Intangible Assets and Goodwill

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Text Block]

INTANGIBLE ASSETS AND GOODWILL

Intangible assets

The following table details our intangible asset balances by major asset classes:



Intangibles	March 31, 2020			December 31, 2019
Finite-lived intangible assets:
Management contracts	$	19,580		$	52,438
Customer relationships	—			4,600
Developed technology	—			3,100
	19,580			60,138
Accumulated amortization on finite-lived intangible assets:
Management contracts	(3,639		)	(5,750		)
Customer relationships	—			(649		)
Developed technology	—			(114		)
	(3,639		)	(6,513		)
Finite-lived intangible assets, net	15,941			53,625

Indefinite-lived intangible assets
Cannabis licenses	139,549			232,347

Total intangibles, net	$	155,490		$	285,972

The average useful life of finite-lived intangible assets ranges from six to nine years.

Impairment of intangible assets

In December 2019, a novel strain of coronavirus emerged in Wuhan, China, which since then, has spread worldwide. As a result of the recent global economic impact and uncertainty due to the COVID-19 pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing.

The Company performed a quantitative analysis and concluded certain of the indefinite-lived cannabis licenses had a fair value below the carrying value as of March 31, 2020. During the three months ended March 31, 2020 and 2019, the Company recognized impairment charges of $92,798 and nil, respectively, with respect to its indefinite-lived intangible assets at Acreage Florida, Inc., Form Factory Holdings, LLC and Kanna, Inc. The charge is recognized in Loss on impairment on the Statements of Operations.

The Company evaluated the recoverability of the related finite-lived intangible assets to be held and used by comparing the carrying amount of the assets to the future net undiscounted cash flows expected to be generated by the assets, or comparable market sales data to determine if the carrying value is recoverable. During the three months ended March 31, 2020 and 2019, the Company recognized impairment charges of $8,324 and nil, respectively, with respect to its finite-lived intangible assets at Form Factory and CWG Botanicals, Inc. The charge is recognized in Loss on impairment on the Statements of Operations.

These impairments resulted in the recognition of a tax provision benefit and an associated reversal of deferred tax liabilities of $31,316 for the three months ended March 31, 2020.

During the second quarter of fiscal 2020, the Company determined certain indefinite-lived intangible assets met the held-for-sale criteria which includes: management commits to a plan to sell; the asset is available for immediate sale; an active program to locate

a buyer exists; the sale of the asset is probable and expected to be completed within one year; the asset is being actively marketed for sale; and it is unlikely that significant changes to the plan will be made. The Company has identified these assets relating to cannabis licenses within the Company’s national footprint and has evaluated the assets as part of interim impairment testing as noted above. The Company is in the process of evaluating whether this meets the criteria for discontinued operations.

WCM Refinancing

On March 6, 2020, the Company closed on a refinancing, transaction and conversion related to Northeast Patients Group, operating as Wellness Connection of Maine (“WCM”), a medical cannabis business in Maine, resulting in ownership of WCM by three individuals. In connection with the transaction, WCM converted from a non-profit corporation to a for-profit corporation. Refer to Note 6 for further details. Concurrently, a portion of the management contract was converted into a promissory note of $18,800 in Notes receivable, non-current on the Statements of Financial Position in exchange for the previously held management contract. An impairment was determined as the differential between the net carrying value of the previously held management contract and the promissory note received in exchange. This resulted in an impairment loss to finite-lived intangible assets of $9,395 in Loss on impairment on the Statements of Operations.

Amortization expense recorded during the three months ended March 31, 2020 and 2019 was $1,165 and $661, respectively.

Expected annual amortization expense for existing intangible assets subject to amortization at March 31, 2020 is as follows for each of the next five fiscal years:



Amortization of Intangibles	2020		2021		2022		2023		2024
Amortization expense	$	1,623	$	2,164	$	2,164	$	2,164	$	2,164

Goodwill

The following table details the changes in the carrying amount of goodwill:



Goodwill	Total
December 31, 2019	$	105,757
Acquisitions	—
Impairment	(76,890		)
March 31, 2020	$	28,867

Also as a result of the recent global economic impact and uncertainty due to the COVID-19 pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing.

During the three months ended March 31, 2020 and 2019, the Company recognized impairment charges of $65,304 and nil, respectively, with respect to its goodwill related to Form Factory. The Company applied the DCF approach to determine the fair value of Form Factory. The charge is recognized in Loss on impairment on the Statements of Operations.

Pursuant to the WCM refinancing described above, the Company recognized an impairment loss to goodwill of $11,586 on Loss of impairment on the Statements of Operations. This was determined as the differential between the net carrying value of the previously held management contract and the promissory note received in exchange.