SHARE CAPITAL

12 Months Ended

Dec. 31, 2022


12. SHARE CAPITAL

Subordinate Voting Shares and Proportionate Voting Shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the vesting periods are recorded as share capital. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with ASC Topic 740, Income Taxes.

(a)Issued and Outstanding

As of December 31, 2022, the Company had 326,601,066 Subordinate Voting Shares and 133,823 Proportionate Voting Shares issued and outstanding. Converting the Proportionate Voting Shares to Subordinate Voting Shares on the basis of 100 Subordinate Voting Shares for one Proportionate Voting Shares, results in a total of 339,983,374 Subordinate Voting Shares issued and outstanding as of such date. The Company has the following two classes of share capital, with each class having no par value:

(i)Subordinate Voting Shares

The holders of the Subordinate Voting Shares are entitled to receive dividends issued by the Company and one vote per share at shareholder meetings of the Company. All Subordinate Voting Shares are ranked equally regarding the Company’s residual assets. The Company is authorized to issue an unlimited number of Subordinate Voting Shares.

(ii)Proportionate Voting Shares

Each Proportionate Voting Share is convertible into 100 Subordinate Voting Shares. The holders of the Proportionate Voting Share are entitled to receive dividends issued by the Company on an as converted to Subordinate Voting Share basis and 100 votes per share at shareholder meetings of the Company. The Proportionate Voting Shares are ranked equally on an as converted to Subordinate Voting Share basis regarding the Company's residual assets. The Company is authorized to issue an unlimited number of Proportionate Voting Shares.

During the year ended December 31, 2022, the shareholders of the Company converted Proportionate Voting Shares to Subordinate Voting Shares for an impact of conversion of 177,212 Proportionate Voting Shares into 17,721,188 Subordinate Voting Shares.

(b)Stock-Based Compensation

In February 2021, the Company established the Verano Holdings Corp. Stock and Incentive Plan (the “Plan”), which provides for stock-based remuneration for its eligible directors, officers, employees, consultants, and advisors. The maximum number of restricted stock units ("RSUs") and options that may be issued under the Plan cannot exceed 10% of the Company’s then issued and outstanding share capital, determined on an as converted to Subordinate Voting Shares basis. All goods and services received in exchange for the grant of any stock-based payments are measured at their fair value unless the fair value cannot be estimated reliably. If the Company cannot reliably estimate the fair value of the goods and services received, the Company measures their value indirectly by reference to the fair value of the equity instruments granted. The Company measures the fair value of the services by reference to the fair value of the equity instruments granted. Equity-settled stock-based payments under stock-based payment plans are ultimately recognized as an expense in profit or loss with a corresponding credit to equity.

The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. Estimates are subsequently revised if there is any indication that the number of shares expected to vest differs from the previous estimate. Any cumulative adjustment prior to vesting is recognized in the current period with no adjustment to prior periods for expense previously recognized.

Option and RSU grants generally vest over 12 to 30 months and options typically have a life of ten years.

Options

Option activity is summarized as follows:


	Number of Shares	Weighted Avg. Exercise Price C$	Weighted Average Remaining Contractual Life
Unvested Options Balance as of December 31, 2021	56,078	30.60	9.16
Granted	—	—	—
Forfeited	4,780	24.00	—
Vested	31,301	30.17	—
Unvested Options Balance at December 31, 2022	19,997	30.13	8.13
Inception to date Vested and Exercisable at December 31, 2022	19,992	30.19	8.13

As of December 31, 2022 and December 31, 2021, there were no in-the-money options.

The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted. No options were granted, 13,540 expired, and 4,780 options were forfeited during year ended December 31, 2022.

RSUs

The following table summarizes the number of unvested RSU awards as of December 31, 2022 and December 31, 2021 and the changes during the year ended December 31, 2022:


	Number of Shares	Weighted Avg. Grant Date Fair Value C$
Unvested RSUs at December 31, 2021	2,413,887	30.49
Granted	3,003,452	10.10
Forfeited	206,348	12.42
Vested	2,229,664	29.72
Unvested RSUs at December 31, 2022	2,981,327	11.39

The stock-based compensation expense for the years ended December 31, 2022 and December 31, 2021 were as follows:


	Years Ended December 31,
	2022		2021
			(As Restated)
Stock Options	$	300	$	387
Restricted Stock Units	38,754		44,863
Total Stock Based Compensation Expense	$	39,054	$	45,250

For the years ended December 31, 2022 and December 31, 2021, stock based compensation expense included in costs of goods sold totaled $8,003 and $3,544, respectively. For the years ended December 31, 2022 and December 31, 2021, stock based compensation expense included in selling, general, and administrative expense totaled $31,051 and $41,706, respectively.

As of December 31, 2022, total unrecognized stock-based compensation expense of $19,652 is expected to be recognized over the remaining contractual term.