Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Note 8: INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Intangible assets are recorded at cost less accumulated amortization and impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.

Intangible assets and related amortization are summarized in the table below:

	Licenses		Customer Relationships			Non- Competition Agreements			Trademarks			Know- How			Total
Balance, December 31, 2019	$	20,146	$	2,247		$	137		$	3,725		$	8,892		$	35,147
Amortization expense		—		(579	)		(94	)		(377	)		(1,959	)		(3,009	)
Impairment		—		—			—			(3,348	)		—			(3,348	)
Balance, December 31, 2020	$	20,146	$	1,668		$	43		$	—		$	6,933		$	28,790
Amortization expense		—		(580	)		(43	)		—			(1,921	)		(2,544	)
Balance, December 31, 2021	$	20,146	$	1,088		$	—		$	—		$	5,012		$	26,246

Goodwill

Balance, December 31, 2019	$	40,283
Disposal of PHX/Greens Goddess (Note 23)		(5,134	)
Tax adjustment to goodwill from Cannex acquisition		1,406
Impairment		(13,400	)
Balance, December 31, 2020	$	23,155
Balance, December 31, 2021	$	23,155

For the year ended December 31, 2020, the Company recorded a decrease of $5,134, from the disposal of PHX Interactive LLC/Greens Goddess Inc. (Note 23)

Goodwill is tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred. The Company tests impairment of goodwill in line with the two steps summarized below and further described in “Footnote 2. Significant Accounting Policies (j) Goodwill”:

1. Indicators of impairment – a qualitative test to determine if indicators of impairment (or conversely indicators of non-impairment), collectively “trigger events”, are present by assessing macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, events affecting a Reporting Unit, and a sustained decrease in share price (if applicable).

2. One-Step Quantitative Test – The quantitative test compares the reporting unit’s fair value to its carrying value. An impairment is recorded for any excess carrying value above the reporting unit’s fair value, not to exceed the amount of goodwill.

Year ended December 31, 2021

In 2021, management assessed indicators of impairment and concluded the below for the respective reporting units:

Retail, Production and Ancillary Cannabis Reporting Units’

Management did not identify any significant negative triggering events that would suggest it is more likely than not that impairment exists. Therefore, further analysis is not required for these Reporting Units.

Pure Ratios RU

Management considered potential impairment for Pure Ratios RU, as the Company identified triggering events that led to an impairment charge during the year ended December 31, 2020, as discussed below. However, Management concluded as of December 31, 2020 that the entire balance of goodwill and Trademarks for the Pure Ratios RU segment would be written off. As a result, the segment does not have a balance of goodwill or intangible assets remaining as of December 31, 2021. Therefore, further analysis is not required for this Reporting Unit. As the Company did not identify any impairment during the year ended December 31, 2021, the accumulated impairment as of December 31, 2021 is $13,400, which is equal to goodwill impairment identified for during the year ended December 31, 2020.

Year ended December 31, 2020

In 2020, management assessed indicators of impairment and concluded the below for the respective reporting units:

Retail, Production and Ancillary Cannabis Reporting Units’

Management did not identify any significant negative triggering events that would suggest it is more likely than not that impairment exists. Therefore, further analysis is not required for these Reporting Units.

Pure Ratios RU

Management identified negative triggering events regarding its online CBD business. Management has concluded that the overall financial performance of the entity continues to be worse than expectation, including revenue growth, EBITDA/cash flows, and future growth projections. The Pure Ratio’s business operates at a breakeven (i.e. Zero) profit level and is not expected to improve in the near term. As such, management has determined that the Goodwill and remaining intangible assets associated with the Pure Ratio’s RU are impaired.

The business was purchased by 4Front in 2019 with $32,376 in goodwill allocated to the entity. An impairment charge of $18,876 was recorded against Goodwill allocated to the reporting unit in 2019 due to triggers existing that identified future financial performance would be worse than projected. As a result of the same triggers in 2020, the remaining goodwill of $13,400 and $3,348 in Trademarks were written off as of December 31, 2020. As the Company did not identify any triggers of impairment in prior periods, the accumulated impairment for the year ended December 31, 2020 was $13,400.