Note 23 - Fair Value Measurements

3 Months Ended

Aug. 31, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 23. Fair value measurements

Financial instruments

The Company has classified its financial instruments as described in Note 3 Significant accounting policies in our Annual Financial Statements.

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

At August 31, 2023 and  May 31, 2023 the Company had long-term debt of $4,876 and $nil, respectively, and the principal portion of convertible debentures payable of $436,570 subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for the U.S. Department of the Treasury securities of similar duration. In each period thereafter, the incremental premium is held constant while the U.S. Department of the Treasury security is based on the then current market value to derive the discount rate.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of August 31, 2023 and  May 31, 2023 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

								August 31,
	Level 1		Level 2		Level 3			2023
Financial assets
Cash and cash equivalents	$	177,519	$	—	$	—		$	177,519
Restricted cash		1,613							1,613
Marketable securities		287,333		—		—			287,333
Convertible notes receivable		—		—		74,681			74,681
Equity investments measured at fair value		1,078		986		5,500			7,564
Financial liabilities
Warrant liability		—		—		(10,015	)		(10,015	)
Contingent consideration		—		—		(20,181	)		(20,181	)
APHA 24 Convertible debenture		—		—		(124,453	)		(124,453	)
Total recurring fair value measurements	$	467,543	$	986	$	(74,468	)	$	394,061

								May 31,
	Level 1		Level 2		Level 3			2023
Financial assets
Cash and cash equivalents	$	206,632	$	—	$	—		$	206,632
Restricted cash		—		—		—			—
Marketable Securities		241,897		—		—			241,897
Convertible notes receivable		—		—		103,401			103,401
Equity investments measured at fair value		1,056		1,088		5,651			7,795
Financial liabilities
Warrant liability		—		—		(1,817	)		(1,817	)
Contingent consideration		—		—		(27,107	)		(27,107	)
APHA 24 Convertible debenture		—		—		(120,568	)		(120,568	)
Total recurring fair value measurements	$	449,585	$	1,088	$	(40,440	)	$	410,233

The Company’s financial assets and liabilities required to be measured on a recurring basis are its convertible notes receivable, equity investments measured at fair value, convertible debentures measured at fair value, acquisition-related contingent consideration, and warrant liability.

Convertible notes receivable and long-term investments are recorded at fair value. The estimated fair value is determined using the Black Scholes option pricing model, probability of legalization and is classified as Level 3.

Convertible debentures payable are recorded at fair value when elected or required under US GAAP. Specifically, the APHA 24 instrument's estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3. 

Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1.The Company classified securities with observable inputs as level 2 and without a quoted market price as Level 3.

The warrants associated with the warrant liability are classified as Level 3 derivatives. Consequently, the estimated fair value of the warrant liability is determined using the Black-Scholes pricing model. Until the warrants are exercised, expire, or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity, the warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded in change in fair value of warrant liability. Any significant adjustments to the unobservable inputs disclosed in the table below would have a direct impact on the fair value of the warrant liability.

The contingent consideration from the acquisitions of SweetWater, Montauk, and Truss due in   December 2023,  December 2025, and upon the triggering event respectively and are payable in cash, is determined by discounting future expected cash outflows at a discount rate in the range of 5% - 11.4%, respectively and probability of achievement of 25% and 90%. The unobservable inputs into the future expected cash outflows result in a fair value measurement classified as Level 3

The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled, as follows:

														APHA 24
	Convertible			Equity			Warrant			Contingent			Convertible
	notes receivable			Investments			Liability			Consideration			Debt
Balance, May 31, 2023	$	103,401		$	5,651		$	(1,817	)	$	(27,107	)	$	(120,568	)
Additions		—			—			—			(4,181	)		—
Disposals		(28,720	)		—			—			—			—
Unrealized gain (loss) on fair value		—			(151	)		(8,198	)		11,107			(3,885	)
Impairments		—						—			—			—
Balance, August 31, 2023	$	74,681		$	5,500		$	(10,015	)	$	(20,181	)	$	(124,453	)

The unrealized gain (loss) on fair value for the convertible debenture, the warrant liability, contingent consideration, and debt securities classified under available-for-sale method is recognized in the consolidated statements of loss and comprehensive loss using the following inputs:

		Significant
	Valuation	unobservable
Financial asset / financial liability	technique	input	Inputs
APHA Convertible debentures	Black-Scholes	Volatility,	50%
		expected life (in years)	0.8
Warrant liability	Black-Scholes	Volatility,	50%
		expected life (in years)	1.5
Contingent consideration	Discounted cash flows	Discount rate,	5% - 11%
		achievement	25% - 90%

Items measured at fair value on a non-recurring basis

The Company's prepaids and other current assets, long lived assets, including property and equipment, goodwill and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

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