI FX and share of OCI income (loss)   277    (27)   —      250 
Balance, December 31, 2020   —      321    585    906 
(1)Represents an estimate of the Company’s share of net loss based on the latest available information of each investee.

 

Note 8     Biological Assets

 

The following inputs and assumptions are all categorized within Level 3 on the fair value hierarchy and were used in determining the fair value of biological assets:

Inputs and assumptions Description Correlation between inputs and fair value
Average selling price per gram Represents the average selling price per gram of dried cannabis net of excise taxes, where applicable, for the period for all strains of cannabis sold, which is expected to approximate future selling prices. If the average selling price per gram were higher (lower), estimated fair value would increase (decrease).
Average attrition rate Represents the weighted average number of plants culled at each stage of production. If the average attrition rate was lower (higher), estimated fair value would increase (decrease).
Weighted average yield per plant Represents the weighted average number of grams of dried cannabis inventory expected to be harvested from each cannabis plant. If the weighted average yield per plant was higher (lower), estimated fair value would increase (decrease).
Standard cost per gram to complete production Based on actual production costs incurred divided by the grams produced in the period. If the standard cost per gram to complete production was lower (higher), estimated fair value would increase (decrease).
Stage of completion in the production process Calculated by taking the weighted average number of days in production over a total average grow cycle of approximately twelve weeks. If the number of days in production was higher (lower), estimated fair value would increase (decrease).

 

The following table highlights the sensitivities and impact of changes in significant assumptions on the fair value of biological assets:

    Range of inputs      Impact on fair value
Significant inputs & assumptions    December 31,
2020
 

 

June 30,

2020

  Sensitivity    December 31,
2020
 

 

June 30,

2020

Average selling price per gram  $5.50   $4.78   Increase or decrease of $1.00 per gram  $6,346   $14,070 
Weighted average yield (grams per plant)   40.65    52.73   Increase or decrease by 5 grams per plant  $2,121   $3,756 
Standard cost per gram to complete production  $2.21   $1.73   Increase or decrease of $1.00 per gram  $8,012   $19,318

 

 

 

The Company’s estimates are, by their nature, subject to change, and differences from the anticipated yield will be reflected in the gain or loss on biological assets in future periods.

 

The changes in the carrying value of biological assets during the period are as follows:

  $  
Balance, June 30, 2020 35,435   
Production costs capitalized 30,240   
Changes in fair value less cost to sell due to biological transformation 11,669   
Transferred to inventory upon harvest (59,941)  
Balance, December 31, 2020 17,403   

 

As of December 31, 2020, the weighted average fair value less cost to complete and cost to sell a gram of dried cannabis was $2.18 per gram (June 30, 2020 - $1.88 per gram).

 

During the three and six months ended December 31, 2020, the Company’s biological assets produced 33,685 kilograms and 80,559 kilograms of dried cannabis, respectively (three and six months ended December 31, 2019 - 30,691 kilograms and 72,127 kilograms). As at December 31, 2020, it is expected that the Company’s biological assets will yield approximately 15,280 kilograms (June 30, 2020 - 41,653 kilograms) of cannabis when harvested. As of December 31, 2020, the weighted average stage of growth for the biological assets was 52% (June 30, 2020 - 48%).

 

 

  17 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Note 9     Inventory

 

The following is a breakdown of inventory:

   December 31, 2020  June 30, 2020
   Capitalized
cost
  Fair value
adjustment
  Carrying
value
  Capitalized
cost
  Fair value
adjustment
  Carrying
value
    $    $    $    $    $    $ 
Harvested cannabis                              
Work-in-process   71,531    23,316    94,847    29,737    16,708    46,445 
Finished goods   16,205    2,238    18,443    11,826    1,735    13,561 
    87,736    25,554    113,290    41,563    18,443    60,006 
Extracted cannabis                              
Work-in-process   24,838    5,507    30,345    21,608    4,995    26,603 
Finished goods   16,998    1,466    18,464    15,758    1,396    17,154 
    41,836    6,973    48,809    37,366    6,391    43,757 
Hemp products                              
Raw materials   794    —      794    929    —      929 
Work-in-process   —      —      —      235    —      235 
Finished goods   —      —      —      107    —      107 
    794    —      794    1,271    —      1,271 
                               
Supplies and consumables   19,306    —      19,306    16,125    —      16,125 
                               
Merchandise and accessories   1,213    —      1,213    668    —      668 
                               
Ending balance   150,885    32,527    183,412    96,993    24,834    121,827 

 

During the three and six months ended December 31, 2020, inventory expensed to cost of goods sold was $56.6 million and $103.2 million, respectively (three and six months ended December 31, 2019 - $50.2 million and $105.6 million), which included $5.9 million and $9.2 million, respectively (three and six months ended December 31, 2019 - $13.2 million and $34.5 million) of non-cash expense related to the changes in fair value of inventory sold, and $0.7 million inventory impairment charges for the three and six months ended December 31, 2020 (three and six months ended December 31, 2019 - nil).

 

 

  18 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Note 10     Property, Plant and Equipment

 

The following summarizes the carrying values of property, plant and equipment for the periods reflected:

   December 31, 2020  June 30, 2020
   Cost  Accumulated depreciation  Impairment  Net book value  Cost  Accumulated depreciation  Impairment  Net book value
Owned assets                                        
Land   31,744    —      (2,341)   29,403    31,485    —      (893)   30,592 
Real estate   414,405    (66,017)   —      348,388    515,264    (51,867)   (82,721)   380,676 
Construction in progress   361,249    —      (215,796)   145,453    349,274    —      (37,741)   311,533 
Computer software & equipment   32,103    (18,373)   (552)   13,178    30,947    (12,687)   (108)   18,152 
Furniture & fixtures   12,196    (4,593)   (12)   7,591    9,888    (3,635)   (139)   6,114 
Production & other equipment   162,366    (66,071)   (2,314)   93,981    187,512    (46,856)   (24,216)   116,440 
Total owned assets   1,014,063    (155,054)   (221,015)   637,994    1,124,370    (115,045)   (145,818)   863,507 
                                         
Right-of-use lease assets                                        
Land   27,850    (1,210)   —      26,640    27,862    (787)   —      27,075 
Real estate   56,425    (10,330)   —      46,095    63,548    (7,729)   (2,416)   53,403 
Production & other equipment   4,584    (3,123)   —      1,461    5,591    (3,196)   —      2,395 
Total right-of-use lease assets   88,859    (14,663)   —      74,196    97,001    (11,712)   (2,416)   82,873 
                                         
Total property, plant and equipment   1,102,922    (169,717)   (221,015)   712,190    1,221,371    (126,757)   (148,234)   946,380 

 

The following summarizes the changes in the net book values of property, plant and equipment for the periods presented:

   Balance, June 30, 2020  Additions  Disposals  Other (1)(2)  Depreciation  Impairment  Foreign currency translation  Balance, December 31, 2020
Owned assets                                        
Land   30,592    112    —      1,122    —      (2,341)   (82)   29,403 
Real estate   380,676    —      (12)   (20,592)   (11,986)   —      302    348,388 
Construction in progress   311,533    28,171    (52)   21,142    —      (215,796)   455    145,453 
Computer software & equipment   18,152    356    —      (339)   (4,440)   (552)   1    13,178 
Furniture & fixtures   6,114    143    (228)   2,524    (957)   (12)   7    7,591 
Production & other equipment   116,440    182    (98)   (7,069)   (12,941)   (2,314)   (219)   93,981 
Total owned assets   863,507    28,964    (390)   (3,212)   (30,324)   (221,015)   464    637,994 
                                         
Right-of-use leased assets                                        
Land   27,075    —      —      —      (425)   —      (10)   26,640 
Real estate   53,403    1,917    (5,182)   (532)   (3,411)   —      (100)   46,095 
Production & other equipment   2,395    —      (261)   (106)   (590)   —      23    1,461 
Total right-of-use lease assets   82,873    1,917    (5,443)   (638)   (4,426)   —      (87)   74,196 
Total property, plant and equipment   946,380    30,881    (5,833)   (3,850)   (34,750)   (221,015)   377    712,190 
(1)Includes reclassification of construction in progress cost when associated projects are complete. Includes the $3.2 million transfer of the Colombia land to assets held for sale as at December 31, 2020 (Note 11).
(2)During the six months ended December 31, 2020, the Company recorded a non-material correction to re-classify $1.4 million of net book value into land, $25.1 million of net book value out of real estate, $30.2 million of net book value into construction in progress, $2.5 million of net book value into fixtures & furniture, and $9.0 million of net book value out of production & other equipment.

 

During the three and six months ended December 31, 2020, nil and $2.1 million in borrowing costs were capitalized, respectively (three and six months ended December 31, 2019 - $4.8 million and $13.8 million), to construction in progress at a weighted average interest rate of 13% (three and six months ended December 31, 2019 - 18% and 16%).

 

As of December 31, 2020, $74.0 million (June 30, 2020 - $216.0 million) of property, plant and equipment were temporarily idle as the Company continues to evaluate all capital projects and investments to prioritize core cannabis operations. Of the $74.0 million idle property, plant, and equipment, $36.6 million relates to the Aurora Sun facility, $33.0 million relates to the planned closure of our facilities as part of the business transformation plan, $4.3 million relates to the Nordic Sky Facility (June 30, 2020 - $212.1 million, nil, and $3.9 million, respectively).

 

 

  19 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Depreciation relating to manufacturing equipment and production facilities for owned and right-of-use lease assets is capitalized into biological assets and inventory, and is expensed to cost of sales upon the sale of goods. During the three and six months ended December 31, 2020, the Company recognized $16.9 million and $34.8 million of depreciation expense, respectively (three and six months ended December 31, 2019 - $21.3 million and $40.2 million), of which $10.9 million and $19.2 million was reflected in cost of sales, respectively (three and six months ended December 31, 2019 - $6.0 million and $11.8 million).

 

Asset Specific Impairments

 

During the six months ended December 31, 2020, the Company initiated a plan to consolidate the operations in Europe with corporate office closures in Portugal, Spain and Italy. As a result, the Company recognized a $0.7 million impairment loss relating to certain European property, plant and equipment.

 

During the six months ended December 31, 2020, the Company halted construction at the Aurora Sun facility which is an indicator of impairment. The fair value of the Aurora Sun facility was determined based on a third-party appraisal using a fair value less cost of disposal (“FVLCD”) approach including market and cost approaches in the context of an orderly liquidation process. Consideration is given to information from manufacturers, historical data and industry standards which constitute both observable and unobservable inputs (level 2 and level 3). As a result, the Company recognized a $220.8 million impairment loss for Aurora Sun for the three and six months ended December 31, 2020. The Aurora Sun facility, and the corresponding impairment loss, is allocated to the cannabis operating segment (Note 24).

 

Note 11     Assets Held for Sale and Discontinued Operations

 

(a)       Assets Held for Sale

 

   Jamaica Property  Uruguay Properties  Colombia Property  Total
    $    $    $    $ 
Balance, June 30, 2020   4,173    2,021    —      6,194 
Transferred from property, plant and equipment   —      —      3,212    3,212 
Impairment   —      —      (1,287)   (1,287)
Foreign exchange   —      (101)   —      (101)
Net proceeds from disposal   (4,006)   (1,448)   —      (5,454)
Loss on disposal (1)   (167)   (472)   —      (639)
Balance, December 31, 2020   —      —      1,925    1,925 

(1) The loss on disposal is recognized in other (losses) gains (Note 20) in the statement of comprehensive income.

 

Colombia Property

 

In connection with the Company’s business transformation plan, during the six months ended December 31, 2020, the Company listed for sale its Colombian land which had a carrying value of $3.2 million. The fair value of the land was estimated using a market approach resulting in a FVLCD of $1.9 million. As a result, the Company recognized an impairment loss of $1.3 million for the three and six months ended December 31, 2020 (three and six months ended December 31, 2019 - nil). The impairment loss was included in impairment of property, plant and equipment in the statement of comprehensive income.

 

(b)Discontinued Operations

 

Sale of Aurora Hemp Europe (“AHE”)

 

On July 23, 2020, the Company divested its wholly owned Lithuanian subsidiary, AHE, to the subsidiary’s President and former owner. Aurora Hemp Europe provided hemp seed contracting and processing. The sale was a result of hemp-based consumer packaged goods no longer aligning with the Company’s strategy to focus on core cannabis operations. AHE was sold for gross consideration of $3.0 million which shall be paid in 12 equal quarterly installments beginning on June 30, 2022. The $1.9 million fair value of the consideration receivable on the disposal date (Note 3) was determined by the present value of principal and interest payments, discounted at a rate of 15% which represents managements best estimate of the rate that a similar interest bearing loan receivable with similar terms and risk would earn. As a result of the divestiture, the Company recognized a nil and $1.9 million loss on disposal during the three and six months ended December 31, 2020.

 

Sale of Aurora Larssen Projects Inc. (“ALPS”)

 

On May 11, 2020, the Company divested its wholly owned subsidiary, ALPS, back to the subsidiary’s former founding owner. This disposal is consistent with the Company’s long-term strategy to streamline operations and improve profitability. As ALPS represented a separate line of business of the Company, the revenue, expenses and cash flows related to ALPS’ operations have been presented in these consolidated financial statements as discontinued operations on a retroactive basis. ALPS was sold for a nominal amount and the Company recognized a $2.8 million loss on disposal during the year ended June 30, 2020.

 

 

  20 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

The following table summarizes Company's consolidated discontinued operations for the three and six months ended December 31, 2020 and 2019:

 

   Three and six months ended
December 31, 2020
 

Three months ended

December 31, 2019

 

Six months ended

December 31, 2019

Revenue   498    889    2,420 
                
Cost of sales   544    107    1,673 
General and administration expenses   470    4,443    7,369 
Sales and marketing   16    259    415 
Other expenses (income)   (34)   7,290    8,437 
Loss on disposal of discontinued operations   1,868    —      —   
Net loss from discontinued operations, before taxes   (2,366)   (11,210)   (15,474)
Income tax recovery   —      1,267    1,731 
Net loss from discontinued operations, net of taxes   (2,366)   (9,943)   (13,743)

 

Note 12     Business Combinations

 

Reliva LLC (“Reliva”)

 

On May 28, 2020, the Company acquired Reliva, a U.S. company based in Massachusetts specialized in the sale of hemp-derived CBD products. The acquisition marked the Company’s entry into the U.S. CBD market.

 

The Company acquired all of the issued and outstanding shares of Reliva for aggregate consideration of $52.5 million comprised of 2,480,810 Aurora common shares at a price of US$15.34 per share with a fair value of $52.4 million (US$38.1 million) and $0.1 million held in escrow. In addition, the Company agreed to US$45.0 million in gross consideration to be paid out contingent upon Reliva achieving certain Earnings Before Interest, Depreciation and Amortization (“EBITDA”) targets over the twelve months ending December 31, 2020 and December 31, 2021. The contingent consideration is payable in Aurora common shares, cash, or any combination thereof at Aurora’s sole discretion. The December 31, 2020 EBITDA target was not met and no consideration was paid for this milestone.

 

During the six months ended December 31, 2020, management finalized the purchase price allocation of Reliva based on the Company’s estimated fair value of the identifiable assets acquired and the liabilities assumed on the acquisition date. As required by IFRS, the preliminary acquisition date values were retrospectively adjusted to reflect the changes effective as of the acquisition date, as follows:

 

   Provisional allocation at acquisition  Adjustments  Final
    $    $    $ 
Consideration paid   53,068    (550)   52,518 
Goodwill   38,178    (550)   37,628 

 

Note 13     Non-Controlling Interests (“NCI”)

 

Aurora Nordic is a company located in Odense, Denmark, which is in the business of cultivation, production, distribution and sale of medical cannabis. On September 25, 2020, the Company issued 830,287 shares for the acquisition of the remaining 49% of common shares in Aurora Nordic not previously owned by Aurora. As Aurora previously controlled Aurora Nordic with a 51% ownership interest, the transaction resulted in a change to Aurora’s ownership interest and was accounted for as an equity transaction. The $31.4 million difference between the deficit of $25.8 million attributable to NCI and the $5.6 million fair value of consideration paid was recognized directly in deficit.

 

 

  21 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Note 14     Intangible Assets and Goodwill

 

The following is a continuity schedule of intangible assets and goodwill:

   December 31, 2020  June 30, 2020
   Cost  Accumulated amortization  Impairment  Net book value  Cost  Accumulated amortization  Impairment  Net book value
Definite life intangible assets:                                        
Customer relationships   96,885    (33,077)   —      63,808    104,807    (29,209)   (4,203)   71,395 
Permits and licenses   108,947    (31,378)   —      77,569    216,220    (29,260)   (105,345)   81,615 
Patents   1,895    (568)   —      1,327    1,895    (477)   —      1,418 
Intellectual property and know-how   78,098    (31,467)   —      46,631    82,500    (25,308)   (4,401)   52,791 
Software   38,808    (6,153)   (3,777)   28,878    35,137    (3,472)   —      31,665 
Indefinite life intangible assets:                                        
Brand   146,699    —      —      146,699    148,399    —      (1,700)   146,699 
Permits and licenses   27,267    —      —      27,267    170,098    —      (143,414)   26,684 
Total intangible assets   498,599    (102,643)   (3,777)   392,179    759,056    (87,726)   (259,063)   412,267 
Goodwill   923,365    —      —      923,365    3,212,963    —      (2,285,081)   927,882 
Total   1,421,964    (102,643)   (3,777)   1,315,544    3,972,019    (87,726)   (2,544,144)   1,340,149 

 

The following summarizes the changes in the net book value of intangible assets and goodwill for the periods presented:

   Balance, June 30, 2020  Additions  Disposals  Amortization  Impairment  Foreign currency translation  Balance, December 31, 2020
Definite life intangible assets:                                   
Customer relationships   71,395    —      —      (6,990)   —      (597)   63,808 
Permits and licenses   81,615    —      (1,594)   (2,452)   —      —      77,569 
Patents   1,418    —      —      (91)   —      —      1,327 
Intellectual property and know-how   52,791    —      —      (6,160)   —      —      46,631 
Software   31,665    3,671    —      (2,681)   (3,777)   —      28,878 
Indefinite life intangible assets:                                 —   
Brand   146,699    —      —      —      —      —      146,699 
Permits and licenses (1)   26,684    —      —      —      —      583    27,267 
Total intangible assets   412,267    3,671    (1,594)   (18,374)   (3,777)   (14)   392,179 
Goodwill (2)   927,882    —      —      —      —      (4,517)   923,365 
Total   1,340,149    3,671    (1,594)   (18,374)   (3,777)   (4,531)   1,315,544 
(1)Indefinite life permits and licenses are predominantly held by the Company’s foreign subsidiaries. Given that these permits and licenses are connected to the subsidiary rather than a specific asset, there is no foreseeable limit to the period over which these assets are expected to generate future cash inflows for the Company.
(2)In accordance with IFRS 3 - Business Combinations, acquisition date fair values assigned to goodwill have been adjusted, within the applicable measurement period, where new information is obtained about facts and circumstances that existed at the acquisition date (Note 12).

 

As at December 31, 2020, all of the $174.0 million indefinite life intangibles (June 30, 2020 - $173.4 million) are allocated to the group of cash generating units (“CGUs”) that comprise the cannabis segment. As at December 31, 2020, $888.7 million (June 30, 2020 - $890.4 million) of goodwill was allocated to the cannabis operating segment and $34.7 million (June 30, 2020 - $37.5 million) was allocated to the U.S. CBD CGU.

 

Asset Specific Impairments

 

During the six months ended December 31, 2020, the Company identified certain enterprise resource planning projects that will be discontinued as part of the Company’s ongoing business transformation plan. The recoverable amount of the projects are estimated by using a Fair Value Less Cost of Disposal (“FVLCD”) approach which resulted in a nominal value. As a result, the Company recognized $0.4 million and $3.8 million impairment loss relating to these intangible assets for the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - nil). The impairment loss was allocated to the cannabis operating segment (Note 24).

 

CGU and Goodwill Impairments

 

At the end of each reporting period, the Company assesses whether there were events or changes in circumstances that would indicate that a CGU or group of CGUs were impaired. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment.

 

 

  22 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

As at December 31, 2020, management had noted indicators of impairment present within its Canadian Cannabis CGU and as a result performed an indicator-based impairment test as at December 31, 2020. The following factor was identified as an impairment indicator for the Canadian Cannabis CGU as at December 31, 2020:

 

Change in strategic plans - During the three months ended December 31, 2020, the Company announced its shift towards a more variable cost structure in cultivation by expanding its network of external supply and scaling back production from its existing fixed asset network. As part of this plan, the Company formally terminated construction activity and closed the Aurora Sun facility and scaled back production at Aurora Sky to 25% of its previous capacity.

 

As the Canadian Cannabis CGU is allocated to the cannabis operating segment, management also tested the Cannabis Operating Segment which contains $888.7 million of goodwill as at December 31, 2020.

 

The recoverable amount of the Canadian Cannabis CGU and the Cannabis Operating Segment were determined based on FVLCD using Level 3 inputs in a discounted cash flow analysis. As the Cannabis Operating Segment is comprised of the Canadian Cannabis CGU, management tested the Canadian Cannabis CGU for impairment before the cannabis operating segment. Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate discounted cash flow results. The significant assumptions applied in the determination of the recoverable amount are described below:

 

i.Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. Estimated cash flows are primarily driven by sales volumes, selling prices and operating costs. The forecasts are extended to a total of five years (and a terminal year thereafter);
ii.Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators, and projected industry growth;
iii.Post-tax discount rate: The post-tax discount rate is reflective of the CGUs Weighted Average Cost of Capital (“WACC”). The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields; and
iv.Tax rate: The tax rates used in determining the future cash flows were those substantively enacted at the respective valuation date.

 

The following table outlines the key assumptions used in calculating the recoverable amount for each CGU and operating segment tested for impairment as at December 31, 2020:

 

   Canadian Cannabis CGU  Cannabis Operating Segment
December 31, 2020          
Terminal value growth rate   3.0%   3.0%
Discount rate   14.5%   14.5%
Budgeted revenue growth rate (average of next five years)   41.8%   42.4%
Fair value less cost to dispose  $1,759,421   $2,205,098 
June 30, 2020          
Terminal value growth rate   3.0%   3.0%
Discount rate   16.1%   16.1%
Budgeted revenue growth rate (average of next five years)   44.9%   45.4%
Fair value less cost to dispose  $1,956,844   $2,188,056 

 

CGU impairments

 

Canadian Cannabis CGU

 

The Company’s Canadian Cannabis CGU represents its operations dedicated to the cultivation and sale of cannabis products within Canada and forms part of the Company’s cannabis operating segment. Management concluded that the recoverable amount was higher than the carrying value as at December 31, 2020, and no impairment was recognized within the Canadian Cannabis CGU (three and six months ended December 31, 2019 - nil).

 

Operating segment impairments

 

Management concluded that the recoverable amount was higher than the carrying value as at December 31, 2020, and no impairment was recognized within the Cannabis Operating Segment (three and six months ended December 31, 2019 - $762.2 million).

 

 

  23 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Note 15     Convertible Debentures

   $
Balance, June 30, 2020   327,038 
Interest paid   (12,439)
Accretion   15,013 
Accrued interest   12,571 
Unrealized gain on foreign exchange   (20,628)
Balance, December 31, 2020   321,555 
Current portion   (32,828)
Long-term portion   288,727 

 

On January 24, 2019, the Company issued $460.6 million (US$345.0 million) in aggregate principal amount of Convertible Senior Notes due 2024 (“Senior Notes”) issued at par value. Holders may convert all or any portion of the Senior Notes at any time. The Senior Notes are unsecured, mature on February 28, 2024 and bear cash interest semi-annually at a rate of 5.5% per annum. The initial conversion rate for the Senior Notes is 11.53 common shares per US$1,000 principal amount of Senior Notes, equivalent to an initial conversion price of approximately US$86.72 per common share.

 

In accordance with IFRS 9, the equity conversion option embedded in the Senior Notes was determined to be a derivative liability, which has been recognized separately at its fair value. Subsequent changes in the fair value of the equity conversion option will be recognized through profit and loss (i.e. FVTPL). The equity conversion option was classified as an option liability as it can be settled through the issuance of a variable number of shares, cash or a combination thereof, based on the exchange rate and or trading price at the time of settlement.

 

As of December 31, 2020, the conversion option had a fair value of $1.7 million (June 30, 2020 - $1.8 million) and the Company recognized a $1.6 million unrealized loss and $0.1 million unrealized gain on the derivative liability for the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - $25.1 million and $168.9 million). The fair value of the conversion option was determined based on the Kynex valuation model with the following assumptions: share price of US$8.31 (June 30, 2020 - US$12.42), volatility of 85% (June 30, 2020 - 75%), implied credit spread of 1,633 bps (June 30, 2020 - 3,297 bps), and assumed stock borrow rate of 25% (June 30, 2020 - 50%). As of December 31, 2020, the Company has accrued interest payable of $8.8 million (June 30, 2020 - $8.6 million) on these Senior Notes.

 

Note 16     Loans and Borrowings

 

As at December 31, 2020, the Company had the following loans and borrowings:

   Note  December 31, 2020  June 30, 2020
         $    $ 
Term loan credit facilities   16(a)   91,001    113,921 
Debentures        18    4 
Lease liabilities   16(b)   80,799    90,284 
Total loans and borrowings        171,818    204,209 
Current portion        (41,793)   (120,508)
Long-term        130,025    83,701 

 

(a)Credit facilities

 

The changes in the carrying value of current and non-current term loans are as follows:

   Term loan credit facilities
    $ 
Balance, June 30, 2020   113,921 
Deferred financing fee   (1,387)
Gain on debt modification   (221)
Accretion   3,889 
Interest payments   (2,659)
Principal repayments   (22,542)
Balance, December 31, 2020   91,001 
Current portion   (36,538)
Long-term portion   54,463 

 

 

  24 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Under the terms of the amended Credit Facility (the “First Amendment to the First Amended and Restated Credit Agreement”) with Bank of Montreal (“BMO”) and certain lenders, the Company had an overall borrowing capacity of C$264.4 million in funds that were available through a $50.0 million revolving credit facility (“Facility A”), a $150.0 million non-revolving facility (“Facility B”) and a $64.4 million non-revolving facility (“Facility C”).

 

As at December 31, 2020, the Company had a total of $1.9 million of letters of credit outstanding under its revolving Facility A and $95.0 million principal outstanding under Facility B. Facility C was fully repaid and extinguished in August 2020. In accordance with IFRS 9, the amounts outstanding under the amended Credit Facility were initially recorded at fair value and subsequently accounted for at amortized cost based on the effective interest rate.

 

Under the terms of the First Amendment to the First Amended and Restated Credit Agreement, the Company was subject to certain customary financial and non-financial covenants and restrictions. The credit facility had a maturity date of August 29, 2021 and has a first ranking general security interest in the assets of Aurora and the loans can be repaid at any time without penalty at Aurora’s discretion. Interest and standby fees are accrued at variable rates based on the Company’s borrowing elections and certain financial metrics.

 

On September 9, 2020, the Company executed an amendment to the First Amendment to the First Amended and Restated Credit Agreement (the “Second Amendment to the First Amendment to the First Amended and Restated Credit Agreement”) which restructures existing financial covenants. Under the Second Amendment to the First Amendment to the First Amended and Restated Credit Agreement, the Company is required to meet the following financial covenants:

 

Total funded debt to shareholders’ equity is not to exceed 0.28:1 for the quarters ending June 30, 2020 and September 30, 2020 and shall be reduced to 0.25:1 for the quarter ending December 31, 2020 onwards. For the purposes of calculating the total funded debt to shareholders’ equity ratio, shareholders’ equity excludes the $172.3 million loss from the induced conversion of the March 2018 Debentures recognized in the prior year;
Total senior funded debt to Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) is not to exceed 3.00:1 at June 30, 2021. Total senior funded debt is defined as total funded debt of the Aurora and its subsidiaries, other than subordinated debt and such convertible notes as agreed to be excluded by the Lenders;
Maintenance of a minimum $35.0 million unrestricted cash balance at any time; and
Achievement of quarterly minimum EBITDA thresholds beginning in the quarter ended September 30, 2020. For the purposes of this calculation, EBITDA is defined as the consolidated net income (loss) of the Company excluding the following: extraordinary or non-recurring income (expenses) and gains (losses), non-cash gains (losses) (such as unrealized foreign exchange gains (losses)) and income of the unsecured subsidiaries (except to the extent that dividends in respect of such income have been paid in cash by such unsecured subsidiaries to a secured company); plus the following amounts (to the extent such amounts were deducted in determining such consolidated net income, and without duplication): (a) interest, fees and expenses paid in connection with permitted funded debt; (b) income and capital taxes; (c) depreciation and amortization; (d) non-cash charges and expenses such as unrealized foreign exchange losses and charges relating to the impairment of goodwill and other intangible assets; (e) non-cash share-based compensation; (f) extraordinary non-recurring expenses or losses to the extent approved by the lenders in writing; and (g) any other expenses approved in writing by the lenders in their discretion. The minimum thresholds are as follows:

 

(i) for the fiscal quarter ended September 30,2020: $(11.0) million;

(ii) for the fiscal quarter ended December 31,2020: $4.0 million;

(iii) for the fiscal quarter ended March 31, 2021: $10.0 million;

(iv) for the fiscal quarter ended June 30, 2021: $17.0 million; and

(v) for the twelve month fiscal period ending June 30, 2021: $20.0 million.

 

On December 17, 2020, the Company executed a second amended Credit Facility (the “Second Amended and Restated Credit Agreement”) which restructures existing financial covenants, extends the credit facility maturity date and adjusts certain repayment terms. Under the Second Amended and Restated Credit Agreement, the key amended terms are as follows:

 

An extension of the maturity date from August 29, 2021 to December 31, 2022;
A requirement to maintain a restricted cash balance of $50.0 million that can be used to repay, at any time at the Company’s discretion, the outstanding principal on Facility B on a 1:1 basis with a corresponding reduction in the restricted cash balance requirement;
100% of net proceeds received from the sale of certain Canadian facilities will be used to repay the outstanding principal on Facility B up to a maximum of $36.5 million; these repayments will reduce the quarterly principal repayments evenly over the remaining term post June 30, 2021. 75% of net proceeds received in excess of $5.0 million from the sale of other properties will be used to repay the outstanding principal on Facility B; and
A single financial covenant requiring a minimum unrestricted cash balance of the lesser of i) $75 million or ii) 225% of the outstanding principal on Facility B less any cash collateral.

 

Under the terms of both the First Amendment to the First Amended and Restated Credit Agreement and the Second Amended and Restated Credit Agreement, the Company elected, at its sole discretion, to receive advances under Facility B and Facility C through certain availment options, which includes prime rate loans and bankers’ acceptances with monthly maturity dates that at the direction of the Company, roll over upon their maturities unless Aurora elects to convert the then outstanding principal and interest into prime rate loans at any time before December 31, 2022. During the three and six months ended December 31, 2020, the Company continued to roll the majority of the advances under Facility B and C on a monthly basis through bankers’ acceptances with an average interest rate of 4.33%. In accordance with IFRS 9, the loan conversions and the December 17, 2020 loan amendment were determined to be non-substantial modification of the loan terms. As a result, the Company recognized a gain of $0.9 million and $0.2 million for the three and six months ended December 31, 2020, respectively (three and six months ended December 31, 2019 - $0.4 million loss and $0.1 million gain in other (losses) gains (Note 20) in the statement of comprehensive income, with a corresponding adjustment to the carrying value of the Credit Facility. The gains and losses were determined based on the difference between the original contractual cash flows and the modified expected cash flows, which was discounted at the original effective interest rate.

 

 

  25 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

As at December 31, 2020, $13.1 million of total borrowing capacity remains undrawn under Facility A and is available to the Company. As of December 31, 2020, the Company had an unrestricted cash balance of $360.9 million under the BMO Credit Facility and is in compliance with all covenants under the Second Amended and Restated Credit Agreement.

 

(b)Lease liabilities

 

The changes in the carrying value of current and non-current lease liabilities are as follows:

   $
Balance, June 30, 2020   90,284 
Lease additions   1,917 
Disposal of leases   (7,905)
Lease payments   (5,319)
Lease term reduction and other items   (682)
Changes due to foreign exchange rates   25 
Interest expense on lease liabilities   2,479 
Balance, December 31, 2020   80,799 
Current portion   (5,237)
Long-term portion   75,562 

 

Note 17     Share Capital

 

Accounting Policy

 

Share Purchase Warrants

 

Warrants issued in foreign currencies are classified as derivative liabilities. Upon exercise, in exchange for a fixed amount of common shares, the expected cash receivable is variable due to changes in foreign exchange rates. The Company measures derivative financial liabilities at fair value through profit or loss at initial recognition and in subsequent reporting periods. Fair value gains or losses are recognized in other (losses) gains on the statement of comprehensive income. The fair value of foreign currency share purchase warrants is determined using the quoted market price on the valuation date, which is a Level 1 input. Transaction costs, which are directly attributable to the offering, are allocated to equity and classified as equity financing transaction costs.

 

(a)Authorized

 

The authorized share capital of the Company is comprised of the following:

 

i.Unlimited number of common voting shares without par value.
ii.Unlimited number of Class “A” Shares each with a par value of $1.00. As at December 31, 2020, no Class “A” Shares were issued and outstanding.
iii.Unlimited number of Class “B” Shares each with a par value of $5.00. As at December 31, 2020, no Class “B” Shares were issued and outstanding.

 

(b)Shares Issued and Outstanding

 

At December 31, 2020, 184,160,688 common shares (June 30, 2020 - 115,228,811) were issued and fully paid.

 

 

  26 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

The Company issued the following under its At-the-Market (“ATM”) program (Note 26(b)):

 

      US$ equivalence
   Three months ended
December 31,
  Six months ended
December 31,
  Three months ended December 31,  Six months ended December 31,
   2020  2019  2020  2019  2020  2019  2020  2019
                         
Gross proceeds  $167,568   $267,733   $284,138   $325,183   $127,115   $202,009   $214,662   $245,258 
Commission  $3,355   $5,358   $5,642   $6,512   $2,545   $4,043   $4,298   $4,908 
Net proceeds  $164,213   $262,375   $278,496   $318,671   $124,570   $197,966   $210,364   $240,350 
Average gross price  $6.15   $45.93   $6.71   $50.35   $4.67   $34.66   $5.07   $37.97 
                                         
Number of shares issued   27,231,460    5,829,120    42,359,118    6,458,991                     

 

On November 16, 2020, the Company completed an offering of 23,000,000 units (“Unit Offering”), including an over-allotment of 3,000,000 units, for gross proceeds of $226.2 million (US$172.5 million). The Company paid commission of $11.4 million for net proceeds of $214.8 million. Each unit consists of one common share and one-half of one common share purchase warrant (“Offering Warrant”) of the Company. Each whole Offering Warrant entitles the holder to purchase one common share of the Company at a price of US$9.00 per warrant share until March 16, 2024 (Note 17(c)).

 

During the three and six months ended December 31, 2020, the Company issued 467,817 and 2,639,172 common shares for milestone payments in connection with the acquisition of Anandia Laboratories Inc. (“Anandia”) and Whistler (three and six months ended December 31, 2019 - nil and 27,411 common shares in connection with the acquisition of Anandia).

 

(c)Share Purchase Warrants

 

A summary of warrants outstanding is as follows:

   Warrants Weighted average
exercise price
    #   $ 
Balance, June 30, 2020   1,078,747   77.36 
Issued   11,733,908   11.46 
Exercised   —     —   
Expired   (473,766)  48.00 
Balance, December 31, 2020   12,338,889   15.82 

 

In accordance with IAS 32 - Financial Instruments: Presentation, the Offering Warrants issued in connection with the Unit Offering (Note 17(b)) were determined to be derivative liabilities, which were initially recognized at their fair value of $39.2 million (US$29.9 million) based on the quoted market price of US$2.60 on November 16, 2020. The Offering Warrants were classified as a derivative liability as the proceeds receivable upon exercise of the warrants, which is based on the exercise price of US$9.00 per warrant, may vary due to fluctuations in the foreign exchange rate. As at December 31, 2020, the Offering Warrants had a fair value of $58.6 million (US$46.0 million) based on the quoted market price of US$4.00. As a result, the Company recognized a $19.4 million (US$16.1 million) unrealized loss on fair value for the three and six months ended December 31, 2020 and is included in other (losses) gains (Note 20) on the statement of comprehensive income.

 

The following table summarizes the warrants that remain outstanding as at December 31, 2020:

Exercise Price ($) Expiry Date Warrants (#)
11.11 - 16.36 (1) March 16, 2024 - November 30, 2025 11,810,697   
112.46 - 116.09 August 9, 2023 to August 22, 2024 528,192   
    12,338,889   
(1)Includes the Offering Warrants exercisable at US$9.00.

 

 

  27 

AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

Note 18     Share-Based Compensation

 

Accounting Policy

 

Performance Share Units (“PSUs”)

 

PSUs are equity-settled share-based payments and have both a service and market condition. PSUs are measured at their fair value on the grant date and is recognized as share-based compensation expense over the vesting period with a corresponding credit to share reserves. The fair value of PSUs is calculated using the Monte Carlo model which factors in the probability of achieving the market-based performance target. When determining the fair value, management is required to make certain assumptions and estimates related to volatility, risk-free rate, equity correlations between Aurora and a peer group of companies, future stock prices, and estimated forfeitures. The amount recognized for services received as consideration for the PSUs granted is based on the number of equity instruments that eventually vest. Upon the release of PSUs, the related share reserve is transferred to share capital.

 

(a)Stock Options

 

A summary of stock-options outstanding is as follows:

   Stock
Options
Weighted Average
Exercise Price
      #   $ 
 Balance, June 30, 2020    5,748,503   88.60 
 Granted    410,167   11.97 
 Exercised (1)    (5,084)  3.60 
 Expired    (4,768)  138.13 
 Forfeited (2)    (1,925,434)  101.61 
 Balance, December 31, 2020    4,223,384   75.32 

 

(1)The weighted average share price on the date stock options were exercised during the six months ended December 31, 2020 was $14.16 (three and six months ended December 31, 2019 - $46.68 and $62.64). There were no stock options exercised during the three months ended December 31, 2020.
(2)Included are the 1,039,672 forfeited options relating to the resignation of the Company’s strategic advisor, Nelson Peltz, as detailed below.

 

The following table summarizes the stock options that are outstanding as at December 31, 2020:

Exercise Price ($) Expiry Date Weighted Average Remaining Life Options Outstanding (#) Options Exercisable (#)
3.60 - 30.00 May 20, 2021 - December 9, 2025 3.48    1,406,662    555,993   
30.72 - 99.60 January 19, 2022 - January 17, 2025 2.58    1,284,666    889,192   
100.80 - 133.80 January 2, 2023 - March 13, 2026 4.07    1,209,138    959,408   
135.00 - 198.18 January 2, 2023 - May 28, 2024 2.83    322,918    191,709   
    3.32    4,223,384    2,596,302   

 

During the three and six months ended December 31, 2020, the Company recorded aggregate share-based compensation expense of $4.0 million and $8.4 million, respectively (three and six months ended December 31, 2019 - $15.7 million and $33.7 million), for all stock options granted and vested during the period. This expense is reflected in the share-based compensation line on the statement of comprehensive loss.

 

On September 25, 2020, Aurora’s strategic advisor resigned which resulted in the forfeiture of 1,039,672 incentive stock options. No share-based compensation expense was recognized for the three and six months ended December 31, 2020 (three and six months ended December 31, 2019 - $0.8 million and $3.8 million). As at December 31, 2020, the former strategic advisor had 623,808 vested stock options that remain outstanding.

 

Stock options granted during the respective periods highlighted below were fair valued based on the following weighted average assumptions:

   Three months ended December 31,  Six months ended December 31,
   2020  2019  2020  2019
Risk-free annual interest rate (1)   0.27%   1.59%   0.27%   1.56%
Expected annual dividend yield   0%   0%   0%   0%
Expected stock price volatility (2)   108.41%   81.37%   96.06%   79.27%
Expected life of options (years) (3)   2.39    2.34    2.37    2.31 
Forfeiture rate   18.25%   10.67%   17.35%   10.05%
(1)The risk-free rate is based on Canada government bonds with a remaining term equal to the expected life of the options.
(2)Volatility was estimated by using the average historical volatility of the Company.
(3)The expected life in years represents the period of time that options granted are expected to be outstanding.

 

 

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AURORA CANNABIS INC.

Notes to the Condensed Consolidated Interim Financial Statements

Three and six months ended December 31, 2020 and 2019

(Unaudited – Amounts reflected in thousands of Canadian dollars, except share and per share amounts)

 

The weighted average fair value of stock options granted during the three and six months ended December 31, 2020 was $8.73 and $6.01 per option, respectively (three and six months ended December 31, 2019 - $24.36 and $42.84 per option).

 

(b)Restricted Share Units (“RSU”) and Deferred Share Units (“DSU”)

 

The Company amended its RSU plan and DSU plan, as approved by the shareholders at the Company’s November 12, 2020 Annual General Meeting (“AGM”), which increased the maximum reserve under the plans to 3,000,000 and 500,000 common shares, respectively.

 

A summary of the RSUs and DSUs outstanding are as follows:

  RSUs and DSUs Weighted Average Issue Price of RSUs and DSUs
  # $
Balance, June 30, 2020 376,296 44.06   
Issued 712,197 10.65   
Vested, released and issued (104,404)   44.38   
Forfeited (48,494)   23.30   
Balance, December 31, 2020 935,595 19.67   
(1)As of December 31, 2020, there were 906,928 RSUs and 28,667 DSUs outstanding (June 30, 2020 - 360,098 RSUs and 16,198 DSUs).

 

During the three and six months ended December 31, 2020, the Company recorded share-based compensation of $1.8 million and $3.0 million, respectively (three and six months ended December 31, 2019 - $1.9 million and $3.0 million) for RSUs and DSUs granted and vested during the period. This expense is included in the share-based compensation line on the statement of comprehensive loss.

 

The weighted average fair value of RSUs and DSUs granted in the three and six months ended December 31, 2020 was $12.59 and $10.65 per unit, respectively (three and six months ended December 31, 2019 - $42.72 and $87.84 per unit).

 

The following table summarizes the RSUs and DSUs that are outstanding as at December 31, 2020:

Weighted Average Issue Price ($) Expiry Date Outstanding (#) Vested (#)
6.25 - 24.96 February 10, 2023 - February 10, 2025 866,695    43,615   
33.48 - 88.68 August 3, 2021 - March 13, 2023 18,965    6,605   
90.12 - 123.84 July 12, 2021 - January 15, 2023 49,935    22,845   
    935,595    73,065   

 

(c)Performance Share Units (“PSUs”)

 

The Company adopted a PSU plan approved by Aurora shareholders at the November 12, 2020 AGM. Under the terms of the PSU plan, the Board of Directors may from time to time, in its discretion, and in accordance with the TSX requirements, grant to directors, officers, employees and consultants, non-transferable PSUs. The maximum number of common shares issuable pursuant to the PSU and RSU plan together shall not exceed 3,000,000 common shares. The number of units earned is determined at the end of the three year term based on Aurora’s three year Total Shareholder Return (“TSR”) relative to a peer group of companies and can vary from 0.0 to 2.0 times the number of PSUs granted.

 

A summary of the PSUs outstanding is as follows:

 

   PSUs 

Weighted Average Issue

Price of PSUs

      #    $ 
 Balance, June 30, 2020    —      —   
 Issued    433,921    10.15 
 Forfeited    (11,767)   10.09 
 Balance, December 31, 2020    422,154    10.15 

 

The following table summarizes the PSUs that are outstanding as at December 31, 2020:

Weighted Average Issue Price ($) Expiry Date Outstanding (#) Vested (#)
10.09 September 10, 2023 414,172    26   
13.35 - 13.59 December 8 - December 9, 2023 7,982     —    
    422,154    26   

 

 

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