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SIGNIFICANT ACCOUNTING POLICIES
 12 Months Ended
Dec. 31, 2022
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES
2. SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of Presentation
The consolidated financial statements for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). Certain prior year financial statement line items have been combined for presentation purposes.
(b)Basis of Measurement
The consolidated financial statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein.
(c)Functional and Presentation Currency
The Company’s functional currency, as determined by management, is the U.S. dollar. Unless otherwise indicated, all references to “$” or “US$” refer to U.S. dollars, and all references to “C$” refer to Canadian dollars.
(d)Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, as well as the accounts of any entities over which the Company has a controlling financial interest in accordance with Accounting Standards Codification (“ASC”) 810 Consolidation. All transactions and balances between these entities have been eliminated upon consolidation.
The ownership percentages for Verano’s owned subsidiaries and entities over which the Company has control are set forth below; provided, however in some cases the percentages may not match state regulatory records because for purposes of presentation the approval of certain pending, planned, or anticipated state regulatory transfers. The Company will update its regulatory filings in those states where it is permitted to do so as soon as practical and will continue to operate the entities below, where and as applicable, in accordance with current practice and in compliance with applicable laws and regulations.
Subsidiaries
Entity NameJurisdictionDoing Business As (if applicable)Percentage
Interest
102 Chester, LLCPennsylvaniaN/A100%
1090 Longwood, LLCFloridaN/A100%
11340 Fort Myers, LLCFloridaN/A100%
1200 Sharon, LLCMassachusetts N/A100%
12395 North Miami, LLCFloridaN/A100%
130 Monroeville, LLCPennsylvaniaN/A100%
1325 Coolidge, LLCArizonaN/A100%
1387 & 1391 Meriden, LLCConnecticutN/A100%
16 Magothy Road Beach, LLCMarylandN/A100%
1728 & 52 Old York Road, LLCPennsylvaniaN/A100%
1851 Canton, LLCOhioN/A100%
2000-2015 W. 3rd Street, LLCArizonaN/A100%
2030 Highland Park, LLCDelawareN/A100%
22627 Port Charlotte, LLCFloridaN/A100%
257 Wynnewood, LLCPennsylvaniaN/A100%
270 Cranberry, LLCPennsylvaniaN/A100%
2900 Lone Mountain, LLCNevadaN/A100%
42 Capital Management, LLCIllinoisN/A100%
420 Capital Management, LLCIllinoisZen Leaf Rogers Park; Zen Leaf Lombard100%
4444 W. Craig Road, LLCNevadaN/A100%
4450 New Haven, LLCFloridaN/A100%
4674 JAX, LLCFloridaN/A100%
5335 Las Vegas, LLCNevadaN/A100%
5409 S. Power Road, LLCArizonaN/A100%
6944 Apollo Beach, LLCFloridaN/A100%
7220 Palatka, LLCFloridaN/A100%
7221 Jessup, LLCMarylandN/A100%
783 Butterfield Road, LLCIllinoisN/A100%
799 Washington, LLCPennsylvaniaN/A100%
A&T SPV II LLCTexasN/A100%
AGG Wellness, LLCMarylandZen Leaf Towson100%
AGOZ Redevelopment, LPPennsylvaniaN/A100%
Agri-Kind, LLCPennsylvaniaN/A100%
Agronomed Biologics Holdings Inc.PennsylvaniaN/A100%
Agronomed Biologics LLCPennsylvaniaZen Leaf Chester; Zen Leaf West Chester; Zen Leaf Pittsburgh – Robinson; Zen Leaf Pittsburgh – McKnight; Zen Leaf New Kensington100%
Agronomed Holdings, Inc.PennsylvaniaN/A100%
Agronomed IP LLCPennsylvaniaN/A15%
Albion MM, LLCIllinoisN/A100%
Ataraxia, LLCIllinoisN/A100%
Entity NameJurisdictionDoing Business As (if applicable)Percentage
Interest
AZGM 3, LLCArizonaZen Leaf Chandler100%
Branchburg Rte. 22, LLCNew JerseyN/A100%
Caring Nature, LLCConnecticutN/A100%
Caring Nature EJV1, LLCDelawareN/A50%
Caring Nature EJV2, LLCDelawareCaring Nature Dispensary50%
Cave Creek RE, LLCArizonaN/A100%
ChiVegas Real Estate, LLCNevadaN/A100%
Connecticut Pharmaceutical Solutions, LLCConnecticutN/A100%
CTPharma Newington, LLCDelawareN/A50%
CTPharma Norwich, LLCDelawareN/A50%
CTPharma Real Estate Inc.ConnecticutN/A100%
CTPharma Research Solutions, LLCDelawareN/A10%
Cultivation Real Estate Holdings, LLCDelawareN/A100%
Custom Strains, LLCIllinoisN/A100%
DGV Group, LLCDelawareN/A62.50%
Elevele LLCIllinoisZen Leaf Highland Park; Zen Leaf Prospect Heights100%
FGM Processing, LLCMarylandN/A100%
Fort Consulting, LLCArizonaZen Leaf Phoenix – N. Cave Creek100%
Four Daughters Compassionate Care, Inc.MassachusettsZen Leaf Sharon; Zen Leaf Plymouth100%
Freestate Wellness, LLCMarylandZen Leaf Elkridge100%
Glass City Alternatives, LLCOhioZen Leaf Bowling Green100%
Green RX, LLCOhioZen Leaf Cincinnati 100%
Healthway Services of Illinois, LLCIllinoisZen Leaf St. Charles; Zen Leaf Naperville100%
Local Dispensaries, LLCPennsylvaniaZen Leaf Harrisburg; Zen Leaf York; Zen Leaf Altoona100%
Lone Mountain Partners, LLCNevadaZen Leaf North Las Vegas; Zen Leaf Flamingo Road100%
Mad River Remedies, LLCOhioZen Leaf Dayton100%
MD MM Logistics, LLCMarylandN/A100%
Mikran, LLCMarylandZen Leaf Germantown100%
MME Aurora Retail, LLCIllinoisZen Leaf Aurora100%
MME Evanston Retail, LLCIllinoisZen Leaf Evanston100%
Mother Grows Best, LLCOhioN/A100%
Mother Know’s Best, LLCOhioZen Leaf Canton100%
NatureX, LLCNevadaZen Leaf Las Vegas100%
NSE Pennsylvania LLCPennsylvaniaZen Leaf Philadelphia; Zen Leaf Wynnewood; Zen Leaf Clifton Heights100%
NuTrae, LLCFloridaN/A100%
Nuuvn Holdings, LLCDelawareN/A100%
NV MM Logistics, LLCNevadaN/A100%
OH MM Logistics, LLCOhioN/A100%
Ohio Natural Treatment Solutions, LLCDelawareZen Leaf Newark100%
Patient Alternative Relief Center, LLCArizonaZen Leaf Phoenix – University Dr.100%
Perpetual Healthcare, LLCArizonaZen Leaf Phoenix – W. Dunlap100%
Entity NameJurisdictionDoing Business As (if applicable)Percentage
Interest
Plants of Ruskin, LLCFloridaMÜV Apollo Beach; MÜV Auburndale; MÜV Bonita Springs; MÜV Boynton; MÜV Bradenton – 75th West; MÜV Bradenton – Heritage West; MÜV Brandon; MÜV Cape Coral; MÜV Clearwater – 19 North; MÜV Clearwater – Roosevelt; MÜV Deerfield Beach; MÜV Fort Myers; MÜV Fort Myers Beach; MÜV Fort Myers-Cypress; MÜV Gainesville; MÜV Hobe Sound; MÜV Hollywood; MÜV Jacksonville; MÜV Jacksonville Beach; MÜV Jacksonville – Skymarks; MÜV Key West; MÜV Lady Lake; MÜV Lakeland; MÜV Longwood; MÜV Lutz; MÜV Marco Island; MÜV Merrit Island; MÜV New Tampa; MÜV North Port; MÜV Ocala; MÜV Orange City; MÜV Orlando – Garland; MÜV Orland – Vineland; MÜV Ormond Beach; MÜV Palatka; MÜV Panama City Beach; MÜV Pensacola; MÜV Pinellas Park; MÜV Port Charlotte; MÜV Port Orange; MÜV Port St. Lucie; MÜV Sarasota; MÜV Sarasota-Main; MÜV Sebastian; MÜV Sebring; MÜV Shalimar; MÜV Spring Hill; MÜV St. Augustine; MÜV St. Petersburg; MÜV Stuart; MÜV Tallahassee; MÜV Tamarac; MÜV Tampa – Dale Mabry; MÜV Tampa-Himes; MÜV Tampa – West Kennedy; MÜV Titusville; MÜV Wellington; MÜV West Melbourne; MÜV West Palm Beach; MÜV Winter Haven100%
Prospect Heights RE, LLCIllinoisN/A100%
RedMed, LLCDelawareN/A100%
Retail and Office Real Estate Holdings, LLCDelawareN/A100%
RVC 360, LLCDelawareN/A100%
SG1 LLCDelawareN/A100%
TerraVida Holistic Centers LLCPennsylvaniaZen Leaf Sellersville; Zen Leaf Abington; Zen Leaf Malvern100%
The Healing Center LLCPennsylvaniaZen Leaf Cranberry; Zen Leaf Washington; Zen Leaf Monroeville100%
The Herbal Care Center, Inc.IllinoisZen Leaf Pilsen; Zen Leaf West Loop100%
The Medicine Room, LLCArizonaZen Leaf Mesa100%
Vehicle and Logistics Holdings, LLCDelawareN/A100%
Vending Logistics, LLCArizonaZen Leaf Gilbert100%
Verano Alabama Holdings, LLCDelawareN/A100%
Verano Alabama, LLCAlabamaN/A49%
Verano Arizona, LLCDelawareN/A100%
Verano Connecticut, LLCDelawareN/A100%
Verano El Dorado, LLCArkansasN/A100%
Verano Florida, LLCDelawareN/A100%
Entity NameJurisdictionDoing Business As (if applicable)Percentage
Interest
Verano Four Daughters Holdings, LLCDelawareN/A100%
Verano Holdings, LLCDelawareN/A100%
Verano Holdings USA Corp.DelawareN/A100%
Verano Illinois, LLCIllinoisN/A100%
Verano IP, LLCDelawareN/A100%
Verano Michigan, LLCDelawareN/A100%
Verano Nevada, LLCNevadaN/A100%
Verano NJ Holdings, LLCDelawareN/A100%
Verano NJ LLCNew JerseyZen Leaf Elizabeth; Zen Leaf Neptune; Zen Leaf Lawrence100%
Verano Ohio, LLCDelawareN/A100%
Verano Pennsylvania, LLCDelawareN/A100%
Verano Virginia, LLCDelawareN/A100%
VZL Staffing Services, LLCIllinoisN/A100%
West Capital, LLCIllinoisN/A100%
Willow Brook Enfield, LLCDelawareN/A50%
Willow Brook Stratford, LLCDelawareN/A50%
Willow Brook Wellness, LLCConnecticutWillow Brook Wellness100%
WSCC Property LLCNevadaN/A100%
WSCC, Inc.NevadaZen Leaf Reno; Zen Leaf Carson City100%
Zen Leaf Retail, LLCMarylandN/A100%
Zen Leaf Technologies, LLCDelawareN/A100%
ZenNorth, LLCDelawareN/A100%
ZNN Holdings, LLCDelawareN/A100%
Controlled Entities
Entity NameJurisdiction of OrganizationDoing Business As (if applicable)Percentage Interest
Buchanan Development, LLCMichiganZen Leaf Buchanan100%
Maryland Natural Treatment Solutions, LLCMarylandZen Leaf Pasadena100%
Natural Treatment Solutions, LLCMarylandN/A100%
Noah’s Ark, LLCArkansasZen Leaf El Dorado100%
Verano MI2, LLCMichiganN/A100%
Verano MO Holdings, LLCDelawareN/A100%
Verano MO, LLCMissouriN/A100%
Verano WV, LLCWest VirginiaZen Leaf Oak Hill; Zen Leaf Clarksburg; Zen Leaf Dunbar; Zen Leaf Morgantown; Zen Leave Westover; Zen Leaf Wheeling; Zen Leaf Buckhannon99%
VMO Processing, LLCMissouriN/A100%
VMO Retail, LLCMissouriN/A100%
(e)Restatement of Previously Issued Consolidated Financial Statements

As described in the Company’s Amendment No. 3 to Registration Statement on Form 10, filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 8, 2022 (the “Form 10”), the Company restated
its previously issued consolidated financial statements for each of the quarterly and year-to-date periods ended March 31, 2022, December 31, 2021, and March 31, 2021 (collectively, the "Restatements"). Amounts as of or for the period ended December 31, 2021 depicted in these consolidated financial statements with the notation "As Restated" include the impact of the restatement included in the Form 10. The Restatements include the following:

(i) As of and for the year ended December 31, 2021, because of an error related to stock-based compensation, the Company increased inventory by $3,069 and the Company’s tax expense was overstated with corresponding adjustments to income tax payable of $662 and a decrease of deferred income taxes of ($800).

(ii) Because of the stock-based compensation error, as of and for the quarter ended March 31, 2022, the Company increased inventory by $3,898, cost of goods sold, net by $1,052, and salaries and benefits expense by $9,572.

(iii) Because of the stock-based compensation error, as of and for the quarter ended March 31, 2021, the Company increased salaries and benefits expense by $5,692.

(iv) Because of an overstatement of tax expense due to a clerical error, the Company decreased tax expense by $20,274 and made corresponding adjustments to income tax payable of ($23,071) and an increase to deferred income taxes of $2,659 as of and for the quarter ended March 31, 2022.

There was no net cash impact to the Company’s audited consolidated financial statements for the year ended December 31, 2021 and no net cash impact to the Company’s unaudited interim condensed consolidated financial statements for the quarters ended March 31, 2022 and 2021, as a result of the Restatements.

In addition, the Company’s accounting for distributions from a consolidated entity was corrected in the Restatements to reduce investment in associates and non-controlling interest equity by ($1,675) for the year ended December 31, 2021, and ($100) for the quarter ended March 31, 2021. Also, the investment in associates was corrected to account for distributions in excess of investment resulting in an increase of equity income of $1,537 and $1,638 at December 31, 2021 and March 31, 2022, respectively, with a reduction in disposition of investments of $3,176 at March 31, 2022. Further, after March 31, 2022 but before the March 31, 2022 financials were issued, the Company became aware of information regarding the Connecticut Pharmaceutical Solutions, Inc. and The Healing Center, LLC acquisition purchase price earnouts, as described in Note 10 - Transactions. As a result, the Company recognized an aggregate $4,760 reduction in these acquisition earnouts which was recorded for the quarter ended March 31, 2022 to reflect the subsequent information indicating a lower liability.

(f)Variable Interest Entities & Non-Controlling Interests
A variable interest entity (“VIE”) is an entity that either (i) has insufficient equity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the VIE economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

If the Company determines that it has operating power over an entity and the obligation to absorb losses or receive benefits from such entity, the Company consolidates such entity as a VIE in its capacity as the primary beneficiary, and if the Company determines it does not, then the Company does not consolidate the entity. The Company’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity.
Assets recognized as a result of consolidating VIEs do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating VIEs do not represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of the applicable consolidated VIEs.

Non-controlling interests (“NCI”) represent equity interests owned by third parties not affiliated with the Company. NCI may be initially measured at fair value or at the NCI’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement is made by the Company on a transaction-by-transaction basis. The share of net assets attributable to NCI are presented as a component of equity. NCI’s share of net income or loss and comprehensive income or loss is recognized by the Company directly in equity.
Total comprehensive income or loss of subsidiaries is attributed to the shareholders of the Company and to the NCI, even if this results in the NCI having a deficit balance.
(g)Cash and Cash Equivalents
Cash and cash equivalents include cash deposits in financial institutions, other deposits that are readily convertible into cash, with original maturities of three months or less, and cash held at retail locations.
(h)Accounts Receivable and Expected Credit Loss

Accounts receivable are recorded at the invoiced amount and do not bear interest. Expected credit loss reflects the Company’s estimate of amounts in its accounts receivable at such time that may not be collected due to customer claims or customer inability or unwillingness to pay. Collectability of accounts receivables is reviewed by the Company on an ongoing basis. The expected credit loss is determined based on a combination of factors, including the Company’s risk assessment regarding the credit worthiness of customers, historical collection experience and length of time the accounts receivables are past due. Account balances are charged off against the allowance when the Company believes it is probable the account receivable will not be recovered. The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. As of December 31, 2022 and 2021, the allowance for credit losses were $346 and $356, respectively.
(i)Inventory
Inventory of purchased finished goods and packing materials are initially valued by the Company at cost and subsequently at the lower of cost and net realizable value. Cultivated inventory include direct and indirect costs of production, including costs of materials, labor, stock-based compensation, and depreciation related to cultivation. Such costs are capitalized as incurred, and subsequently included within cost of goods sold within the Company’s Consolidated Statements of Operations, at the time the products are sold. Net realizable value is determined by the Company as the estimated selling price in the ordinary course of business, less reasonable costs associated with the sale. Cost is determined using the weighted average cost basis. Products for resale and supplies and consumables are valued by the Company at lower of cost and net realizable value. Lastly, in calculating final inventory values, the Company is required to compare the inventory cost to estimated net realizable value.
The net realizable value of inventory represents the estimated selling price for inventory in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale. The determination of net realizable value requires significant judgment by the Company, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price of the inventory, and any contractual arrangements with customers. Reserves established by the Company for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made by the Company at a point in time, using available information, expected business plans, and expected market conditions. As a result, the actual amount received on the sale of inventory could differ from its estimated value. The Company performs periodic reviews on the inventory balance. The impact of changes in inventory reserves made by the Company is reflected in cost of goods sold.
(j)Investment in Associates

Associates are all entities over which the Company has significant influence, but not control, generally with the Company holding between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized by the Company at cost. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the applicable associates. Accounting policies of associates are adjusted where necessary to ensure consistency with the policies adopted by the Company. If the financial statements of an associate are prepared on a date different from that used by the Company, adjustments are made for the effects of significant transactions or events that occur between the associate’s date and the date of the Company’s Consolidated Financial Statements.
Gains and losses arising in investments in associates are recognized in the Company’s Consolidated Statements of Operations.

The Company assesses annually whether there is any objective evidence that its interest in associates is impaired. If impaired, the carrying value of the Company’s interest of the underlying assets of the applicable associate is written down to its estimated recoverable amount (being the higher of fair value less costs of disposal or value in use) and reflected as a charge in the Company’s consolidated statement of operations. There were no impairment charges recorded for the years ended December 31, 2022, 2021 and 2020.
(k)Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures made by the Company that materially increase the life of the assets are capitalized. Ordinary repairs and maintenance are expensed as incurred. The Company’s estimated depreciable lives of operating assets and facilities are as follows:
LandNot Applicable
Building30 years
Construction in Progress (“CIP”)Not Applicable
Leasehold ImprovementsShorter of: remaining lease term or
10 years
Tools & Equipment7 years
Kitchen & Lab Equipment7 years
Other Machinery & Equipment7 years
Furniture & Fixtures7 years
Electronic & Security Equipment5 years
Vehicles7 years
Land Improvements15 years
The assets’ residual values, useful lives and methods of depreciation are reviewed by the Company at each financial year-end and adjusted prospectively, if deemed appropriate. An item of equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the Consolidated Statements of Operations in the year the asset is derecognized.
Depreciation of property, plant and equipment is dependent upon estimates of useful lives which are determined by the Company through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of such assets.
Property, plant and equipment classified as construction in progress are transferred when placed in service, at which time depreciation of the asset begins.
(l)Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization and impairment losses, if any. Intangible assets acquired by the Company in a business combination are measured at fair value at the acquisition date. Amortization periods of assets with finite lives are based on the Company’s estimates as of the dates of acquisitions. Intangible assets with finite lives are amortized 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. Amortization periods by class of intangible assets with finite lives were as follows as of December 31, 2022:
Licenses
9-15 years
Tradenames
5-10 years
Technology
5-20 years
During the fourth quarter and year ended December 31, 2022, the Company noted a triggering event in its Step Zero analysis of its Goodwill impairment test (see “m” below for more details). Accordingly, the Company performed a qualitative analysis and determined that a license associated with its Arizona cultivation (wholesale) reporting unit, was fully impaired. As of December 31, 2022, the Company has recorded an impairment charge of $116,151 associated with this intangible asset.

No such impairment charges were recorded during the years ended December 31, 2021 or 2020.
(m)Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative fair value of each reporting unit.

Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. During the year ended December 31, 2022, the Company voluntarily changed the assessment date of its the annual goodwill and indefinite-lived intangible asset impairment testing, in accordance with Financial Accounting Standards Board ASC 350, Intangibles–Goodwill and Other, from the end of the year (12/31), as applicable, to the beginning of the fourth quarter of the fiscal year (10/1), for all reporting units.
The Company applies the guidance in ASU 2011-08, Intangibles-Goodwill and Other-Testing Goodwill for Impairment, which provides entities with an option to perform a qualitative assessment (commonly referred to as “Step Zero”) to determine whether further quantitative analysis for impairment of goodwill is necessary. In performing Step Zero for the Company’s goodwill impairment test, the Company is required to make assumptions and judgments including, but not limited to, the following: the evaluation of macroeconomic conditions as related to the Company’s business, industry and market trends, and the overall future financial performance of its reporting units and future opportunities in the markets in which they operate. If impairment indicators are present after performing Step Zero, the Company would perform a quantitative impairment analysis to estimate the fair value of goodwill.

During the years ended December 31, 2021 and 2020, the Company performed the Step Zero analysis for its goodwill impairment test. As a result of the Company's Step Zero analysis, no further quantitative impairment test was deemed necessary. No such impairment charges were recorded for the years ended December 31, 2021 or 2020.

Additionally, during the year ended December 31, 2022, the Company performed the Step Zero analysis for its goodwill impairment test on a quarterly basis. The step zero analysis resulted in a probable impairment for the fourth quarter test, which led the Company to proceed with a quantitative evaluation. Furthermore, the Company evaluated whether the fourth quarter impairment could have pertained to an earlier interim period and concluded that the impairment was appropriately recognized in the fourth quarter ended December 31, 2022, after evaluating the significance and duration of sustained market value contractions in the cannabis industry, as well as, the Company’s own decline in market capitalization.

During the fourth quarter and year ended December 31, 2022, the Company recognized an impairment charge of (i) $46,537 associated with its Arizona retail reporting unit, (ii) $2,252 associated with its Arizona cultivation (wholesale) reporting unit, (iii) $61,127 associated with its Pennsylvania retail reporting unit, and (iv) $3,115 associated with its Pennsylvania cultivation (wholesale) reporting unit, as the carrying values of the reporting units exceeded the estimated fair value by such amounts.

The analysis performed included estimating the fair value of each reporting unit using either an income or market approach. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows, discount rates, the allocation of shared or corporate costs and the eventual repeal of 280E of the Code. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping.

The determination of fair value in the quantitative assessment requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include but are not limited to: the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization and capital expenditures.
(n)Leased Assets
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
•the contract involves the use of an identified asset,
•the Company has the right to obtain substantially all of the economic benefits from use of the asset through the period of use; and
•the Company has the right to direct the use of the asset.
Such standard is applied to contracts entered into, or changed, on or after January 1, 2019.
At inception or on reassessment of a contract that contains a lease component, the Company allocates consideration in the contract to the lease component on the basis of their relative stand-alone prices.
The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date.

The ROU asset is initially measured at cost, which is comprised of (i) the initial amount of the lease liability, as adjusted for any lease payments made at or before the commencement date, plus (ii) the amount of any initial direct costs incurred, plus (iii) an estimate of the cost to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less (iv) any lease incentives received by the Company.

The ROU asset is depreciated using the straight-line method from the commencement date to the earlier of the end of the estimated useful life of the ROU asset or the end of the lease term. For operating leases, the ROU asset depreciation fluctuates in relation to the interest expense on the lease liability, in combination, resulting in a straight-line rent expense attribution. The estimated useful lives of the ROU assets are determined on the same basis as the life of the lease. In addition, the ROU asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following:
•fixed payments, including in-substance fixed payments;
•variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
•amounts expected to be payable under a residual value guarantee; and
•the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option.
When the lease liability is remeasured by the Company, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded as a profit or loss if the carrying amount of the ROU asset has been reduced to zero.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with the leases as an expense on a straight-line basis over the lease term.
(o)Advertising
Advertising costs are charged to expense when incurred. Advertising expenses totaled $15,997, $8,644 and $919 for the years ended December 31, 2022, 2021 and 2020, respectively.
(p)Income Taxes
Deferred taxes are determined by the Company using an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of the Company, it is more likely than not that some portion or all of the deferred tax assets will not be realized.


Deferred tax assets and liabilities are measured using the enacted tax rates. The impact of a change in tax law or tax rates on deferred tax assets and liabilities is recognized by the Company in income in the period that enactment of the change occurs.

Provisions for taxes are made using the Company’s estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of each financial reporting period. However, it is possible that an additional liability could result from future audits by taxing authorities. Where the final amounts of these taxes are different from the amount that were initially recorded, such differences will affect the tax provisions in the financial reporting period in which such final determination is made.

As discussed further in Note 13 - Income Taxes, the Company is subject to the limitations of Section 280E of the Internal Revenue Code of 1986, as amended (the “Code”).
(q)Revenue Recognition
Revenue is recognized by the Company in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).
In order to recognize revenue under ASU 2014-09, the Company applies the following five steps:
•identify a customer along with a corresponding contract;
•identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer;
•determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods or services to a customer;
•allocate the transaction price to the performance obligation(s) in the contract; and
•recognize revenue when or as the Company satisfies the performance obligation(s).
Revenues from the wholesale and retail sales are generally recognized by the Company at a point in time when control over the goods has been transferred to the customer and reflects the amount the Company expects to receive for such goods, net of discounts.

Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under the Company’s credit policy. Wholesale customers may have payment terms within a specified time-period permitted under the Company’s credit policy, typically within 30 days of transfer of the goods to the customer. The Company generally requires full payment from a customer for any previous purchase prior to entering into another purchase contract with such customer.
Revenue is recognized upon the satisfaction of the performance obligation. The Company satisfies its performance obligation and transfers control upon delivery and acceptance by the customer.
The Company has customer loyalty programs in which retail customers accumulate points for future product discounts that are based on each dollar paid for the Company’s products. These points are recorded by the Company as a contract liability until customers redeem their points for discounts on cannabis and vape products as part of an in-store sales transaction. In addition, the Company records a performance obligation as a reduction of revenue based on the Company’s estimated probability of point redemption, which is calculated based on a standalone selling price.

(r)Fair Value of Financial Instruments
The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in its financial statement on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers all related factors of the asset by market participants in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
The individual fair values attributed to the different components of a financing transaction, derivative financial instruments, are determined using valuation techniques. The Company uses its judgment to select the methods used to make certain assumptions and in performing the fair value calculations to determine (i) the values attributed to each component of a transaction at the time of their issuance; (ii) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (iii) for disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates could be
significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market. For further details, see Note 19 – Fair Value Measurements.
(s)Commitments and Contingencies

The Company is subject to lawsuits, investigations and other claims related to employment, commercial, transactional, and other matters that arise out of its operations. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable, and the amount can be reliably estimated, such amount is recognized in the Company’s other liabilities.
Contingent liabilities are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. The Company performs evaluations to identify onerous contracts and, where applicable, records contingent liabilities for such contracts.

Contingent purchase price consideration is measured as of the acquisition and is estimated using probability weighting of potential payouts. Subsequent changes in the estimated contingent considerations from the final purchase price allocation are recognized in the Company’s Consolidated Statement of Operations.
(t)Impairment of Other Long-Lived Assets
The Company evaluates the recoverability of other long-lived assets, including property, plant and equipment, and certain identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. The Company performs impairment tests of indefinite-lived intangible assets on an annual basis or more frequently in certain circumstances. Factors which could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, a significant decrease in the market value of the assets or significant negative industry or economic trends.

When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value. During the year ended December 31, 2022, the Company record a full impairment charge associated with its Arizona cultivation (wholesale) license of $116,151. There were no impairment charges related to intangible assets or property, plant and equipment for the years ended December 31, 2021 and 2020.
(u)Earnings (Loss) per Share
Basic earnings (loss) per share is calculated using the treasury stock method, by dividing the net earnings (losses) attributable to shareholders by the weighted average number of shares (including the Company's Class B Proportionate Voting Shares (the "Proportionate Voting Shares") on an as converted to Subordinate Voting Shares basis of 100 Subordinate Voting Shares to one Proportionate Voting Share) outstanding during each of the periods presented. Contingently issuable shares (including shares held in escrow) are not considered outstanding shares and consequently are not included in the earnings (loss) per share calculations. Diluted income per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all dilutive potential shares.
To determine diluted income per share, the Company assumes that any proceeds from the exercise of dilutive share options would be used to repurchase shares at the average market price during the period. The diluted income per share calculation excludes any potential conversion of share options and convertible debt, if any, that would increase earnings per share or decrease loss per share. No potentially dilutive share equivalents were
included in the computation of diluted earning (losses) per share for the years ended December 31, 2022, 2021 and 2020 because their impact would have been anti-dilutive.
(v)Convertible Notes
The Company accounts for hybrid contracts that feature conversion options in accordance with ASC Topic 815, Derivatives and Hedging Activities (“ASC 815”). ASC 815 requires companies to bifurcate conversion options and account for them as freestanding financial instruments according to certain criteria. If the embedded features do not meet the criteria for bifurcation, the convertible instrument is accounted for as a single hybrid instrument in accordance with ASC Topic 470-20, Debt with Conversion and Other Options (“ASC 470-20”).
The modification of warrant agreements presented as equity classified are first analyzed to ensure that such modifications do not change the classification of the instrument. If equity presentation remains proper, an adjustment to equity is recorded. If equity presentation is not preserved, the modification is evaluated under ASC 470-20.
(w)Business Combinations
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of the transaction. Transaction related costs are expensed as incurred. Identifiable assets and liabilities, including intangible assets, of acquired businesses are recorded at their fair value at the date of the transaction. When the Company acquires control of a business, any previously held equity interest is also remeasured to fair value. The excess of the purchase consideration and any previously held equity interest over the fair value of identifiable net assets acquired is goodwill. If the fair value of identifiable net assets acquired exceeds the purchase consideration and any previously held equity interest, the difference is recognized in the Consolidated Statements of Operations immediately as a gain.

Contingent consideration is measured at its transaction-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with ASC Topic 450, Contingencies, as appropriate, with the corresponding gain or loss being recognized in the Consolidated Statement of Operations.
The Company recognizes the identifiable assets acquired and the liabilities assumed at their acquisition date fair values in accordance with ASC Topic 820, Fair Value. Management exercises judgement in estimating the fair values of specific assets and liabilities such as inventory, fixed assets and intangible assets. In general, acquired current assets and liabilities are valued at cost basis as carrying value approximates fair value.
Inventory is recognized at net realizable value. Historical inventory costs are used to calculate the estimated fair value of inventory, also known as the inventory step-up. Management analyzes the acquirees’ historical performance and considers other factors that may impact the inventory step up such as operational, regulatory, legal or economic factors that may influence post-acquisition performance.
Where applicable, the Company engages independent valuation experts to perform fair value assessments on tangible assets, inclusive of property, plant and equipment. The valuation expert appraises the fair value of acquired fixed assets.
The Company identifies intangible assets and, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.
Cannabis licenses are the primary intangible asset acquired in business combinations as they provide the Company the ability to operate in each market. The key assumptions used in these cash flow projections include discount rates and terminal growth rates. Other significant assumptions include revenue, gross profit, operating expenses and anticipated capital expenditures which are based upon the Corporation’s historical operations along with management projections.
Certain fair values may be estimated at the transaction date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted in subsequent periods. However, the measurement period will last for one year from the transaction date.
Judgment is applied in assessing whether the Company exercises control and has significant influence over entities in which the Company directly or indirectly owns an interest. The Company has control when it has the power over the entity, has exposure or rights to variable returns, and has the ability to use its power to affect the returns. Significant influence is defined as the power to participate in the financial and operating decisions of the entities. Where the Company is determined to have control, these entities are consolidated. Additionally, judgment is applied in determining the effective date on which control was obtained.
(x)Segment Reporting
An operating segment is a component of the Company for which discrete financial information is available and whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and that engages in business activities from which it may earn revenue and incur expenses. The Company has two reportable segments: (i) Cultivation (Wholesale), which is the cultivation, production and sale of cannabis to retail stores, and (ii) Retail, which is the retailing of cannabis to patients and consumers.
For the purposes of testing impairment of goodwill, the Company has identified 13 reporting units. The Company analyzed its reporting units by first reviewing the operating segments based on the geographic areas in which the Company conducts business (or each market). The markets were then further divided into reporting units based on the market operations (retail and cultivation (wholesale)) which were primarily determined based on the licenses each market holds.

All revenues were generated in the United States for the years ended December 31, 2022, 2021 and 2020.
(y)Stock-Based Payments
The Company operates a stock-based remuneration plan for its eligible directors, officers, and employees. 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 estimate reliably 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. For transactions with employees, 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 payments plans are ultimately recognized as an expense in the Consolidated Statement of Operations with a corresponding credit to equity.
The Company recognizes compensation expense for restricted stock units (“RSUs”) and options on a straight-line basis over the requisite service period of the award and forfeitures are recorded as incurred. Non-market vesting conditions are included in the assumptions about the number of options or RSUs that are expected to achieve such vesting conditions. Estimates are subsequently revised if there is any indication that the number of options or RSUs expected to vest differs from the previous estimate. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior period if options ultimately exercised are different to that estimated on vesting.

(z)Assets Held for Sale

Our Company classifies long-lived assets to be sold as held for sale in the period in which all of the following criteria are met: (i) management, having the authority to approve the action, commits to a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (iv) the sale of the asset is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Assets held for sale represent land, buildings and other fixed assets less accumulated depreciation related to facilities in which the Company has no continuing involvement. We record assets held for sale in accordance with ASC 360 “Property, Plant, and Equipment,” at the lower of carrying value or fair value less cost to sell. Fair value is based on the estimated proceeds from the sale of the facility utilizing recent purchase offers. As of December 31, 2022, the Company had $3,433 of assets held for sale relating to several facilities in Nevada that are to be sold in the first half of 2023.
(aa) Significant Accounting Judgments, Estimates, and Assumptions
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods. Significant judgments, estimates, and assumptions that have the most significant effect on the amounts recognized in the consolidated financial statements are described below.
(i)Estimated Useful Lives and Amortization of Intangible Assets
Amortization of intangible assets is recorded on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. Intangible assets that have indefinite lives are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they may impaired.
(ii)Inventory
The net realizable value of inventory represents the estimated selling price for inventory in the ordinary course of business, less all estimated costs of completion and costs necessary to make the sale. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price the Company expects to realize by selling the inventory, and any contractual arrangements with customers. Reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made at a point in time, using available information, expected business plans, and expected market conditions. As a result, the actual amount received on sale could differ from the estimated value of inventory. Periodic reviews are performed on the inventory balance. The impact of changes in inventory reserves is reflected in cost of goods sold.
(iii)Determination of Reporting Units
The Company’s assets are aggregated into two reportable segments: cultivation (wholesale) and retail. For the purposes of testing impairment of goodwill, the Company has identified 13 reporting units. The Company analyzed its reporting units by first reviewing the operating segments based on the geographic areas in which the Company conducts business (or each market). The markets were then further divided into reporting units based on
the market operations (retail and cultivation (wholesale)) which were primarily determined based on the licenses each market holds.
(iv)Goodwill Impairment
Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill has been impaired. To determine if the value of goodwill has been impaired, the reporting unit to which goodwill has been assigned or allocated must be valued using present value techniques. When applying this valuation technique, the Company relies on a number of factors, including historical results, business plans, forecasts and market data. Changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.

During the years ended December 31, 2021 and 2020, the Company performed the Step Zero analysis for its goodwill impairment test. As a result of the Company's Step Zero analysis, no further quantitative impairment test was deemed necessary. No such impairment charges were recorded for the years ended December 31, 2021 or 2020.
During the year ended December 31, 2022, the Company recognized an impairment charge of (i) $46,537 associated with its Arizona retail reporting unit, (ii) $2,252 associated with its Arizona cultivation (wholesale) reporting unit, (iii) $61,127 associated with its Pennsylvania retail reporting unit, and (iv) $3,115 associated with its Pennsylvania cultivation (wholesale) reporting unit, as the carrying values of the reporting units exceeded the estimated fair value by such amounts.

The analysis performed included estimating the fair value of each reporting unit using either an income or market approach. The income approach requires management to estimate a number of factors for each reporting unit, including, but not limited to, projected future operating results, economic projections, anticipated future cash flows, discount rates, the allocation of shared or corporate costs and the eventual repeal of 280E of the Code. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping.

The determination of fair value in the quantitative assessment requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include but are not limited to: the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization and capital expenditures.

As a result of the Company's goodwill impairment analysis for the year ended December 31, 2022, the Company determined four of the reporting units were impaired. See Note 7 - Goodwill for further details.
(v)Property, Plant and Equipment Impairment
The Company evaluates the carrying value of long-lived assets at the end of each reporting period whenever there is any indication that a long-lived asset is impaired. Such indicators include evidence of physical damage, indicators that the economic performance of the asset is worse than expected, or that the decline in asset value is more than the passage of time or normal use, or significant changes occur with an adverse effect on the Company’s business. If any such indication exists, the Company estimates the recoverable amount of the asset. An asset is impaired when its carrying amount exceeds its recoverable amount. The Company measures impairment based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. The fair value is determined primarily by using the projected future cash flows discounted at a rate commensurate with the risk involved as well as market valuations. Losses on long-lived assets to be disposed of are determined in a similar manner, except that the fair values are reduced for an estimate of the cost to dispose or abandon.
(vi)Discount Rate for Leases
ASC 842 requires lessees to discount lease payments using the rate implicit in the lease if that rate can be readily determined. If that rate cannot be readily determined, the Company generally uses the incremental borrowing rate when initially recording leases. Generally, the Company uses its incremental borrowing rate as the discount rate.
(vii)Business Combinations
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. Contingent consideration is measured at its transaction-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with ASC Topic 450, Contingencies, as appropriate, with the corresponding gain or loss being recognized in profit or loss. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied. Certain fair values may be estimated at the transaction date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year from the transaction date.

(viii) Consolidation
Judgment is applied in assessing whether the Company exercises control and has significant influence over entities in which the Company directly or indirectly owns an interest. The Company has control when it has the power over the entity, has exposure or rights to variable returns, and has the ability to use its power to affect the returns. Significant influence is defined as the power to participate in the financial and operating decisions of the entities. Where the Company is determined to have control, these entities are consolidated. Additionally, judgment is applied in determining the effective date on which control was obtained. See Note 18 – Consolidation for further details.
(ix) Expected Credit Loss
Management determines the expected credit loss by evaluating individual receivable balances and considering accounts and other receivable financial conditions and current economic conditions. Accounts receivable and financial assets recorded in other receivables are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded as income when received. All receivables are expected to be collected within one year of the Consolidated Balance Sheet date.
(x) Fair Value of Financial Instruments
The individual fair values attributed to the different components of a financing transaction, derivative financial instruments, are determined using valuation techniques. The Company uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations to determine (a) the values attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments subsequently carried at amortized cost. Such valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
(xi) Income Tax
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
(ab) Accounting Pronouncements – Recently Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss model with a current expected credit loss (“CECL”) model and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. ASU 2016-13 applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. ASU 2016-13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to members’ equity in the period of adoption. The Company adopted the new standard in the first quarter of the year ended December 31, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which simplifies the accounting for goodwill impairment. ASU 2017-04 requires entities to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 under the current impairment test). The standard eliminates Step 2 from the current goodwill impairment test, which included determining the implied fair value of goodwill and comparing it with the carrying amount of that goodwill. ASU 2017-04 must be applied prospectively and is effective in the first quarter of 2020. Early adoption is permitted. The Company adopted ASU 2017-04 in the first quarter of the year ended December 31, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for the Company beginning January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 was effective for the Company beginning January 1, 2021. The adoption of ASU 2020-01 did not have a material impact on the Company’s consolidated financial statements.
On August 5, 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06), to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments in this ASU 2020-06 are effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of ASU 2020-06 did not have a material impact on the Company’s consolidated financial statements.
(ac) Accounting Pronouncements – Recently Issued
The Financial Accounting Standards Board (“FASB”) and the SEC have issued certain other accounting pronouncements as of December 31, 2022 that will become effective in subsequent periods; however, management does not believe that any of these pronouncements would have significantly affected the Company’s financial accounting measurements or disclosures had they been in effect during the periods for which financial statements are included in this annual report, nor does management believe those pronouncements would have a significant effect on the Company’s future financial position or results of operations.
(ad) Coronavirus Pandemic

In March 2020, the World Health Organization categorized coronavirus disease 2019 (together with its variants, “COVID-19”) as a pandemic. COVID-19 has spread throughout the U.S. and other countries across the world. Although the duration and severity of its effects are currently unknown, the Company continues to assess the potential impact on the Company and evaluate actions to strengthen its financial position and support the continuity of its business and operations in response to the effects of COVID-19.

While the Company believes that its revenue, gross profit and operating income were not adversely impacted by COVID-19 during the year ended December 31, 2022, the uncertain nature of the spread of variants of COVID-19 could alter the Company’s financial results and business operations, including as a result of any lockdowns mandated by governmental authorities and the potential quarantine of the Company’s employees or of its supply chain partners’ employees.

The Company’s Consolidated Financial Statements presented herein reflect estimates and assumptions made by management taking into account, among other matters, the impact of COVID-19. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of such consolidated financial statements and reported amounts of revenue and expenses during the periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill; long-lived assets and intangible assets; operating lease right of use assets and operating lease liabilities; valuation of deferred income taxes; the allowance for doubtful accounts; assessment of the Company’s lease and non-lease contract expenses; and measurement of compensation cost for bonus and other compensation plans.