Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 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	June 30, 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	(4,180		)	(5,750		)
Customer relationships	—			(649		)
Developed technology	—			(114		)
	(4,180		)	(6,513		)
Finite-lived intangible assets, net	15,400			53,625

Indefinite-lived intangible assets
Cannabis licenses	130,260			232,347

Total intangibles, net	$	145,660		$	285,972

The intangible assets balance as of June 30, 2020 excludes intangible assets reclassified to assets held for sale. Refer to Note 3 for further information. 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.

During the six months ended June 30, 2020, the Company performed a quantitative analysis and concluded certain of the indefinite-lived cannabis licenses had a fair value below the carrying value. Accordingly, during the six months ended June 30, 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 six months ended June 30, 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 and $31,398 during the three and six months ended June 30, 2020, respectively.

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 for the six months ended June 30, 2020.

Amortization expense recorded during the three and six months ended June 30, 2020 was $542 and $1,707, respectively. Amortization expense recorded during the three and six months ended June 30, 2019 was $1,674 and $2,335, respectively.

Expected annual amortization expense for existing intangible assets subject to amortization at June 30, 2020 is as follows for each of the next five fiscal years:



Amortization of Intangibles	2020		2021		2022		2023		2024
Amortization expense	$	1,082	$	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		)
Less: Goodwill held for sale	(2,192		)
June 30, 2020	$	26,675

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 six months ended June 30, 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 for the six months ended June 30, 2020. This was determined as the differential between the net carrying value of the previously held management contract and the promissory note received in exchange.