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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to


Commission file number 000-56021

ACREAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
British Columbia, Canada98-1463868
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
450 Lexington Avenue, #3308New YorkNew York10163
(Address of Principal Executive Offices)
(Zip Code)
(646) 600-9181
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to section 12(g) of the Act: Class D Subordinate Voting Shares, no par value; Class E Subordinate Voting Shares, no par value.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x   No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes    No  x

As of November 3, 2021, there were 74,637,436 and 32,874,114 Class E subordinate voting shares and Class D subordinate voting shares, as converted, issued and outstanding, respectively.
 
























TABLE OF CONTENTS
Acreage Holdings, Inc.
Form 10-Q
For the Three Months and Nine Months Ended September 30, 2021
PART IFinancial Information
Item 1.
Item 2.
Item 3.
Item 4.
PART IIOther Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.





ACREAGE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PART I
Item 1. Financial Statements and Supplementary Data
(in thousands)September 30, 2021December 31, 2020
(unaudited)(audited)
ASSETS
Cash and cash equivalents$27,868 $32,542 
Restricted cash1,098 22,097 
Inventory33,520 23,715 
Notes receivable, current1,552 2,032 
Assets held-for-sale19,272 62,971 
Other current assets15,470 4,663 
Total current assets
98,780 148,020 
Long-term investments38,921 34,126 
Notes receivable, non-current81,434 97,901 
Capital assets, net103,853 89,136 
Operating lease right-of-use assets22,349 17,247 
Intangible assets, net124,534 138,983 
Goodwill37,604 31,922 
Other non-current assets1,493 4,718 
Total non-current assets
410,188 414,033 
TOTAL ASSETS$508,968 $562,053 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities$25,317 $18,913 
Taxes payable27,378 14,780 
Interest payable1,444 3,504 
Operating lease liability, current1,525 1,492 
Debt, current16,377 27,139 
Non-refundable deposits on sale1,750 750 
Liabilities related to assets held-for-sale2,808 18,154 
Other current liabilities8,844 13,010 
Total current liabilities
85,443 97,742 
Debt, non-current126,186 153,318 
Operating lease liability, non-current21,830 16,609 
Deferred tax liability27,024 34,673 
Other liabilities37 2 
Total non-current liabilities
175,077 204,602 
TOTAL LIABILITIES260,520 302,344 
Commitments and contingencies
Common stock, no par value - unlimited authorized, 106,403 and 101,250 issued and outstanding, respectively
  
Additional paid-in capital753,840 737,290 
Treasury stock, 842 common stock held in treasury
(21,054)(21,054)
Accumulated deficit(497,864)(475,205)
Total Acreage Shareholders' equity
234,922 241,031 
Non-controlling interests13,526 18,678 
TOTAL EQUITY 248,448 259,709 
TOTAL LIABILITIES AND EQUITY$508,968 $562,053 
See accompanying notes to Unaudited Condensed Consolidated Financial Statements
3

ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,Nine Months Ended
September 30,
(in thousands, except per share amounts)2021202020212020
REVENUE
Retail revenue, net$30,794 $23,914 $85,038 $61,362 
Wholesale revenue, net17,077 7,798 42,634 21,513 
Other revenue, net280 30 3,090 164 
Total revenues, net48,151 31,742 130,762 83,039 
Cost of goods sold, retail(16,279)(14,134)(43,412)(37,004)
Cost of goods sold, wholesale(8,069)(4,133)(19,049)(11,395)
Total cost of goods sold(24,348)(18,267)(62,461)(48,399)
Gross profit23,803 13,475 68,301 34,640 
OPERATING EXPENSES
General and administrative8,466 14,819 23,067 40,237 
Compensation expense10,699 8,306 32,236 30,740 
Equity-based compensation expense4,168 10,445 17,191 65,369 
Marketing583 46 992 1,514 
Impairments, net2,339  3,157 187,775 
Loss on notes receivable  1,726 8,161 
Write down (recovery) of assets held-for-sale 2,893 (8,616)11,003 
Legal settlements, net 14,150 322 14,150 
Depreciation and amortization4,044 1,396 9,670 4,888 
Total operating expenses30,299 52,055 79,745 363,837 
Net operating loss$(6,496)$(38,580)$(11,444)$(329,197)
(Loss) income from investments, net489 (433)(777)(195)
Interest income from loans receivable1,067 1,606 4,125 5,083 
Interest expense(3,620)(6,147)(14,072)(11,106)
Other income (loss), net81 (656)7,825 (853)
Total other income (loss)(1,983)(5,630)(2,899)(7,071)
Loss before income taxes$(8,479)$(44,210)$(14,343)$(336,268)
Income tax (expense) benefit(5,579)(3,826)(11,661)21,633 
Net loss$(14,058)$(48,036)$(26,004)$(314,635)
Less: net loss attributable to non-controlling interests(1,761)(7,488)(3,347)(64,941)
Net loss attributable to Acreage Holdings, Inc.$(12,297)$(40,548)$(22,657)$(249,694)
Net loss per share attributable to Acreage Holdings, Inc. - basic and diluted:$(0.11)$(0.39)$(0.21)$(2.54)
Weighted average shares outstanding - basic and diluted110,193 103,450 108,385 98,304 



See accompanying notes to Unaudited Condensed Consolidated Financial Statements
4

ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Attributable to shareholders of the parent
(in thousands)LLC Membership UnitsPubco Shares (as converted)Share CapitalTreasury StockAccumulated DeficitShareholders’ EquityNon-controlling InterestsTotal Equity
December 31, 2019 90,646 $615,678 $(21,054)$(188,617)$406,007 $88,787 $494,794 
Issuances for private placement— 6,085 27,887 — — 27,887 — 27,887 
NCI adjustments for changes in ownership— 113 (6,564)— — (6,564)6,564  
Capital distributions, net— — — — — — (18)(18)
Equity-based compensation expense and related issuances— 586 34,737 — — 34,737 — 34,737 
Net loss— —  — (171,954)(171,954)(50,275)(222,229)
March 31, 2020 97,430 $671,738 $(21,054)$(360,571)$290,113 $45,058 $335,171 
NCI adjustments for changes in ownership3,861 272 977 — — 977 (977) 
Beneficial conversion feature on convertible note— — 523 — — 523 — 523 
Other equity transactions—   — —  44 44 
Equity-based compensation expense and related issuances— 864 20,187 — — 20,187 — 20,187 
Net loss— —  — (37,192)(37,192)(7,178)(44,370)
June 30, 20203,861 98,566 $693,425 $(21,054)$(397,763)$274,608 $36,947 $311,555 
Issuances on conversion of debenture— 327 550 — — 550 550 
NCI adjustments for changes in ownership— 198 1,716 — — 1,716 (1,716) 
Other equity transactions— 212 532 — — 532 — 532 
Equity-based compensation expense and related issuances— 1,443 10,445 — — 10,445 — 10,445 
Net loss— — — — (40,548)(40,548)(7,488)(48,036)
September 30, 20203,861 100,746 $706,668 $(21,054)$(438,311)$247,303 $27,743 $275,046 


See accompanying notes to Unaudited Condensed Consolidated Financial Statements
5

ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Attributable to shareholders of the parent
(in thousands)LLC Membership UnitsPubco Shares (as converted)Share CapitalTreasury StockAccumulated DeficitShareholders’ EquityNon-controlling InterestsTotal Equity
December 31, 20203,861 101,250 $737,290 $(21,054)$(475,205)$241,031 $18,678 $259,709 
Purchase of non-controlling interest in subsidiary— — (272)— — (272)(14)(286)
NCI adjustments for changes in ownership— 400 601 — — 601 (601) 
Capital distributions, net— — — — — — (30)(30)
Other equity transactions— 97 300 — — 300 — 300 
Equity-based compensation expense and related issuances— 1,693 6,042 — — 6,042 — 6,042 
Net loss— —  — (7,809)(7,809)(833)(8,642)
March 31, 20213,861 103,440 $743,961 $(21,054)$(483,014)$239,893 $17,200 $257,093 
NCI adjustments for changes in ownership— 666 (1,463)— — (1,463)1,463  
Capital distributions, net— — — — — — (2,547)(2,547)
Other equity transactions— 1 117 — — 117  117 
Equity-based compensation expense and related issuances— 1,595 6,981 — — 6,981 — 6,981 
Net loss— —  — (2,553)(2,553)(753)(3,306)
June 30, 20213,861 105,702 $749,596 $(21,054)$(485,567)$242,975 $15,363 $258,338 
NCI adjustments for changes in ownership—  76 — — 76 (76) 
Equity-based compensation expense and related issuances— 701 4,168 — — 4,168 — 4,168 
Net loss— —  — (12,297)(12,297)(1,761)(14,058)
September 30, 20213,861 106,403 $753,840 $(21,054)$(497,864)$234,922 $13,526 $248,448 


See accompanying notes to Unaudited Condensed Consolidated Financial Statements
6

ACREAGE HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(in thousands)20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(26,004)$(314,635)
Adjustments for:
Depreciation and amortization9,670 4,888 
Depreciation and amortization included in COGS1,714  
Equity-settled expenses, including compensation17,607 65,901 
Gain on business divestiture(11,681)(217)
Loss (gain) on disposal of capital assets1,690 (75)
Impairments, net9,947 187,775 
Loss on notes receivable3,726 8,161 
Bad debt expense(1,435)194 
Non-cash other revenue(2,500) 
Non-cash interest expense3,154 3,754 
Non-cash operating lease adjustments(572)709 
Deferred tax benefit(8,125)(32,141)
Non-cash loss from investments, net778 195 
Write-down (recovery) of assets held-for-sale(8,616)11,003 
Change, net of acquisitions in:
Inventory(11,864)(1,914)
Other assets(1,239)1,110 
Interest receivable(1,031)(1,286)
Accounts payable and accrued liabilities1,238 7,384 
Taxes payable12,935 9,742 
Interest payable(2,060)4,392 
Other liabilities(5,644)852 
Net cash used in operating activities$(18,312)$(44,208)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of capital assets$(27,535)$(7,904)
Investments in notes receivable(3,918)(14,193)
Collection of notes receivable13,225 235 
Cash paid for long-term investments (34,019)
Proceeds from business divestiture24,407 997 
Proceeds from sale of capital assets5 1,160 
Business acquisitions, net of cash acquired541 (9,983)
Proceeds from sale of promissory notes26,000  
Distributions from investments1,427 26 
Net cash provided by (used in) investing activities$34,152 $(63,681)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party debt$ $5,000 
Repayment of related party loan (20,000)
Proceeds from debt financing6,301 129,000 
Deferred financing costs paid(975)(3,317)
Proceeds from equity transactions 27,887 
Collateral received from financing agreement 22,000 
Repayment of debt(46,321)(10,822)
Net cash (used in) provided by financing activities$(40,995)$149,748 
Net (decrease) increase in cash, cash equivalents, restricted cash, and cash held for sale$(25,155)$41,859 
Cash, cash equivalents, restricted cash, and cash held for sale - Beginning of period54,639 26,600 
Cash, cash equivalents, restricted cash, and cash held for sale - End of period$29,484 $68,459 
RECONCILIATION OF CASH FLOW INFORMATION:
Cash and cash equivalents$27,868 $46,363 
Restricted cash$1,098 $22,096 
Cash held for sale$518 $ 
Total cash, cash equivalents, restricted cash, and cash held for sale at end of period$29,484 $68,459 

Nine Months Ended September 30,
(in thousands)20212020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid - non-lease$11,444 $988 
Income taxes paid6,346 867 
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital assets not yet paid for$4,063 $5,625 
Exchange of intangible assets to notes receivable 18,800 
Holdback of Maine HSCP notes receivable 917 
Promissory note conversion (Note 3)10,880 10,087 
Deferred tax liability related to business acquisition 3,077 
Beneficial conversion feature 523 
Convertible note conversion 550 
Insurance proceeds not yet received6,790  
Non-cash proceeds from business divestiture34,475  
Unpaid debt issuance costs 4,968 




See accompanying notes to Unaudited Condensed Consolidated Financial Statements
7

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1.    NATURE OF OPERATIONS
Acreage Holdings, Inc. (the “Company”, “Pubco” or “Acreage”) was originally incorporated under the Business Corporations Act (Ontario) on July 12, 1989 as Applied Inventions Management Inc. On August 29, 2014, the Company changed its name to Applied Inventions Management Corp. The Company continued into British Columbia and changed its name to “Acreage Holdings, Inc.” on November 9, 2018. The Company’s Class E subordinate voting shares (“Fixed Shares”) and Class D subordinate voting shares (“Floating Shares”) are listed on the Canadian Securities Exchange under the symbols “ACRG.A.U” and “ACRG.B.U”, respectively, quoted on the OTCQX under the symbols “ACRHF” and “ACRDF”, respectively, and traded on the Frankfurt Stock Exchange under the symbols “0VZ1” and “0VZ2”, respectively. The Company indirectly owns, operates and has contractual relationships with cannabis cultivation facilities, dispensaries and other cannabis-related companies in the United States (“U.S.”).
High Street Capital Partners, LLC, a Delaware limited liability company doing business as “Acreage Holdings” (“HSCP”), was formed on April 29, 2014. The Company became the indirect parent of HSCP on November 14, 2018 in connection with the reverse takeover (“RTO”) transaction described below.
The Company’s principal place of business is located at 450 Lexington Avenue, #3308, New York, New York in the U.S. The Company’s registered and records office address is Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia in Canada.
The RTO transaction
On September 21, 2018, the Company, HSCP, HSCP Merger Corp. (a wholly-owned subsidiary of the Company), Acreage Finco B.C. Ltd. (a special purpose corporation) (“Finco”), Acreage Holdings America, Inc. (“USCo”) and Acreage Holdings WC, Inc. (“USCo2”) entered into a business combination agreement (the “Business Combination Agreement”) whereby the parties thereto agreed to combine their respective businesses, which would result in the RTO of Pubco by the security holders of HSCP, which was deemed to be the accounting acquiror. On November 14, 2018, the parties to the Business Combination Agreement completed the RTO.
Canopy Growth Corporation transaction
On June 27, 2019, the Company and Canopy Growth Corporation (“Canopy Growth” or “CGC”) implemented the Prior Plan of Arrangement (as defined in Note 13) contemplated by the Original Arrangement Agreement (as defined in Note 13). Pursuant to the Prior Plan of Arrangement, Canopy Growth was granted an option to acquire all of the issued and outstanding shares of the Company in exchange for the payment of 0.5818 of a common share in the capital of Canopy Growth for each Class A subordinate voting share (each, a “SVS”) held (with the Class B proportionate voting shares (the “PVS”) and Class C multiple voting shares (the “MVS”) being automatically converted to SVS immediately prior to consummation of the Acquisition (as defined in Note 13), which original exchange ratio was subject to adjustment in accordance with the Original Arrangement Agreement. Canopy Growth was required to exercise the option upon a change in federal laws in the United States to permit the general cultivation, distribution and possession of marijuana (as defined in the relevant legislation) or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and, subject to the satisfaction or waiver of certain closing conditions set out in the Original Arrangement Agreement, Canopy Growth was required to acquire all of the issued and outstanding SVS (following the mandatory conversion of the PVS and MVS into SVS).
On June 24, 2020, Canopy Growth and the Company entered into an agreement to, among other things, amend the terms of the Original Arrangement Agreement and the terms of the Prior Plan of Arrangement (the “Amended Arrangement”). On September 16, 2020, the Company’s shareholders voted in favor of a special resolution authorizing and approving the terms of, among other things, the Amended Arrangement. Subsequently, on September 18, 2020, the Company obtained a final order from the Supreme Court of British Columbia approving the Amended Arrangement, and on September 23, 2020 the Company and Canopy Growth entered into the Amending Agreement (as defined in Note 13) and implemented the Amended Arrangement. Pursuant to the Amended Arrangement, the Company’s articles were amended to create the Fixed Shares, the Floating Shares and the Class F multiple voting shares (the “Fixed Multiple Shares”), and each outstanding SVS was exchanged for 0.7 of a Fixed Share and 0.3 of a Floating Share, each outstanding PVS was exchanged for 28 Fixed Shares and 12 Floating Shares, and each outstanding MVS was exchanged for 0.7 of a Fixed Multiple Share and 0.3 of a Floating Share. Refer to Note 13 for further discussion.
8

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Pursuant to the implementation of the Amended Agreement, on September 23, 2020, a subsidiary of Canopy Growth advanced gross proceeds of $50,000 to Universal Hemp, LLC, an affiliate of the Company. The debenture bears interest at a rate of 6.1% per annum. Refer to Note 10 for further discussion.
COVID-19
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to other countries and infections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.
In response to the outbreak, governmental authorities in the United States, Canada and internationally have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and economic disruptions. Management has been closely monitoring the impact of COVID-19, with a focus in the health and safety of the Company’s employees, business continuity and supporting its communities. The Company has implemented various measures to reduce the spread of the virus, including implementing social distancing measures at its cultivation facilities, manufacturing facilities, and dispensaries, enhancing cleaning protocols at such facilities and dispensaries and encouraging employees to adhere to preventative measures recommended by local, state, and federal health officials.
Significant uncertainty continues to exist concerning the magnitude of the impact of the COVID-19 pandemic and its variants.
2.    SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and going concern
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021, or any other period.
As reflected in the financial statements, the Company had an accumulated deficit as of September 30, 2021, as well as a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the issuance of these financial statements.
However, management believes that substantial doubt about the Company’s ability to meet its obligations for the next twelve months from the date these financial statements were issued has been alleviated due to, but not limited to, (i) access to future capital commitments, (ii) continued sales growth from the Company’s consolidated operations, (iii) latitude as to the timing and amount of certain operating expenses as well as capital expenditures, (iv) restructuring plans that have already been put in place to improve the Company’s profitability, (v) the Standby Equity Distribution Agreement (refer to Note 13 and 17 for further discussion) and (vi) the anticipated Non-Core Divestitures (refer to Note 3 for further discussion).
If the Company is unable to raise additional capital whenever necessary, it may be forced to decelerate or curtail its footprint buildout or other operational activities until such time as additional capital becomes available. Such limitation of the Company’s activities would allow it to slow its rate of spending and extend its use of cash until additional capital is raised. However, management cannot provide any assurances that it will be successful in accomplishing any of the Company’s plans. Management also cannot provide any assurance as to unforeseen circumstances that could occur at any time within the next twelve months or thereafter which could increase the Company’s need to raise additional capital on an immediate basis.
These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, dated March 25, 2021, as filed with the Securities and Exchange Commission (the “2020 Form 10-K”).
9

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Emerging growth company
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Functional and presentation currency
The unaudited condensed consolidated financial statements and the accompanying notes are expressed in U.S. dollars. Financial metrics are presented in thousands. Other metrics, such as shares outstanding, are presented in thousands unless otherwise noted.
Use of estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts that are reported in the unaudited condensed consolidated financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include the fair value of assets acquired and liabilities assumed in business combinations, assumptions relating to equity-based compensation expense, estimated useful lives for property, plant and equipment and intangible assets, the valuation allowance against deferred tax assets and the assessment of potential impairment charges on goodwill, intangible assets and investments in equity and notes receivable.
Basis of consolidation
The unaudited condensed consolidated financial statements include the accounts of Acreage, its subsidiaries and variable interest entities (“VIEs”) where the Company is considered the primary beneficiary, if any, after elimination of intercompany accounts and transactions. Investments in entities in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. The Company’s proportionate share of net income or loss of the entity is recorded in Income (loss) from investments, net in the Consolidated Statements of Operations.
The unaudited and audited consolidated financial statements are referred to as the “Financial Statements” herein. The unaudited condensed consolidated statements of operations are referred to as the “Statements of Operations” herein. The unaudited and audited condensed consolidated statements of financial position are referred to as the “Statements of Financial Position” herein. The unaudited condensed consolidated statements of cash flows are referred to as the “Statements of Cash Flows” herein.
Restricted cash
Restricted cash represents funds contractually held for specific purposes (refer to Note 10) and, as such, not available for general corporate purposes.
Impairment of long-lived assets
Goodwill and indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. Goodwill and indefinite-lived intangible assets are tested at the individual business level. The Company may first assess qualitative factors and, if it determines it is more likely than not that the fair value is less than the carrying value, then proceed to a quantitative test if necessary.
Finite-lived intangible assets and other long-lived assets are tested for impairment based on undiscounted cash flows when events or changes in circumstances indicate that the carrying amount may not be recoverable.
10

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Accounting for warrants and convertible notes
The Company determines the accounting classification of warrants it issues, as either liability or equity classified, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares.
If warrants do not meet the liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, and in order to conclude equity classification, the Company also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP. After all relevant assessments, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date.
The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The debt discounts under these arrangements are amortized over the earlier of (i) the term of the related debt using the straight line method which approximates the interest rate method or (ii) redemption of the debt. The amortization of debt discounts is included as a component of Interest expense in the accompanying Statements of Operations. Refer to Note 10 for further discussion.
Assets held for sale
The Company classifies long-lived assets or disposal groups as held for sale in the period when the following held for sale criteria are met: (i) the Company commits to a plan to sell; (ii) the long-lived asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such long-lived assets or disposal groups; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale is probable within one year; (v) the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. In accordance with ASC 360-10, Property, Plant and Equipment, long-lived assets and disposal groups classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell.
Other assets
The Company’s Other current assets balance on the Statement of Financial Position consists of accounts receivables, billed receivables, and other receivables, net of allowance for doubtful accounts, as well as prepaid expenses and other current assets as of September 30, 2021.
Net loss per share
Net loss per share represents the net loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis. Basic and diluted loss per share are the same as of September 30, 2021 and 2020 as the issuance of shares upon conversion, exercise or vesting of outstanding units would be anti-dilutive in each period. There were 42,621 and 46,541 potentially dilutive instruments outstanding as of September 30, 2021 and 2020, respectively. Refer to Note 16 for further discussion.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which was subsequently revised by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03. ASU 2016-13 introduces a new model for assessing impairment on most financial assets. Entities will be required to use a forward-looking expected loss model, which will replace the current incurred loss model, which will result in earlier recognition of allowance for losses. As an emerging growth company, the Company has elected to use the extended transition period for complying with any new or revised financial accounting
11

ACREAGE HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934. Accordingly, ASU 2016-13 will be effective for the Company’s first interim period of fiscal 2023, and the Company is currently evaluating the impact of the new standard.
3.    ACQUISITIONS, DIVESTITURES AND ASSETS HELD FOR SALE
Acquisitions
During the nine months ended September 30, 2021, the Company completed the business combination below. The preliminary purchase price allocation is as follows:
Purchase Price AllocationCWG (1)
Cash and cash equivalents$828 
Inventory1,200 
Other current assets347 
Capital assets3,312 
Operating lease ROU asset1,584 
Goodwill5,682 
Other non-current assets40 
Accounts payable and accrued liabilities(464)
Taxes payable(68)
Operating lease liability, current(193)
Other current liabilities3 
Operating lease liability, non-current(1,391)
Fair value of net assets acquired$10,880 
Consideration paid:
Settlement of pre-existing relationship$10,880 
Total consideration$10,880 
(1) On April 30, 2021, a subsidiary of the Company acquired 100% of CWG Botanicals, Inc. (“CWG”), an adult-use cannabis cultivation and processing operations in the state of California.
The consideration paid for CWG consisted of the settlement of a pre-existing relationship, which included a line of credit of $9,321 and the related interest receivable of $1,559, which were both previously recorded in Notes receivable, non-current on the Statements of Financial Position.
The preliminary purchase price allocation is based upon preliminary valuations and our estimates and assumptions are subject to change within the purchase price allocation period (generally one year from the acquisition date). The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of the tangible and intangible assets acquired and the residual goodwill.
On March 19, 2021, a subsidiary of the Company, HSC Solutions, LLC (“HSC Solutions”) entered into an assignment of membership agreement to acquire the remaining non-controlling interests of its subsidiary, NCC Real Estate, LLC (“NCCRE”), based primarily on the fair value of property held by NCCRE estimated in the amount of $850. The consideration paid to the non-controlling interest sellers of $