charlotte’s web holdings, inc. unaudited interim …€¦ · charlotte’s web holdings, inc....

CHARLOTTE’SWEBHOLDINGS,INC.

UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDFINANCIALSTATEMENTS

FORTHETHREEANDSIXMONTHSENDEDJUNE30,2020and2019(ExpressedinUnitedStatesdollars)

UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDFINANCIAL

STATEMENTSForthethreeandsixmonthsendedJune30,2020and2019

CONTENTS

UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDFINANCIALSTATEMENTS:...................................................

STATEMENTSOFFINANCIALPOSITION............................................................................................................. 1

STATEMENTSOF(LOSS)INCOMEANDOTHERCOMPREHENSIVE(LOSS)INCOME.......................................... 3

STATEMENTSOFCHANGESINSHAREHOLDERS’EQUITY.................................................................................. 4

STATEMENTSOFCASHFLOWS......................................................................................................................... 5

NOTESTOUNAUDITEDINTERIMCONDENSEDCONSOLIDATEDFINANCIALSTATEMENTS.............................. 7

CHARLOTTE’SWEBHOLDINGS,INC.UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDSTATEMENTSOFFINANCIALPOSITION(InthousandsofUnitedStatesdollars)

June30,2020 December31,2019

ASSETS

Currentassets:

Cash $ 99,820 $ 68,553

Tradeandotherreceivables,net(note5) 12,488 5,462

Notereceivable(note6) 2,366 1,421

Inventories(note7) 67,130 64,054

Prepaidexpensesandothercurrentassets(note10) 7,742 3,592

Incometaxesreceivable 11,342 3,273

200,888 146,355

Non-currentassets:

Propertyandequipment,net(note8) 50,347 42,949

Intangibleassets,net(note9) 25,703 1,596

Goodwill(note4) 76,688 —

Deferredtaxassets 22 30,417

Otherlong-termassets(note11) 3,949 1,625

$ 357,597 $ 222,942

LIABILITIESANDSHAREHOLDERS’EQUITY

Currentliabilities:

Accountspayable $ 15,542 $ 8,798

Accruedliabilities 14,806 7,323

Deferredrevenue 415 550

Currentcultivationliabilities(note15) 11,497 10,803

Currentnotespayable(note12) 1,329 9

Currentleaseobligations(note13) 2,342 1,945

45,931 29,428

Non-currentliabilities:

Long-termcultivationliabilities(note15) 10,034 14,289

Long-termnotespayable(note12) 312 3

Long-termleaseobligations(note13) 21,448 22,116

Warrantliabilities(note14) 8,766 3,408

Stockappreciationrightsliabilities(note17) 207 —

86,698 69,244

Shareholders’equity:

Sharecapital 275,985 123,927

Contributedsurplus 18,585 27,513

(Accumulateddeficit)Retainedearnings (23,671) 2,258

270,899 153,698

$ 357,597 $ 222,942

1Theaccompanyingnotesareanintegralpartoftheseunauditedinterimcondensedconsolidatedfinancialstatements.

ApprovedbytheBoardofDirectors

/s/“JacquesTortoroli”

Director(signed)

/s/“JohnHeld”

Director(signed)



UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDSTATEMENTSOF(LOSS)INCOMEANDOTHERCOMPREHENSIVE(LOSS)INCOME

(InthousandsofUnitedStatesdollars,exceptpershareamounts)

ThreemonthsendedJune30, SixmonthsendedJune30,

2020 2019 2020 2019

Revenue $ 21,680 $ 25,020 $ 43,143 $ 46,720

Costofsales(note19) 10,209 6,526 16,675 12,431

Grossprofitbefore(gain)onfairvalueofbiologicalassets 11,471 18,494 26,468 34,289

Realizedfairvalue(gain)includedininventorysold(note7) (4) (354) (86) (496)

Grossprofit 11,475 18,848 26,554 34,785

Expenses:

Generalandadministrative(note19) 21,108 9,060 37,139 17,519

Salesandmarketing(note19) 6,835 6,527 13,367 11,087

Researchanddevelopment(note19) 1,533 654 2,299 845

Operatingexpenses 29,476 16,241 52,805 29,451

Operating(loss)income (18,001) 2,607 (26,251) 5,334

Financingcosts 364 77 534 134

Interestincome (26) (310) (155) (666)

Other(income)expense,net (3,929) 4 (7,008) 7

(Loss)incomebeforetaxes (14,410) 2,836 (19,622) 5,859

Incometaxexpense(note20) 20 648 6,307 1,334

Net(loss)incomeandcomprehensive(loss)income $ (14,430) $ 2,188 $ (25,929) $ 4,525

Weightedaveragenumberofcommonshares-basic(note18c) 114,206,250 94,986,784 110,821,523 94,105,280

Weightedaveragenumberofcommonshares-diluted(note18c) 114,206,250 106,272,945 110,821,523 106,245,283

(Loss)earningspershare-basic(note18c) $ (0.13) $ 0.02 $ (0.23) $ 0.05

(Loss)earningspershare-diluted(note18c) $ (0.13) $ 0.02 $ (0.23) $ 0.04



UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDSTATEMENTSOFCHANGESINSHAREHOLDERS’EQUITY

(InthousandsofUnitedStatesdollars)

SixmonthsendedJune30,2019 SharecapitalContributed

surplusRetainedearnings Total

Balance-December31,2018 $ 78,316 $ 25,357 $ 17,825 $ 121,498

Exerciseofcommonstockoptions 1,663 (1,266) — 397

Exerciseofbrokerstockwarrants 1,295 (834) — 461

Accumulatedeffectofincometaxfromstockoptions — 7,278 — 7,278

Share-basedcompensationexpense(note18d) — 749 — 749

Netincome — — 4,525 4,525

Balance-June30,2019 $ 81,274 $ 31,284 $ 22,350 $ 134,908

SixmonthsendedJune30,2020 SharecapitalContributed

surplusAccumulated

deficit Total

Balance-December31,2019 $ 123,927 $ 27,513 $ 2,258 $ 153,698

Exerciseofcommonstockoptions 2,006 (558) — 1,448

Accumulatedeffectofincometaxfromstockoptions — (16,087) — (16,087)

Share-basedcompensationexpense(note18d) — 2,310 — 2,310

2020ShareOffering(note18a) 47,959 — — 47,959

Shareissuancecosts(note18a) (3,368) — — (3,368)

Abacusacquisition(note4) 105,461 5,407 — 110,868

Netloss — — (25,929) (25,929)

Balance-June30,2020 $ 275,985 $ 18,585 $ (23,671) $ 270,899


CHARLOTTE’SWEBHOLDINGS,INC.UNAUDITEDINTERIMCONDENSEDCONSOLIDATEDSTATEMENTSOFCASHFLOWS(InthousandsofUnitedStatesdollars)

SixmonthsendedJune30,

2020 2019

Cashflowsfromoperatingactivities:

Net(loss)income $ (25,929) $ 4,525

Itemsnotinvolvingcash:

Depreciationandamortization 3,931 1,406

Changeinfairvalueofbiologicalassets (86) (496)

Changeinfairvalueofwarrantliabilities (6,705) —

Changeinfairvalueofstockappreciationrights (195) —

Expectedcreditlosses (9) 136

Inventoryprovision,net 2,523 953

Share-basedcompensation 2,310 749

Loss/(gain)ondisposalofassets 7 8

Deferredincometaxes 14,330 (182)

Changesinworkingcapital:

Tradeandotherreceivables,net (3,095) (2,693)

Inventories 584 (10,296)

Prepaidexpensesandothercurrentassets (2,739) (5,611)

Accountspayable 2,058 (1,302)

Accruedliabilities 2,288 (1,336)

Incometaxes (8,034) (166)

Cultivationliabilities (3,596) (1,037)

Otheroperatingassetsandliabilities,net 379 98

(21,978) (15,244)

Cashflowsfrominvestingactivities:

Cashacquiredinbusinesscombinations 11,181 —

Fundingofnotesreceivable (936) (1,400)

Purchasesofpropertyandequipmentandintangibleassets (10,187) (4,059)

Proceedsfromsaleofassets 41 53

Proceedsfromloansduefromrelatedparties — 14

Otherinvestingactivities (895) (812)

(796) (6,204)

Cashflowsfromfinancingactivities:

Proceedsfrompublicoffering 57,165 —

Proceedsfromcommonstockoptionexercises 1,448 397

Proceedsfromstockwarrantexercises — 461

Paymentsonnotespayable (5) (5)

Paymentsonleaseobligations (1,199) (1,378)

Shareissuancecosts (3,368) —

54,041 (525)


Increase(decrease)incash 31,267 (21,973)

Cash,beginningofyear 68,553 73,404

Cash,endofperiod $ 99,820 $ 51,431

Supplementaldisclosuresofcashflowsfromoperatingactivities:

Cashpaidforinterest $ (48) $ (57)

Cashpaidforinterestonleaseobligations (486) (281)

Cashreceivedfrominterest 155 666

Cashpaidfortaxes (42) (23)

Non-cashpurchasesofpropertyandequipmentandintangibleassets (3,649) —


1. Companyoverview

Charlotte’s Web Holdings, Inc. together with its subsidiaries, (collectively the “Company”) is a publiccompanyincorporatedpursuanttothelawsoftheProvinceofBritishColumbia.TheCompanyispubliclylistedontheTorontoStockExchange(“TSX”)underthesymbol“CWEB.”

TheCompany’sheadoffice is locatedat1600PearlStreet,Suite300,Boulder,Colorado,80302,UnitedStatesanditsregisteredandrecordsofficeislocatedat2800ParkPlace,666BurrardStreet,Vancouver,BritishColumbiaV6C2Z7,Canada.

2. Basisofpreparation

(a) Statementofcompliance

TheseunauditedinterimcondensedconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalAccountingStandards(“IAS34”),InterimFinancialReportingonabasisconsistentwithInternationalFinancialReportingStandards(“IFRS”)as issuedbytheInternationalAccountingStandardsBoard(“IASB”).

Theseunauditedinterimcondensedconsolidatedfinancialstatementsincludeonlysignificanteventsandtransactionsoccurringsince theCompany’s last fiscalyear-end.Theydonot includeall the informationandnotesrequiredbyIFRSforannualfinancialstatementsandthereforeshouldberead inconjunctionwiththeauditedannualconsolidatedfinancialstatementsandnotesfortheCompany’sfiscalyearendedDecember31,2019.

TheunauditedinterimcondensedconsolidatedfinancialstatementsforthethreeandsixmonthsendedJune30,2020and2019wereapprovedandauthorizedforissuebytheBoardofDirectorsonSeptember12,2020.

(b) Measurementbasis

The unaudited interim condensed consolidated financial statements have been prepared mainly on ahistoricalcostbasis.Othermeasurementbasesusedaredescribedintheapplicablenotes.

(c) Basisofconsolidation

TheCompany’sunauditedinterimcondensedconsolidatedfinancialstatementsconsolidatethoseoftheparent companyCharlotte’sWebHoldings, Inc., itswholly owned subsidiary, Charlotte’sWeb, Inc, andacquired subsidiary, Abacus Health Products, Inc. (“Abacus Health”), a British Columbia corporation,pursuant to the acquisition on June 11, 2020 (note 4). Further, as a result of the acquisition, thesefinancialstatementsconsolidatethewhollyownedsubsidiaryofAbacusHealth,AbacusHealthProducts,Inc.(“AbacusUS”),aDelawarecorporation,andthetwowholly-ownedsubsidiariesofAbacusUS,AbacusWellness,Inc.andCBDPharmaceuticalsLtd.

Inter-company balances and transactions are eliminated in preparing the consolidated financialstatements.TheaccountingpoliciesofthesubsidiariesareconsistentwiththeCompany’spolicies.

(d) Useofestimates

The preparation of unaudited interim condensed consolidated financial statements in conformity withIFRSrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosuresofcontingentassetsandliabilitiesatthedateoftheconsolidatedfinancialstatements and the reported amount of revenues and expenses during the reporting period. Actualresultscoulddifferfromthoseestimates.

CHARLOTTE’SWEBHOLDINGS,INC.NOTESTOUNAUDITEDINTERIMCONDENSEDCONSOLIDATEDFINANCIALSTATEMENTS

FortheThreeandsixmonthsendedJune30,2020and2019


(e) Reclassificationsandpriorperiodpresentations

Certain amounts presented in prior periods have been reclassified to conformwith the current periodpresentation.

(f) Functionalandpresentationcurrency

TheunauditedinterimcondensedconsolidatedfinancialstatementsarepresentedinUnitedStatesdollars(unless otherwise noted), which is the functional currency of the parent company. All financialinformationispresentedinUnitedStatesdollarsandhasbeenroundedtothenearestthousand,exceptfor(loss)earningspershareamounts.

3. Summaryofsignificantaccountingpolicies

TheCompany’ssignificantaccountingpoliciesaredescribedinnote3,“Summaryofsignificantaccountingpolicies,” in theCompany’s annual consolidated financial statements for the year endedDecember31,2019.Thefollowingdiscussionisintendedtodescribethosejudgmentsandkeyassumptionsconcerningmajor sourcesofestimationuncertaintyat theendof the current reportingperiod thathave themostsignificantriskofresultinginamaterialadjustmenttothecarryingamountofassetsandliabilitieswithinthenextfinancialyear.

Businesscombinations

The consideration transferred for the acquisition of a business comprises the fair value of assetstransferred;liabilitiesincurredtotheformerowners;equityinterestsissuedbytheCompany;fairvalueofassets and liabilities resulting froma contingent consideration arrangement; and fair value of any pre-existingequity interest intheacquiredbusiness. Identifiableassetsacquiredandliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate.Theexcessoftheconsideration transferred, the amount of any non-controlling interest in the acquired entity and theacquisition-datefairvalueofanypreviousequityinterestintheacquiredentityoverthefairvalueofthenetidentifiableassetsacquiredisrecordedasgoodwill.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as afinancialliabilityaresubsequentlyremeasuredtofairvalue,withchangestofairvaluerecognizedinprofitorloss.

Goodwill

IAS36requiresthatassetsbecarriedatnomorethantheirrecoverableamount.Therecoverableamountof goodwill is required to be measured at least on an annual basis, irrespective of whether anyimpairment indicators exist. The Company evaluates goodwill, which is not subjected to amortization,annually,ormorefrequentlyifeventsorchangesincircumstancessuggesttheassetmightbeimpaired.Inevaluating goodwill impairment, the total carrying amount of the reporting unit is compared to itsrecoverableamountsandanylossisallocatedfirsttogoodwillandthentotheotherassets.

IntangibleAssets

Intangible assets consist of software, patents, and the Company’s internet domain name. Acquiredintangibleassetsfrombusinesscombinationsincludetradenamesandcustomerrelationships.Softwareisstated as cost less accumulated amortization. The costs of purchasing the Company’s internet domainnamethroughanopenmarketiscapitalizedasanindefinite-livedintangibleasset.Thecostsofobtaininga patent are capitalized and amortized over its useful life. Acquired trade names and customer


FortheThreeandSixmonthsendedJune30,2020and2019

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relationshipsarestatedatpreliminaryfairvalueestimatesandareamortizedoveraten-yearusefullife,determinedaspartofthevaluationofintangibleassetsinconjunctionwiththeAbacusAcquisition(note4).TheCompanyreviewsintangibleassetswithindefiniteusefullivesforimpairmentatleastannuallyandreviews all intangible assets for impairmentwhenever events or changes in circumstances indicate thecarryingamountoftheassetsmaynotberecoverable.

(a) Adoptionofnewaccountingstandardsandpolicies

TheCompanyhasadoptedthefollowingnewaccountingstandardswhichbecameeffectiveasofJanuary1,2020.

IFRS3,“BusinessCombinations”

InOctober2018, the IASB issuedamendments to IFRS3,BusinessCombinations. TheamendmentsareeffectiveforbusinesscombinationsforwhichtheacquisitiondateisonorafterthebeginningofthefirstannualreportingperiodbeginningonorafterJanuary1,2020andapplyprospectively.Theamendmentsclarify the definition of a business, with the objective of assisting entities in determining whether atransactionshouldbeaccountedforasabusinesscombinationorasanassetacquisition.Atransactionshould be accounted for as a business combination if the acquired assets and liabilities constitute abusiness,andrelatedacquisitioncostsaretobeexpensedasincurred.Atransactionshouldbeaccountedfor as an asset acquisition if an acquired set of activities and assets is a group of assets rather than abusiness,andrelatedacquisitioncostsaretypicallycapitalized.

TheCompany’sassetpurchaseagreementwithStanleyBrothersBioTec, Inc.entered intoFebruary28,2020 and the all-stock acquisition ofAbacusHealth (“Abacus”) on June 11, 2020 are deemedbusinesscombinations.Asaresult,acquisitioncostsrelatedtothesebusinesscombinationsof$3,112and$3,545wereexpensedasincurredduringthethreeandsixmonthsendedJune30,2020.

(b) Futureaccountingstandardsissuedbutnotyeteffective

InJanuary2020,theIASBissuedamendmentstoIAS1,PresentationofFinancialStatementstoclarifytherequirementsforclassifyingliabilitiesascurrentornon-current.TheamendmentsareeffectiveforannualperiodsbeginningonorafterJanuary1,2022.AdoptionthereofisnotexpectedtohaveamaterialimpactonthepresentationoftheCompany’sfinancialstatements.



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4. AcquisitionofAbacusHealth

On June 11, 2020, the Company acquired all the issued and outstanding subordinate voting shares ofAbacusHealth(“AbacusAcquisition”).

Abacus Health develops, markets and sells over-the-counter (“OTC”) topical products combining activepharmaceutical ingredients with hemp extract. This acquisition provides the Company with growthopportunitiesinbothtopicalandingestibleproductsinthecannabidiol(“CBD”)wellnesscategory.

AbacusHealthprimarilysellsitsproductsunderthreebrandnames:CBDCLINIC,CBDMEDIC,andHarmonyHemp.CBDCLINIC ismarketed to theprofessionalpractitionermarketandsoldexclusively to registeredhealth practitioners such as chiropractors, acupuncturists, massage therapists, physical therapists,naturopathsandosteopaths.CBDMEDICistargetedtotheconsumermarket.CBDMEDICproductsaresolddirectlytoconsumersthroughretailoutlets,healthandfitnesslocations,aswellasthroughane-commerceplatform. Harmony Hemp is targeted to the consumer market. These products are sold through retailoutletsaswellasthroughane-commerceplatform.

TheacquisitionconstitutesabusinesscombinationastheacquiredassetsmeetthedefinitionofabusinessasdefinedinIFRS3BusinessCombinations.Thepurchasepriceaccountingreflectedintheaccompanyingfinancialstatementsispreliminaryandisbaseduponestimatesandassumptionsthataresubjecttochangewithin the measurement period (up to one year from the acquisition date). The measurement periodremainsopenpendingthecompletionofvaluationproceduresrelatedtotheacquiredassetsandassumedliabilities,includinginventories,intangibleassetsandincometaxes.

TransferofownershipoccurredonJune11,2020and,accordingly,theunauditedcondensedconsolidatedstatements of (loss) income and other comprehensive (loss) income include Abacus Health results ofoperationsfortheperiodfromJune11,2020throughJune30,2020.Therevenuesandoperatingprofitofthe acquired business since the date of acquisition were not material to the Company’s results ofoperations. If theacquisitionhadtakenplaceasof January1,2020,revenuefromcontinuingoperationswould have been $47,258 and the loss from continuing operations for the period would have been$(40,330).

(a) Fairvalueofconsideration

Pursuant to the termsof thearrangementagreement, foreachAbacusHealth subordinate voting shareandotherequityinstruments,eachholderreceiveda0.85equivalentreplacementawardoftheCompany’srespectivesecurityatthetimeofclosing.

Considerationconsistedofthefollowing:

Commonshares $ 105,461

Otherequityinstruments 8,666

Totalfairvalueofconsideration $ 114,127

AbacusHealth issuedandoutstandingsubordinatevotingshareswerereplacedwiththe0.85equivalentnumberoftheCompany’scommonsharesandwerevaluedattheCompany’sclosingmarketpriceonthedateoftheacquisitionresultinginpurchaseconsiderationof$105,461.

AbacusHealthotherequityinstruments,includingoutstandingstockoptions,warrants,stockappreciationrights (“SARs”), and Harmony Hemp contingent consideration (note 18d) were replaced with the 0.85equivalentnumberofrespectivesecuritiesoftheCompany.Todeterminetheportionoffairvalueofthe



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replacementawardthat ispartofpurchaseconsideration,theCompanymeasuredboththefairvalueofthe replacement award as the acquiree, Abacus Health, and the acquirer, the Company, as of theacquisitiondate.TheCompanyattributedtheportionofthefairvaluerelatedtopre-combinationserviceaspurchaseconsiderationandattributed the remaining fairvalue to remuneration forpost-combinationservicesbasedonanyremainingvestingterm.TheCompany’spreliminaryfairvaluesofthereplacementawardswerevaluedusingtheBlack-Scholesoptionpricingmodel,withthefollowingassumptionsusedinthemodel: expected volatility; expected term; risk-free interest rate and value of the underlying share.Resulting purchase consideration for replacement stock options, warrants, SARs, and Harmony Hempcontingentconsiderationis$8,666.

Aportionoftheotherequityinstruments,SARsof$402(note17)andcertainwarrantsacquiredof$2,857(note14),weredeterminedtobeliabilitiesbasedonthenatureoftheinstrumentsandwerepreliminarilyvaluedatacquisitiononJune11,2020.ThesearepresentedasliabilitiesattheirrespectivefairvalueasofJune30,2020intheunauditedinterimcondensedconsolidatedstatementsoffinancialposition.

(b) Estimatedfairvalueofassetsacquired

Thepreliminaryfairvalueallocationtotheidentifiablenetassetsacquiredandliabilitiesassumed,atJune11,2020,issummarizedasfollows:

Assetsacquired

Cash $ 11,181

Tradeandotherreceivables,net 2,264

Inventories 5,318

Prepaidexpensesandothercurrentassets 1,411

Incometaxesreceivable 35

Propertyandequipment 815

Intangibleassets 23,200

Deferredtaxassets 22

Otherlong-termassets 1,432

$ 45,678

Liabilitiesassumed

Accountspayable 4,686

Accruedliabilities 1,547

Currentnotespayable 1,322

Currentleaseobligations 213

Long-termnotepayable 312

Long-termleaseobligations 159

$ 8,239

Netassetsacquired $ 37,439



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Theestimatedpreliminaryfairvalueofacquiredinventoriesandintangibleassetsweredeterminedusingaforecasted cash flow approachwith the assistance of a third-party valuation firm. Acquired inventoriesconsistofsubstantiallyallfinishedgoods.

Acquired intangible assets consist of a trade name and customer relationships. Preliminary fair valueestimatesoftheacquiredtradenameandcustomersrelationshipsare$700and$22,500,respectively.TheCompanyhaspreliminarilyassignedaten-yearusefullifetobothclassesofacquiredintangibleassets.

The Company determined that Abacus Health’s carrying costs approximated fair value for all otheracquiredassetsandassumedliabilities.

(c) Goodwill

Goodwillarisesfrombusinesscombinationsandisgenerallydeterminedastheexcessofthefairvalueoftheconsiderationtransferredoverthefairvalueofthenetassetsacquiredandliabilitiesassumedasoftheacquisition date. Goodwill and intangible assets acquired in a purchase business combination anddeterminedtohaveanindefiniteusefullifearenotamortized,buttestedforimpairmentatleastannuallyormorefrequentlyifeventsandcircumstancesexiststhatindicatethatagoodwillimpairmenttestshouldbeperformed.

ThegoodwillacquiredfromtheAbacusAcquisitionisnotdeductiblefortaxpurposes.

Fairvalueofconsideration $ 114,127

Estimatedfairvalueofassetsacquired (37,439)

Goodwill $ 76,688



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5. Tradeandotherreceivables

Tradeandotherreceivablesconsistofthefollowing:


Tradereceivables $ 7,599 $ 5,677

Tenantimprovementallowance 4,098 —

Othermiscellaneousreceivables 1,323 326

Expectedcreditlosses(note21) (532) (541)

Tradeandotherreceivables,net $ 12,488 $ 5,462

AcquiredtradereceivablesfromAbacusAcquisition(note4)totalednet$2,264.

Ofthe$4,098tenantimprovementallowancereceivablebalanceatJune30,2020,$1,258wasreclassifiedfrompropertyandequipmentunderconstructionduringthesixmonthsendedJune30,2020.

Other miscellaneous receivables consists primarily of an amount due from a vendor for a settlementrelatedtofaultyequipmentandinsuranceclaimsrelatedtotradereceivables.

TheCompanyprovidesforexpectedcreditlosses(ECLs)basedonitsassessmentofprobabilityofspecificlosses,estimatesoffutureindividualexposuresandprovisionsbasedonhistoricalexperience.

Theagingofreceivablesisasfollows:


Current $ 9,201 $ 3,340

Aged1-30dayspastdue 661 1,028

Aged31-60dayspastdue 1,092 541

Aged>60dayspastdue 2,066 1,094

Expectedcreditlosses (532) (541)

$ 12,488 $ 5,462

Of the $9,201 current receivable balance at June 30, 2020, $4,098 relates to the tenant improvementallowancereceivable.

6.Notereceivable

EffectiveMay2019,theCompanyenteredintoapromissorynotesecuredbyextractionunitswithoneofthe Company’s third-party farming suppliers. During the three months ended June 30, 2020, theremaining$1,400ofthe$2,800notewasfunded.ThenotewasamendedonMarch18,2020andbearsinterest at 2.52% per annum for twelve months from each funding date and increases to 4.00% perannumthereafter.ThenoterequirestheunpaidprincipalandunpaidinterestbalancestobepaidonorbeforetheamendedmaturitydateofOctober31,2021.Theborrowermaypaytheprincipalandaccruedinterest in the formofanoffset to theCompany’spurchasesofextractedhemp.Thenote is carriedatamortizedcost,withanoutstandingbalanceof$2,366ofwhich$46wasaccruedinterestasofJune30,2020.



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As of June 30, 2020, the credit risk related to the note receivable has not increased significantly sinceinitialrecognition.TheCompanyassessedthenotereceivableasfullycollectiblewithnorelatedECLs.

7.Inventories

Inventoriesconsistofthefollowing:


Harvestedhempandseeds $ 37,476 $ 37,549

Rawmaterials 17,536 19,785

Finishedgoods 27,604 22,593

Biologicalassets 1,388 —

$ 84,004 79,927

Less:inventoryprovision (16,874) (15,873)

$ 67,130 $ 64,054

Acquired inventories from Abacus Acquisition (note 4), totaled $5,318 and consist of substantially allfinishedgoods.

a. Harvestedhempandseeds

Detailsoftheharvestedhempandseedsconsistsofthefollowing:


Balance,beginningofperiod $ 37,549 $ 10,463

Transferredtohempandseedsuponharvest 218 35,411

Consumedinproduction (291) (8,325)

Balance,endofperiod $ 37,476 $ 37,549

b. Biologicalassets

The Company grows its industrial hemp (i) on leased farms operated entirely by Companypersonnel,and (ii) through third-party farmingoperationswithoversightby theCompany.ThegrowseasonfortheCompany’sharvestedhempisgenerallyfromMaythroughearlyOctoberofeachyear.Allharvestingofplantsiscompletepriortoyear-end.100%oftheCompany’shempiscurrently consumed internally for its finished goods products and is not sold in its raw orprocessed form. The grow season for the Company’s hemp seeds is generally from Januarythrough June and July through December of each year. The Company’s seeds are primarilyutilizedforinternalproductionoftheCompany’shempandresearchanddevelopmentpurposes.

The Company capitalizes the direct and indirect costs associated with the production of itsbiological assets as incurred, less estimated yield losses and fair value adjustments. Anyadjustmentstocapitalizedbiologicalassetcostsareexpensedtocostofsales.

TheCompanymeasuresitsbiologicalassetsattheirfairvaluelesscoststosell.Thisisdeterminedusingamodelwhichestimates theexpectedharvestyield inpounds forplantscurrentlybeingcultivated, and then adjusts that amount for the expected selling price per pound and foradditionalcoststobeincurred,suchaspost-harvestcosts.



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Aslittlebiologicaltransformationhastakenplacesincethebeginningofthecultivationprocessthe carrying value approximates the fair value of the biological assets as of June 30, 2020.Measurement of the plant at fair value less costs to sell begins in early September and isrecognizedevenlyuntilthepointofharvest.

Thechangesinthecarryingvalueofbiologicalassetsareasfollows:

Biologicalassets

Carryingamount,December31,2019 $ —

Productioncosts 1,302

Purchases 304

Changesinfairvaluelesscoststosellduetobiologicaltransformation —

Transferredtoinventoriesuponharvest (218)

Carryingamount,June30,2020 $ 1,388

BIologicalassets


Productioncosts 4,197

Purchases 32,056

Changesinfairvaluelesscoststosellduetobiologicaltransformation (842)

Transferredtoinventoriesuponharvest (35,411)


Theeffectofchangesinfairvalueofbiologicalassetsandinventoryinclude:

ThreemonthsendedJune30,

2020 2019

Realizedfairvalue(gain)includedininventorysold $ (4) $ (354)

Unrealizedfairvaluelossongrowthofbiologicalassets — —

Neteffectofchangesinfairvalueofbiologicalassetsandinventory $ (4) $ (354)


2020 2019

Realizedfairvalue(gain)includedininventorysold (86) $ (496)

Unrealizedfairvaluelossongrowthofbiologicalassets — —

Neteffectofchangesinfairvalueofbiologicalassetsandinventory $ (86) $ (496)



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c. Inventoryprovision

Aninventoryprovisionisestimatedbymanagementandisincludedincostofsales.ForthethreeandsixmonthsendedJune30,2020,inventoryprovisionsof$1,935and$2,523wererecognizedthroughthecostofsalesandwrite-offsofinventorypreviouslyreservedforof$929and$1,522wererecognized.ForthethreeandsixmonthsendedJune30,2019,inventoryprovisionsof$580and$953wereexpensedthroughthecostofsales.ForthethreeandsixmonthsendedJune30,2019,theCompanyhadno inventorywrite-offs.Theamountof inventoryexpensedduringthethreemonthsendedJune30,2020and2019is$5,762and$5,237,respectively.TheamountofinventoryexpensedduringthesixmonthsendedJune30,2020and2019is$10,461and$9,562,respectively.



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8. Propertyandequipment

DetailsoftheCompany’spropertyandequipment,includingright-of-use(RoU)assets,andtheircarryingamountsareasfollows:

Landandbuilding

Machineryand

equipment

Furnituresand

fixturesLeasehold

improvementsUnder

constructionRoUassets-buildings

RoUassets-cultivationequipment Total

Cost

AtDecember31,2018 $ — $ 5,958 $ 405 $ 2,624 $ 159 $ — $ — $ 9,146

TransitiontoIFRS16 — — — — — 3,017 131 3,148

Additions-purchasedassets 1,086 6,495 4 636 7,487 — — 15,708

Additions-right-of-useassets — — — — — 21,648 1,286 22,934

Transfersunderconstruction 2,292 1,924 — 1,088 (5,304) — — —

Disposals — (95) (5) (21) — — — (121)

AtDecember31,2019 $ 3,378 $ 14,282 $ 404 $ 4,327 $ 2,342 $ 24,665 $ 1,417 $ 50,815

Additions-purchasedassets 30 995 20 — 11,374 — — 12,419

Additions-right-of-useassets — — — — — 70 — 70

Acquiredinbusinesscombinations — 397 90 180 — 363 — 1,030

Reclassifications — — — (150) (1,258) — — (1,408)

Transferunderconstruction — 108 — (130) 22 — — —

Disposals — (62) — (514) — — — (576)

AtJune30,2020 $ 3,408 $ 15,720 $ 514 $ 3,713 $ 12,480 $ 25,098 $ 1,417 $ 62,350

Landandbuilding

Machineryand

equipmentFurnituresandfixtures

Leaseholdimprovements

Underconstruction

RoUassets-buildings

RoUAssets-cultivationequipment Total

Accumulateddepreciation

AtDecember31,2018 $ — $ (1,920) $ (143) $ (277) $ — $ — $ — $ (2,340)

Depreciation-expensed — (999) (126) (228) — (2,313) — (3,666)

Depreciation-capitalizedtoinventory (19) (1,008) — (653) — — (233) (1,913)

Disposals — 39 4 10 — — — 53

AtDecember31,2019 $ (19) $ (3,888) $ (265) $ (1,148) $ — $ (2,313) $ (233) $ (7,866)

Depreciation-expensed — (1,359) (70) (632) — (1,426) — (3,487)

Depreciation-capitalizedtoinventory (32) (465) — (120) — — (161) (778)

Vendorsettlement $ — $ (400) $ — $ — $ — $ — $ — (400)

Disposals — 14 — 514 — — — 528

AtJune30,2020 $ (51) $ (6,098) $ (335) $ (1,386) $ — $ (3,739) $ (394) $ (12,003)

Landandbuilding

Machineryand

equipmentFurnituresandfixtures

Leaseholdimprovements

Underconstruction

RoUassets-buildings

RoUassets-cultivationequipment Total

Propertyandequipment,net

AtDecember31,2019 3,359 $ 10,394 $ 139 $ 3,179 $ 2,342 $ 22,352 1,184 $ 42,949

AtJune30,2020 3,357 9,622 179 2,327 12,480 21,359 1,023 $ 50,347



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Depreciation expensed for the three months ended June 30, 2020 and 2019 was $1,833 and $428,respectively.DepreciationexpensedforthesixmonthsendedJune30,2020and2019was$3,487and$1,308,respectively.Depreciationrelatedtocultivationequipmentandright-of-useassetsthatwascapitalizedforthethree and six months ended June 30, 2020 was $422 and $778, respectively. Depreciation related tocultivationequipmentandright-of-useassetsthatwascapitalizedforthethreeandsixmonthsendedJune30,2019was$675and$726,respectively.

Acquired property and equipment from the asset purchase agreement with Stanley Brothers Bio Tec, Inc.(note24),totaled$215andconsistedprimarilyoflabequipment.

AcquiredpropertyandequipmentfromAbacusAcquisition(note4),totaled$815andconsistedprimarilyofRoUassets,machineryandequipment,andleaseholdimprovements.



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9. Intangibleassets

Details of the Company’s intangible assets subject to amortization and indefinite-lived and theirrespectivecarryingamountsareasfollows:

Software

Internetdomainname

Underdevelopment Patents Tradenames

Customerrelationships Total

Cost

AtDecember31,2018 $ 633 $ 150 $ — $ — $ — $ — $ 783

Additions 120 — 1,157 — — — $ 1,277

Transfers 1,112 — (1,112) — — — $ —

AtDecember31,2019 $ 1,865 $ 150 $ 45 $ — $ — $ — $ 2,060

Additions 87 — 1,167 98 — — $ 1,352

Acquiredinbusinesscombination — — — — 700 22,500 $23,200

Transfers 172 — (172) — — — $ —

AtJune30,2020 $ 2,124 $ 150 $ 1,040 $ 98 $ 700 $ 22,500 $26,612

Software

Internetdomainname

Underdevelopment Patents

Tradenames


Accumulatedamortization

AtDecember31,2018 $ (164) $ — $ — $ — $ — $ — $ (164)

Amortization (300) — — — — — (300)

AtDecember31,2019 $ (464) $ — $ — $ — $ — $ — $ (464)

Amortization (317) — — — (4) (124) (445)

AtJune30,2020 $ (781) $ — $ — $ — $ (4) $ (124) $ (909)

Software

Internetdomainname

Underdevelopment Patents

Tradenames


Intangibleassets,net

AtDecember31,2019 $ 1,401 $ 150 $ 45 $ — $ — $ — $ 1,596

AtJune30,2020 $ 1,343 $ 150 $ 1,040 $ 98 $ 696 $ 22,376 $ 25,703

Acquired intangible assets from Abacus Acquisition (note 4), totaled $23,200 and consist of customerrelationships and tradenames.Customer relationships and tradenamesare amortizedover a ten-yearusefullife.

Amortization expense for the three months ended June 30, 2020 and 2019 was $295 and $52,respectively.AmortizationexpenseforthesixmonthsendedJune30,2020and2019was$445and$98,respectively.



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The Company’s intangible assets subject to amortization include software, patents, trade names, andcustomerrelationships.TheCompany’sintangibleassetsalsoincludeaninternetdomainname,whichisan indefinite-lived intangibleasset that isnotsubject toamortization.No impairmentwas recorded forthethreeandsixmonthsendedJune30,2020

.10. Prepaidexpensesandothercurrentassets

DetailsoftheCompany’sprepaidexpensesandothercurrentassetsareasfollows:


Prepaidexpenses:

Marketing $ 768 $ 794

Insurance 2,286 1,940

Other 1,740 482

Deposits:

Inventory 2,409 173

Other 539 203

$ 7,742 $ 3,592

AcquiredprepaidexpensesandothercurrentassetsfromAbacusAcquisition(note4),totaled$1,411andconsistprimarilyofmarketingandinsuranceprepaidexpenses.

11. Otherlong-termassets

DetailsoftheCompany’sandotherlong-termassetsareasfollows:


Prepaidexpenses:

Marketing $ 645 $ —

Deposits:

Equipment 2,256 1,553

Customerescrow 765 —

Leases 37 65

Other 246 7

$ 3,949 $—$ 1,625

Acquiredotherlong-termassetsfromAbacusAcquisition(note4),totaled$1,432andconsistprimarilyofcustomerdepositsinescrowandaprepaymentonalong-termmarketingagreement.



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12. Notespayable

DetailsoftheCompany’snotespayableareasfollows:


Equipmentnotespayable $ 7 $ 12

Acquiredpurchasepricepayable 1,634 —

Lesscurrentportion (1,329) (9)

$ 312 $ 3

ThefollowingtabledetailsthechangesintheCompany’snotespayablebalances:

Short-termborrowings Long-termborrowings Total

December31,2019 $ 9 $ 3 $ 12

Repayment (5) — (5)

Conversiontoshort-termborrowings 3 (3) —

Acquiredpurchasepricepayable 1,322 312 1,634

June30,2020 1,329 312 1,641

OnFebruary10,2020,oneofthewholly-ownedsubsidiariesofAbacusUS,AbacusWellness,Inc.,acquiredtheprincipalassetsof twocompaniesowning theHarmonyHempbrand.Pursuant to the termsof theasset purchase agreement, Abacus US, and therefore the Company, is obligated to pay the remainingpurchasepricepayableforHarmonyHempanddelivercontingentequitycompensation(note18d).Theremaining purchase price payable forHarmonyHemp acquiredwith theAbacusAcquisition (note 4) is$1,634,ofwhich$1,322and$312iscurrentandlong-term,respectively.

ForthethreeandsixmonthsendedJune30,2020,totalinterestpaidandexpensedrelatedtonotespayablewas$5and$6,respectively.ForthethreeandsixmonthsendedJune30,2019,totalinterestpaidandexpensedrelatedtothenotespayablewaslessthan$1forbothperiods.

Scheduledmaturitiesofnotespayableareasfollows:

within1year 1to5years Total

June30,2020 $ 1,329 $ 312 $ 1,641



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13. Leaseobligations

TheCompanyleasesmanyRoUassetsrelatedtoofficespaceandlandtofacilitateagriculturaloperations.The leasesexpireonvariousdates through2035. Informationabout leases forwhich theCompany isalesseeispresentedbelow.

June30,2020

Maturityanalysis-contractualundiscountedcashflows

Lessthanoneyear $ 3,605

Onetofiveyears 11,833

Morethanfiveyears 18,073

TotalundiscountedleaseliabilitiesatJune30,2020 $ 33,511

LeaseliabilitiesatDecember31,2019 $ 24,061

Additions 70

Leasesacquiredinbusinesscombination 372

Repayments (1,199)

Interest 486

LeaseliabilitiesincludedinthestatementoffinancialpositionatJune30,2020 $ 23,790

Current 2,342

Non-current 21,448

Variableleasepaymentsnotincludedinthemeasurementofleaseliabilities $ 12

Acquired lease liabilities fromAbacusAcquisition (note4), totalednet$372and consistof threeofficebuildingswithintheUnitedStatesandonesatelliteofficebuildinglocatedinIsrael.

LeaseincomefromleasecontractsinwhichtheCompanyactsasalessortotaled$124and$227forthethreeandsixmonthsendingJune30,2020.

14. Warrantliabilities

TheCompany’s2019ShareOfferingWarrantsand2020ShareOfferingWarrants(note18a)andAbacusHealthacquiredDebentureandBoughtDealwarrants(note18e)areclassifiedasafinancialliability.ThefinancialliabilityisremeasuredtofairvalueateachreportingdateusingtheBlack-Scholesoptionpricingmodel,with the following assumptions used in themodel: expected volatility; expected term; risk-freeinterestrateandvalueoftheunderlyingshare,withchangestofairvaluerecognizedinprofitorlossfortheperiod.



22

BalanceatDecember31,2019

Initialfairvaluemeasurement

Changeinfairvalue

Changeinforeigncurrency

BalanceatJune30,2020

2019ShareOfferingWarrants $3,408 $— $(2,322) $(87) $999

2020ShareOfferingWarrants — 9,206 (2,281) (20) 6,905

Debenturewarrants — 1,404 (975) (4) 425

BoughtDealwarrants — 1,453 (1,009) (7) 437

$3,408 12,063 (6,587) (118) $8,766

AcquiredwarrantliabilitiesfromAbacusAcquisition(note4),totaled$2,857andconsistedofdebenturewarrantsandboughtdealwarrants.

ThefollowingassumptionswereusedtodeterminethefairvalueoftheCompany’swarrants:


Valuationassumptions:

Expectedvolatility 84.18% 84.23%

Expectedterm(years) 0.58-1.96 1.00

Risk-freeinterest 0.16% 1.59%

Valueofunderlyingshare 3.83 7.64

15. Cultivationliabilities

Cultivation liabilitiesconsistofamountsowedto third-party farmingoperators.Thetotalamount tobepaidisbasedonthepotencyandyieldofthecrops.Theamountsarepaidovermultipleyearsasstatedinthecontractswiththethird-partyfarmingoperators.Thecultivationliabilitiesareinitiallymeasuredatthepresent value of future payments, discounted using the Company’s incremental borrowing rate. Totalimputed interest recognizedoncultivation liabilities for thethreeandsixmonthsending June30,2020was$35,respectively.

Futurepaymentsdueundercontractobligationsareasfollows:

Short-term Long-term Total

December31,2019 $ 10,803 $ 14,289 $ 25,092

Settlementpayments (3,596) — (3,596)

Interest 35 — 35

Conversiontoshort-termborrowings 4,255 (4,255) —

June30,2020 $ 11,497 $ 10,034 $ 21,531



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Scheduledmaturitiesofamountsowedareasfollows:

Within1year 1to5years Total

Cultivationliabilities $ 11,580 $ 10,067 $ 21,647

Imputedinterest (83) (33) (116)

June30,2020 $ 11,497 $—$ 10,034 $ 21,531

16.Lineofcredit

TheCompanyenteredintoanassetbackedlineofcreditwithJ.P.MorganinthesixmonthsendedJune30,2020for$10,000withanaccordionfeaturetoextendthelineto$20,000witha3-yearmaturity.ThelineofcreditagreementrequirescompliancebytheCompanywithcertaindebtcovenants.AsofJune30,2020,theCompanywasincompliancewithalldebtcovenantsandhasnotyetdrawnonthelineofcredit.

17. Stockappreciationrightsliabilities

Pursuant to the Abacus Acquisition, the Company has outstanding stock appreciation rights issued toemployeesandconsultants.Allawardsexpiretenyearsaftergrantandprimarilyvestonaquarterlybasisoverthreeyears.Holdersoftheawardsmayexercisevestedamountsandreceivecashrepresentingthefairvalue,lessbaseprice.ThefollowingassumptionswereusedtodeterminethefairvalueoftheSARsondateofacquisitionandatreportingdate:

June30,2020 June11,2020


Expectedvolatility 87.50% 87.27%

Expectedterm(years) 4.48-5.35 4.50-6.07

Risk-freeinterestrate 0.16% 0.66%

Valueofunderlyingshare $ 3.83 $ 5.75

June30,2020

Balance,beginningofperiod $ —

Initialfairvaluemeasurement 402

Changeinfairvalue (195)

Balance,endofperiod $ 207

18. Shareholders’equity

(a) Issuedandoutstanding

On June 18, 2020, the Company closed its underwritten public share offering (“2020 ShareOffering”)of10,000,000units ("OfferedUnits")withanover-allotmentoptionexercised in fullforanadditional1,500,000unitsoftheCompanyatapriceofC$6.75(US$4.97)perOfferedUnit,fortotalaggregategrossproceedsofC$77,625(US$57,165).EachOfferedUnitconsistedofonecommon share of the Company and one-half of one common share purchase warrant of theCompany(eachwholecommonsharepurchasewarrant,a"𝅺2020ShareOfferingWarrant"𝅺).Each



24

2020ShareOfferingWarrantentitlestheholdertopurchaseonecommonshareoftheCompanyatapriceofC$8.50throughexpirationtwoyearsaftertheclosingofthe2020ShareOffering.Atinitialmeasurement,the5,750,0002020ShareOfferingWarrants(note18e)issuedresultedina$9,206financialliabilityreportedintheunauditedinterimcondensedconsolidatedstatementsoffinancial position (note 14). For the sixmonths ended June 30, 2020, share issuance costs of$3,368wererecognizedintheunauditedinterimcondensedconsolidatedstatementsofchangesinshareholders’equity.

ChangesforthesixmonthsendedJune30,2020areasfollows:

Proportionalvotingshares

Commonshares

outstandingTreasuryshares

Numberofcommonshares

issued

December31,2019 95,342 69,253,544 (1,835,370) 67,418,174

Exerciseofstockoptions — 3,374,499 — 3,374,499Exerciseofbrokerstockwarrants — — — —Conversiontocommonvotingshares

(2,887) 1,154,766 — 1,154,766

Restrictedshareawardvesting — 20,175 — 20,1752020ShareOffering — 11,500,000 — 11,500,000AbacusHealthacquiredshares 1,975 17,551,705 — 17,551,705

June30,2020 94,430 102,854,689 — (1,835,370) — 101,019,319

Acquired Abacus Health shares and other securities presented in these unaudited interimcondensed consolidated financial statements are stated on a post-acquisition converted basis(note4).

During the six months ended June 30, 2020, certain existing shareholders cancelled andconvertedtheirproportionalvotingsharestocommonshares.

(b) Dividends

ThecommonproportionatevotingshareshareholdersareentitledtoreceivedividendsoutoftheassetsavailableforthepaymentofdividendsatsuchtimesandinsuchamountandformastheBoardofDirectorsmay from time to timedetermine, subject to anypreferential rights of theholders of any outstanding preferred shares, on the following basis, and otherwise withoutpreferenceordistinctionamongorbetweentheshares.Eachproportionatevotingsharewillbeentitledto400timestheamountpaidordistributedpercommonshare.

(c) (Loss)earningspershare

Basicanddiluted(loss)earningspersharehavebeencalculatedusingnet(loss)income.

The reconciliation of weighted average number of shares for the purpose of diluted (loss)earningspersharetotheweightedaveragenumberofordinarysharesusedinthecalculationofbasic (loss)earningsper share isdetailedbelow.Basic shares include theproportionatevotingsharesonanas-convertedbasis.



25


2020 2019

Weightedaveragenumberofcommonshares-basic 114,206,250 94,986,784

Dilutiveeffectofstockoptionsandawards — 11,286,161

Weightedaveragenumberofcommonshares-diluted 114,206,250 106,272,945

(Loss)earningspershare-basic $ (0.13) $ 0.02

(Loss)earningspershare-diluted $ (0.13) $ 0.02

Weightedaveragecommonshareequivalentsexcludedduetoanti-dilutiveeffectondilutedearningspershare 4,151,755 —


2020 2019

Weightedaveragenumberofcommonshares-basic 110,821,523 94,105,280

Dilutiveeffectofstockoptionsandawards — 12,140,003

Weightedaveragenumberofcommonshares-diluted 110,821,523 106,245,283

(Loss)earningspershare-basic $ (0.23) $ 0.05

(Loss)earningspershare-diluted $ (0.23) $ 0.04

Weightedaveragecommonshareequivalentsexcludedduetoanti-dilutiveeffectondilutedearningspershare 4,263,982 —

(d) Stockincentiveplans

Share-basedcompensationexpenserecognizedforthethreemonthsendedJune30,2020,and2019,was$2,044and$440,respectively.Share-basedcompensationexpenserecognizedforthesixmonthsendedJune30,2020,and2019,was$2,310and$749,respectively.

i. Stockoptions

1. Foundersstockoptions

At June 30, 2020, all common shares under option were exercised. AtDecember 31, 2019, the number of common shares under option andexercisablewas799,948.

2. 2015and2018Planstockoptions

TheCompanyrecognizescompensationexpenseforshareoptiongrantsbasedon the fair value at the date of grant using the Black-Scholes option pricingmodel. The following assumptions were used to determine the fair value ofshareoptiongrants.



26


2020 2019


Expectedvolatility 84.13%-87.27% 90.0%-92.0%

Expectedterm(years) 0.25-6.25 1.5-5.0

Risk-freeinterestrate 0.47%-1.40% 1.9%-2.5%

Valueofunderlyingshare $4.09-$7.13 $11.92-$21.10

Numberofsharesunder

option

Weightedaverage

exerciseprice(USD)

BalanceatDecember31,2019 4,902,194 $ 1.95

Granted 1,326,046 $ 5.02

AbacusHealthacquiredstockoptions 1,317,932 $ 4.80

Exercised (2,574,551) $ 0.56

Forfeited(andexpired) (252,658) $ 6.83

BalanceatJune30,2020 4,718,963 $ 4.06

ExercisableatJune30,2020 2,362,718 $ 2.25

ForthebalanceatJune30,2020,weightedaverageremainingcontractuallifeis8.35.Theweightedaveragegrant-datefairvalueofoptionsgrantedduringthesixmonthsendedJune30,2020was$3.85.

TheweightedaveragesharepriceatthedateofexerciseofoptionsexercisedduringthethreemonthperiodendedJune30,2020was$6.04.

ii. Restrictedshareawards

Detailsof thenumberof restrictedshareawardsoutstandingunder the2018Planisasfollows:

Numberofrestricted

shares

Weightedaveragegrant-datefair

value(USD)

BalanceatDecember31,2019 114,266 $ 20.52

Granted 297,439 $ 4.70

Forfeited (12,384) $ 14.75

Vested (20,175) $ 18.99

BalanceatJune30,2020 379,146 $ 8.41



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iii. HarmonyHempcontingentcompensation

PursuanttothetermsoftheHarmonyHempassetpurchaseagreement(note12), Abacus US, and therefore the Company, is required to deliver commonshares in three installmentson the12th,18th and24thmonthanniversariesofthe closing date to key individuals. All vesting of the common shares isdependent and contingent on the continuation of the key individual’sconsulting, employment or other services relationship with the Company ontheapplicablevestingdate.Share-basedcompensationexpenseattributabletoHarmonyHempcontingentconsideration for thethreeandsixmonthsendedJune30,2020was$115.

(e) Warrants

ThefollowingsummarizesthenumberofwarrantsoutstandingasofJune30,2020:

BalanceatDecember31,2019

BalanceatJune30,2020

Numberofwarrants

outstanding Granted

AbacusHealthacquiredwarrants

Numberofwarrants

outstanding

Weightedaverage

exerciseprice

Broker 1,110 — — 1,110 $ 5.39

2019ShareOfferingWarrants 2,500,000 — — 2,500,000 $ 12.67

2020ShareOfferingWarrants — 5,750,000 — 5,750,000 $ 6.26

AbacusHealthacquiredwarrants — — 1,892,872 1,892,872 $ 11.38

2,501,110 5,750,000 1,892,872 10,143,982 $ 8.80

For the balance of outstanding warrants at June 30, 2020, the weighted average remainingcontractuallifeis1.84years.



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19. Expensesbynature

Thecostsofsalesandoperatingexpensesbynatureareasfollows:



2020 2019 2020 2019

Costofsales $ 10,209 $ 6,526 $ 16,675 $ 12,431

Inventoryexpensedtocostofsales 5,762 5,237 10,461 9,562

Inventoryprovision,net 2,528 — 2,523 —

Otherproductioncosts 1,736 1,379 3,211 2,476

Depreciationandamortization 183 (90) 480 393

Generalandadministrative $ 21,108 $ 9,060 $ 37,139 $ 17,519

Personnel 9,023 2,943 16,810 7,109

Legalandprofessionalservices 6,972 3,143 10,921 4,403

Otheroperatingexpenses 3,237 2,475 6,164 5,109

Depreciationandamortization 1,876 499 3,244 898

Salesandmarketing $ 6,835 $ 6,527 $ 13,367 $ 11,087

Advertising,promotionsandsellingcosts 3,399 3,562 6,874 6,253

Personnel 2,965 2,335 5,463 3,865

Facilitiesandotherexpenses 425 595 945 899

Depreciationandamortization 46 35 85 70

.

Researchanddevelopment $ 1,533 $ 654 $ 2,299 $ 845

Personnel 1,286 343 1,813 534

Otheroperatingexpenses 222 266 361 266

Depreciationandamortization 25 45 125 45

Asa resultofbusinesscombinations,asdefinedby IFRS3BusinessCombinations (note3),one-timeacquisitioncostsof$3,112and$3,545wereexpensedas incurredduringthethreeandsixmonthsendedJune30,2020ingeneralandadministrative.

Accruedlitigationsettlementexpenseof$2,050,aone-timecost,wasrecordedduringthethreeandsixmonthsendedJune30,2020ingeneralandadministrative.



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20. Incometaxes

(a) Componentsofincometaxes

Themajorcomponentsofincometaxexpenseattributabletoincomefromcontinuingoperationsconsistsof:



2020 2019 2020 2019

U.S.federal $ — $ 379 $ 5,463 $ 1,019

Stateandlocal 20 269 844 315

$ 20 $ 648 $ 6,307 $ 1,334

During the first quarter of 2020, the Company expensed previously recognized deferred taxassets(see(d)below).Ofwhich$16,087wasoffsetincontributedsurplusrelatedtotheincometaxbenefit previously recognized for stockoptions. Further, $8,069was reclassified to incometaxesreceivableinconjunctionwiththeCARESAct(see(e)below)andtheremaining$6,262wasrecordedasincometaxexpense.

(b) Taxratereconciliation

Income tax expense attributable to (loss) income from continuing operations for the three and sixmonths ended June30, 2020, and2019, differed from the amounts computedby applying theU.S.federalincometaxratesof21%,asaresultofthefollowing:

2020 2019

Computed"expected"taxexpense 21.0% 21.0%

Stateincometaxes,netoffederaltaxbenefit 3.7% 1.5%

Permanentitems 2.4% 0.3%

Changeintaxrate (0.4%) 0.2%

Inabilitytorecognizecurrentyeardeferredtaxassets (26.2%) 0.0%

Other,net 1.4% (0.2%)

Effectivetaxratebeforediscreteitem 1.9% 22.8%

Derecognizedeferredtaxassets (34.1%) 0.0%

Effectivetaxrateafterdiscreteitem (32.1%) 22.8%

(c) Uncertaintaxposition

DuetotheadoptionofIFRIC23,uncertaintiesexistwithrespecttotheinterpretationofcomplextaxregulations,changes in tax laws,andtheamountandtimingof futuretaxable income.TheCompanyrecognizesthetaxbenefitfromanuncertaintaxpositiononlyifitisprobablethatthetaxpositionwillbesustainedbasedonitstechnicalmerits.TheCompanymeasuresandrecordsthetaxbenefits fromsuchapositionbasedonthe largestbenefit thathasagreaterthan50%likelihoodofbeingrealizeduponultimatesettlement.TheCompany’sestimatedliabilitiesrelatedto thesematters are adjusted in the period in which the uncertain tax position is effectivelysettled, the statute of limitations for examination expires or when additional informationbecomes available. The Company’s liability for unrecognized tax benefits requires the use of



30

assumptions and significant judgement to estimate the exposures associatedwith our variousfiling positions. Although the Company believes that the judgments and estimates made arereasonable, actual results could differ and resulting adjustments could materially affect oureffectiveincometaxrateandincometaxprovision.

DuringthethreeandsixmonthsendedJune30,2020,theCompanydidnotrecordaprovisionforuncertaintaxpositions.

(d) Deferredtaxassets

IAS12–IncomeTaxesrequiresanentitytorecognizedeferredtaxassetswhenitisprobablethattaxableprofitswillbeavailabletooffsetthesetemporarydifferenceswhentheyarededucted.Management assesses the available positive and negative evidence to estimate whethersufficient future taxable income will be generated to permit use of the existing deferred taxassets.Twosignificantpiecesofobjectivenegativeevidenceevaluatedwerethecumulativelossincurredoverthethree-yearperiod,whichtriggeredduringthequarterendedMarch31,2020,andtheforecastedannual2020loss.Suchobjectiveevidencelimitstheabilitytoconsiderothersubjectiveevidence,suchasourprojectionsforfuturegrowth.Asaresult,theCompanydoesnothave the ability to recognize the deferred tax assets. These assets consist primarily of a netoperating loss carryforward in the amount of $18,000. This net operating loss carryforwardremainsavailableforfutureusetooffsetfuturetaxliabilities.

(e) TheCARESAct

OnMarch 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (“CARESAct”)wasenactedinresponsetotheCOVID-19pandemic.TheCARESAct,amongotherthings,allowsfortheCompanytocarrybackthenetoperatinglossgeneratedin2019.Theimpactofthecarrybackwillresultinarefundof$8,069whichisincludedinincometaxesreceivableasofJune30,2020.The Company will continue to monitor future developments and interpretations for furtherimpacts.

The Company previously recognized $3,273 of income taxes receivable related to 2019 taxoverpayments,resultinginatotalincometaxesreceivableasofJune30,2020of$11,342.

21. Financialriskmanagement

TheCompanyhasexposuretothefollowingrisksfromitsuseoffinancialinstruments.Themaintypesofrisksaremarketrisk,creditriskandliquidityrisk.TheCompany’sseniormanagementoverseesthemanagementoftheserisks.TheCompany’sfinancialinstrumentsandpoliciesformanagingtheserisksaredetailedbelow.

(a) FairValue

AsatJune30,2020,theCompany’sfinancialassetsincludecashandtradereceivables.Financialliabilities include trade payables, purchase price payable and derivative financial liability. Thecarryingamountsofcurrentassetsandliabilitiesapproximatetheirfairvalueduetotheirshortperiodtomaturity.Thederivativefinancialliabilityismeasuredatfairvaluethroughprofitorloss("FVTPL").

The fair valuemeasurement of the Company’s financial and non-financial assets and liabilitiesutilizesmarket observable inputs and data as far as possible. Inputs used in determining fairvaluemeasurements are categorized intodifferent levels basedonhowobservable the inputsusedinthevaluationtechniqueutilizedare(the'fairvaluehierarchy'):



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-Level1:Quotedpricesinactivemarketsforidenticalitems(unadjusted);-Level2:ObservabledirectorindirectinputsotherthanLevel1inputs;and-Level3:Unobservableinputs(i.e.notderivedfrommarketdata).

Theclassificationofanitemintotheabovelevelsisbasedonthelowestleveloftheinputsusedthat has a significant effect on the fair value measurement of the item. Transfers of itemsbetweenlevelsarerecognizedintheperiodtheyoccur.

The Company's cash is subject to a level 1 valuation. The derivative financial liability for thePurchaseWarrantsandDebentureWarrantsissubjecttoalevel1valuation.

Thebasisofthevaluationofthederivativefinancialliabilityisfairvalue.Thederivativefinancialliability is revalued each period using the Black-Scholes valuation model and quoted marketrates.Thisvaluationtechniquemaximizestheuseofobservablemarketdatawhereitisavailableandreliesaslittleaspossibleonentityspecificestimates.

(b) MarketRisk

Marketriskistheriskthatchangesinmarketprices,suchasforeignexchangeratesandinterestrates,willaffecttheCompany’sincomeorthevalueofitholdingfinancialinstruments.

The Company conducts sales transactions with foreign entities. The transactions aredenominated in USD, the functional currency, and therefore the Company does not haveexposuretoforeignexchangeraterisk.

Interestrateriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuate because of change in market interest rates. The Company’s trade receivables andaccountspayablearenon-interestbearing.Financialassetsandfinancial liabilitieswithvariableinterestratesexposetheCompanytocashflowinterestraterisk.TheCompanydoesnothaveany debt instruments outstanding with variable interest rates at June 30, 2020. Changes inmarketinterestratescausethefairvalueoflong-termdebtwithfixedinterestratestofluctuatebutdoesnotimpactnetincomeastheCompanyrecordsdebtatamortizedcostandthecarryingvaluedoesnotchangeasinterestrateschange.

(c) Creditrisk

Creditriskreferstotheriskthatacounterpartywilldefaultonitscontractualobligation,resultinginfinancial losstotheCompany.Suchrisksariseprimarily fromcertainfinancialassetsheldbythe Company consisting of trade receivables, note receivable, and deposits. The Company’smaximum exposure to credit risk is limited to the carrying amount of the financial assets assummarizedbelow:


Tradeandotherreceivables,net $ 12,488 $ 5,462

Otherlong-termassets 3,949 1,625

Deposits-current 2,948 376

Notereceivable 2,366 1,421

$ 21,751 $ 8,884



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The Company applies the simplified approach to providing for expected credit losses asprescribedbyIFRS9,whichpermitstheuseofthelifetimeexpectedlossprovisionforalltradereceivables.ThelossallowanceprovisionisbasedontheCompany’shistoricalcollectionandlossexperience and incorporates forward-looking factors,where appropriate. The provisionmatrixbelowshowstheexceptedcreditlossrateateachagingcategoryoftradeandotherreceivables.

CurrentAged1-30days

pastdueAged31-60days

pastdueAged>60days

pastdue Total

Expectedlossrate 0.97% 7.41% 6.41% 15.68% 4.09%

Grosscarryingamount $9,201 $ 661 $ 1,092 $ 2,066 13,020

Lossallowanceprovision,endoftheperiod $ 89 $ 49 $ 70 $ 324 532

i. Tradeandotherreceivables

Individual receivableswhichareknowntobeuncollectiblearewrittenoffby reducingthe carryingamountdirectly.Other receivablesareassessed collectively todeterminewhetherthereisobjectiveevidencethatanimpairmenthasbeenincurred,butnotyetbeen identified. The Company maintains an allowance for doubtful accounts thatrepresentsitsestimateoftheuncollectibleamountsbasedonspecificlossesestimatedonindividualexposuresandprovisionsbasedonhistoricalexperience.

The Company considers that there is evidence of impairment if any of the followingindicatorsarepresent:

• significantfinancialdifficultiesofthedebtor;• probability that thedebtorwill enterbankruptcyor financial reorganization;

and/or• defaultordelinquencyinpayments

Seenote5forinformationabouttheagingoftradeandotherreceivables.

(d) Liquidityrisk

LiquidityriskistheriskthattheCompanywillnotbeabletomeetitsobligationsastheybecomedue.TheCompanymanagesliquidityriskbyevaluatingworkingcapitalandforecastinglong-termfinancial liabilitiesaswell as forecast cash inflowsandoutflows frombusinessoperations. TheCompany’scashbalancesatJune30,2020andDecember31,2019were$99,820and$68,553,respectively. Networking capital at June 30, 2020 andDecember 31, 2019was $154,957 and$116,927,respectively.



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22. Fairvaluemeasurement

SetoutbelowisacomparisonbyclassofthecarryingamountsandfairvalueoftheCompany’sfinancialinstruments.


CarryingAmount FairValue

CarryingAmount FairValue

Financialassets

Cash $ 99,820 $ 99,820 $ 68,553 $ 68,553

Tradeandotherreceivables,net 12,488 12,488 5,462 5,462

Notereceivable 2,366 2,366 1,421 1,421

$ 114,674 $ 114,674 $ 75,436 $ 75,436

Financialliabilities

Accountspayableandaccruedliabilities $ 30,348 $ 30,348 $ 16,121 $ 16,121

Cultivationliabilities 21,531 21,531 25,092 25,092

Notespayable 1,641 1,641 12 12

Leaseobligations 23,790 23,790 24,061 24,061

Warrantliabilities 8,766 8,766 3,408 3,408

$ 86,076 $ 86,076 $ 68,694 $ 68,694

23. Capitalmanagement

Forcapitalmanagementpurposes,theCompanydefinescapitalasitsshareholders’equitythatincludessharecapital,contributedsurplusandretainedearnings.TheamountsincludedintheCompany’scapitalfortherelevantperiodareasfollows:

June30,2020 $270,899December31,2019$153,698

TheCompany’sprincipalobjectivesinmanagingcapitalare:

• toensurethatitwillcontinuetooperateasagoingconcern;• to be flexible to take advantage of contract and growth opportunities that are expected to

providesatisfactoryreturnstoitsshareholders;• to maintain a strong capital base to maintain customers, investors, creditors and market

confidence;and• toprovideanadequaterateofreturntoitsshareholders.

TheCompanymanagesandadjustsitscapitalstructureconsideringchangesineconomicconditions.Tomaintainoradjustitscapitalstructure,theCompanymayissuedebtornewshares.FinancingdecisionsaregenerallymadeonaspecifictransactionbasisanddependonsuchthingsastheCompany’sneeds,capitalmarketsandeconomicconditionsatthetimeofthetransaction.Managementreviewsitscapitalmanagementapproachonanongoingbasisandbelievesthatthisapproachisreasonable,giventhesizeofthecompany.



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To support capital management, the Company has a an asset backed line of credit with J.P. Morgan$10,000withanaccordion feature toextend the line to$20,000witha3-yearmaturity (note16). TheCompanyhasnotyetdrawnonthelineofcredit.

24. Relatedpartytransactions

TheCompanyenteredintoanagreementfortheleaseofpropertyheldbyanentityownedbycertainfoundersoftheCompany.TheleasetermiseffectiveJanuary1,2019throughDecember31,2020.Perthetermsoftheleaseagreement,theCompanyprepaidbaserentinfulluponexecutionintheamountof $144. The lease asset is presented as a right of use asset with property and equipment on thestatementoffinancialposition.

OnFebruary28,2020,theCompanyenteredintoanassetpurchaseagreementwithStanleyBrothersBioTec, Inc., an entity formerly owned by certain founders of the Company. The Company purchasedsubstantially all the assets related to Stanley Brothers Bio Tec Inc. for total consideration of $250.Acquiredpropertyandequipmenttotaled$215andconsistedprimarilyoflabequipment.Theremaining$35oflabandothermiscellaneoussuppliesacquiredwereexpensedthroughresearchanddevelopment.

AidanceScientific,Inc.(“Aidance”)isthemanufacturerofnearlyallAbacusHealthproducts.TheformerChief Executive Officer of Abacus Health, and current President of the Company, also serves onAidance’s Board ofDirectors. As of June 30, 2020, the Company has a liability of $335 due to and areceivableof$129due fromAidancepresented inaccountspayableand tradeandother receivables,net,respectively,intheunauditedinterimcondensedconsolidatedstatementsoffinancialposition.

25. RemunerationofkeymanagementoftheCompany

Theremunerationawardedtoseniorkeymanagementincludesthefollowing:



2020 2019 2020 2019

Wagesandbonus $ 665 771 $ 2,024 948

Benefits $ 112 69 $ 174 76

Share-basedcompensation $ 809 181 $ 1,005 423

$ 1,586 $ 1,021 $ 3,203 $ 1,447

TheCompanyaddedadditionalkeymanagementpositionsstartinginthesecondquarterof2019.



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