Equity-Based Compensation Expense

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity-Based Compensation Expense

EQUITY-BASED COMPENSATION EXPENSE

Equity-based compensation expense recognized in the Statements of Operations for the periods presented is as follows:

Equity-based compensation expense	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Equity-based compensation - Plan	$	7,607	$	13,673	$	33,388	$	48,228
Equity-based compensation - Plan (Plan of Arrangement Awards) (1)	2,688		10,772		14,680		11,086
Equity-based compensation - other	150		3,729		17,301		8,530
Total equity-based compensation expense	$	10,445	$	28,174	$	65,369	$	67,844

(1) In accordance with the Prior Plan of Arrangement (as defined in Note 13) with Canopy Growth, awards were granted in July 2019, and amortized based on the vesting schedule set forth herein.

Amended Arrangement with Canopy Growth

On September 23, 2020, the Company announced the implementation of the Amended Arrangement (as defined in Note 13). Pursuant to the Amended Arrangement, the Company’s articles have been amended to create new Fixed Shares, Floating Shares and Fixed Multiple Shares. Consequently, the Company’s equity-based compensation was modified into new equity awards of the Company. Please refer to Note 13 for further discussion.

Equity-based compensation - Plan (Acreage Holdings, Inc. Omnibus Incentive Plan)

In connection with the RTO transaction, the Company’s Board of Directors adopted an Omnibus Incentive Plan, as amended May 7, 2019 and June 19, 2019 (the “Plan”), which permits the issuance of stock options, stock appreciation rights, stock awards, share units, performance shares, performance units and other stock-based awards up to an amount equal to 15% of the issued and outstanding Subordinate Voting Shares of the Company.

Pursuant to the Amended Arrangement, the Company retained the Plan described above, the upper limit of issuances being up to an amount equal to 15% of the issued and outstanding Fixed Shares and Floating Shares of the Company.

Restricted Share Units (“RSUs”)

	January 1, 2020 to September 22, 2020
Restricted Share Units (Fair value information expressed in whole dollars)	RSUs	Weighted Average Grant Date Fair Value
Unvested, beginning of period (1)	7,843	$	15.10
Granted	4,970	3.60
Forfeited	(2,654)	11.29
Vested	(2,998)	11.60
Unvested, September 22, 2020	7,161	$	9.99
Vested and unreleased	136	16.33
Exchange pursuant to Amended Arrangement	(7,297)	N/A
Outstanding, September 22, 2020	—	$	—

	September 23, 2020 to September 30, 2020
	Fixed Shares			Floating Shares
Restricted Share Units (Fair value information expressed in whole dollars)	RSUs	Weighted Average Grant Date Fair Value		RSUs	Weighted Average Grant Date Fair Value
Unvested, September 23, 2020 (1)	5,012	$	9.99	2,148	$	9.99
Granted	—	—		—	—
Forfeited	—	—		—	—
Vested	(2)	16.45		(1)	16.45
Unvested, end of period	5,010			2,147
Vested and unreleased	98	16.33		42	16.33
Outstanding, end of period	5,108	$	10.11	2,189	$	10.11

RSUs of the Company generally vest over a period of two years. The fair value for RSUs is based on the Company’s share price on the date of the grant. The Company recorded $5,424 and $31,522 as compensation expense during the three and nine months ended September 30, 2020, respectively. The fair value of RSUs vested during the three and nine months ended September 30, 2020 was $874 and $8,125, respectively.

The total weighted average remaining contractual life and aggregate intrinsic value of unvested RSUs at September 30, 2020 was approximately 2 years and $16,268, respectively. Unrecognized compensation expense related to these awards at September 30, 2020 was $54,634 and is expected to be recognized over a weighted average period of approximately 2 years.

There were 140 and 43 vested RSUs that are pending delivery or deferred as of September 30, 2020 and 2019, respectively. On February 20, 2020, the Company issued 1,505 RSUs to certain executives with a weighted-average grant date fair value of $5.11 per share. 148 of the 1,505 RSUs vested immediately. Certain shares are subject to restriction thus a discount for lack of marketability was applied that correlates to the period of time. On March 13, 2020, the Company issued 630 RSUs to employees of the Company. All of these units vested immediately, with a fair market value of $2.15, which was the closing price of the Company’s subordinate voting shares on March 13, 2020.

(1) Equity-based compensation - Plan (Plan of Arrangement Awards)

Included within the RSUs during the three and nine months ended September 30, 2020 are “CGC Awards” issued in connection with the RSUs which were granted in July 2019:

On June 27, 2019, pursuant to the Original Arrangement Agreement (as defined in Note 13), 4,909 RSUs were awarded in total to five executive employees under the Plan. These awards vest as follows: 25% in June 2020, 25% in June 2021 and 50% three months following the Acquisition (as defined in Note 13). The Company recorded $1,783 and $10,132 as compensation

expense during the three and nine months ended September 30, 2020 in connection with these awards. A discount for lack of marketability was applied that correlates to the period of time certain of these shares are subject to restriction.

On July 31, 2019, the Company issued 1,778 RSUs to employees with unvested RSUs and stock options ("make-whole awards") as at the date of the Option Premium payment (as defined in Note 13). The RSUs were issued to provide additional incentive for employees that were not eligible to receive the full Option Premium and were subject to the same vesting terms as the unvested options and RSUs held as of the grant date. The Company recorded $905 and $4,548 as compensation expense during the three and nine months ended September 30, 2020, respectively, in connection with these awards.

Stock options

	January 1, 2020 to September 22, 2020
Stock Options (Exercise price expressed in whole dollars)	Options	Weighted Average Exercise Price
Options outstanding, beginning of period	5,607	$	21.56
Granted	191	5.75
Forfeited	(1,301)	15.59
Exercised	—	—
Modification pursuant to Amended Arrangement	(4,497)	N/A
Options outstanding, September 22, 2020	—	$	—

	September 23, 2020 to September 30, 2020
	Fixed Shares			Floating Shares
Stock Options (Exercise price expressed in whole dollars)	Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
Options outstanding, September 23, 2020	3,148	$	15.83	1,349	$	6.78
Granted	—	—		—	—
Forfeited	—	—		—	—
Exercised	—	—		—	—
Options outstanding, end of period	3,148	$	15.83	1,349	$	6.78
Options exercisable, end of period	1,686	$	17.02	723	$	7.30

Stock options of the Company generally vest over a period of three years and have an expiration period of 10 years. The weighted average contractual life remaining for options outstanding and exercisable as of September 30, 2020 was approximately 8 years. The Company recorded $4,871 and $16,546 as compensation expense during the three and nine months ended September 30, 2020, respectively, in connection with these awards. As of September 30, 2020, unamortized expense related to stock options totaled $24,494 and is expected to be recognized over a weighted-average period of approximately 1 year. There was no aggregate intrinsic value for options outstanding or exercisable as of September 30, 2020.

Equity-based compensation - other

HSCP C-1 Profits Interests Units (“Profits Interests”)

These membership units qualify as profits interests for U.S. federal income tax purposes and were accounted for in accordance with ASC 718, Compensation - Stock Compensation. HSCP amortizes awards over service period and until awards are fully vested.

The following table summarizes the status of unvested Profits Interests for the nine months ended September 30, 2020:

	Nine Months Ended September 30, 2020
Profits Interests (Fair value information expressed in whole dollars)	Number of Units	Weighted Average Grant Date Fair Value
Unvested, beginning of period	1,000	$	0.43
Class C-1 units granted	—	—
Class C-1 units canceled	—	—
Class C-1 vested	(1,000)	0.43
Unvested, end of period	—	$	—

The Company recorded $0 and $70 as compensation expense in connection with these awards during the three and nine months ended September 30, 2020, respectively. The fair value of Profits Interests vested during the three and nine months ended September 30, 2020 was $0 and $1,239, respectively.

As of September 30, 2020, all Profits Interests were fully vested.

Restricted Shares (“RSs”)

In connection with the Company’s acquisition of Form Factory during 2019, 1,369 restricted shares with a grant date fair value of $20.45 were issued to former employees of Form Factory subject to future service conditions, which fully vest 24 months from the acquisition date. The fair value for RSs is based on the Company’s share price on the date of the grant. The Company recorded compensation expense of $150 and $17,231 during the three and nine months ended September 30, 2020, respectively, in connection with these awards. During the three months ended September 30, 2020, certain employees separated from the Company, resulting in 12 RSs accelerating vesting and $150 incurred in expenses. During the nine months ended September 30, 2020, certain employees separated from the Company, resulting in 1,302 RSs accelerating vesting and $17,169 incurred in expenses. As of September 30, 2020, all RSs were fully vested. The total weighted average remaining contractual life and aggregate intrinsic value of RSs at September 30, 2019 was approximately 2 years and $10,103, respectively. As of September 30, 2019, unamortized expense related to RSs totaled $21,304 and is expected to be recognized over a weighted average period of approximately 2 years.