FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2022

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021, by level within the fair value hierarchy:


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Financial assets:
Stanley Brothers USA Holdings Purchase Option	$	—	$	—	$	13,100	$	13,100


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Stanley Brothers USA Holdings Purchase Option	$	—	$	—	$	13,000	$	13,000

There were no transfers between levels of the hierarchy during the three and six month periods ended June 30, 2022 and the year ended December 31, 2021.

Stanley Brothers USA Holdings Purchase Option

The Monte Carlo valuation model considers multiple revenue and Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") outcomes for Stanley Brothers USA and other probabilities in assigning a fair value. Primary assumptions utilized include financial projections of Stanley Brothers USA and the probability and timing of exercise. The following additional assumptions are used in the model of the SBH Purchase Option:


	June 30,	December 31,
	2022	2021
Expected volatility	90.0%	92.5%
Expected term (years)	3.2	3.7
Risk-free interest rate	3.0%	1.1%
Weighted average cost of capital	40.0%	40%

Warrant Liabilities

The warrants offered during 2020 (the "2020 Share Offering Warrants") do not meet all of the criteria for equity classification as the warrants are denominated in Canadian dollars, which differs from the Company's functional currency. As a result, the 2020 Share Offering Warrants are initially measured at fair value and are revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs. The assumptions used by the Company are the quoted price of the Company’s common shares in an active market, risk-free interest rate, volatility and expected life, and assumes no dividends. Volatility is based on the actual historical market activity of the Company’s shares. The expected life is based on the remaining contractual term of the warrants and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the expected life of the warrants. On June 18, 2022, the 2020 Share Offering Warrants expired, totaling 5,750,000 common shares, with a weighted average exercise price per warrant of $6.27.

For the three and six months ended June 30, 2022 and 2021, a $0 and $4,099 and $0 and $1,443, respectively, gain related to the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and net loss, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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