| 19. | \n\n Commitments and contingencies \n | \n
\n
\n| (a) | \n\n The following is a summary of the Company’s\n minimum operating lease obligations for its premises due in future\n fiscal years: \n | \n
\n
\n| \n | \n | \n | \n | \n |
| \n \n 2018 \n | \n \n | $ | \n81 | \n\n |
| \n \n 2019 \n | \n \n | \n | 88 | \n\n |
| \n \n 2020 \n | \n \n | \n | 92 | \n\n |
| \n \n 2021 \n | \n \n | \n | 92 | \n\n |
| \n \n 2022 \n | \n \n | \n | 95 | \n\n |
| \n \n Thereafter \n | \n \n | \n | 8 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n456 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
In addition to the minimum lease payments, the\n Company is required to pay realty taxes and other occupancy\n costs.
\n\n
\n| (b) | \n\n The following contingencies are related to Peace\n Naturals: \n | \n
\n
\n| (i) | \n\n Plants Claim. Peace Naturals is subject to a\n claim for $12,000 for damages related to the death of 12 cannabis\n plants held in its care, amounting to $1,000 per plant (the\n “Plants Claim”). On November 21, 2017, the\n plaintiffs (Tweed Inc., the successor in interest of 8437726 Canada\n Inc., operating as MedCann Access, and 9388036 Canada Inc.) filed a\n notice with the Ontario Superior Court of Justice to wholly\n discontinue the Plants Claim against Peace Naturals. \n | \n
\n
\n| (ii) | \n\n MedCann Access Acquisition Claim. 8437718\n Canada Inc., 8437726 Canada Inc., Michael Blaine Dowdle, Rade\n Kovacevic, Kevin Furet and 9388036 Canada Inc. (collectively, the\n “Plaintiffs”) commenced a claim against Peace\n Naturals and a number of other parties, for $15,000 in damages as a\n result of an alleged breach of obligations to them by terminating a\n share purchase transaction for the acquisition of the\n Plaintiffs’ company, MedCann Access. The Company believes\n that the allegations contained in the statement of claim are\n without merit and plans to vigorously defend itself; accordingly,\n no provision for loss has been recognized. On February 21,\n 2018, the parties began the discovery phase of the proceedings. \n | \n
\n
\n| (iii) | \n\n Warrants Claim. Jeffrey Gobuty, brother to\n Mark Gobuty, former CEO of Peace Naturals, brought a claim against\n Peace Naturals for warrants valued at $250 that were purportedly\n issued by Mark Gobuty, on behalf of Peace Naturals. The Company\n believes that the allegations contained in the statement of claim\n are without merit and plans to vigorously defend this claim. The\n plaintiff has not actively pursued this claim in over a year. \n | \n
\n
\n| (iv) | \n\n Former Employees’ Unlawful Termination\n Claims. Peace Naturals, Cronos and certain directors were\n served with claims by a former employee for damages of $580 and\n 30,000 options of the Company and the former CEO of Peace Naturals\n for approximately $12,682 and a 10% equity interest in Peace\n Naturals in connection with alleged claims of wrongful termination.\n The Company believes that the allegations contained in the\n statement of claim are without merit and plans to vigorously defend\n itself; accordingly, no provision for loss has been recognized. \n | \n
| (j) | \n\n Income taxes \n | \n
The Company accounts for its income taxes using the\n deferred tax assets and liabilities method. Deferred income tax\n assets and liabilities are determined based on the difference\n between the carrying amount and the tax basis of the assets and\n liabilities. Any change in the net amount of deferred income tax\n assets and liabilities is included in profit or loss or equity.\n Deferred income tax assets and liabilities are determined based on\n enacted or substantively enacted tax rates and laws which are\n expected to apply to taxable profit for the years in which the\n assets and liabilities will be recovered or settled. Deferred\n income tax assets are recognized when it is probable they will be\n realized. Deferred tax assets and liabilities are not\n discounted.
\n| (d) | \n\n Inventory \n | \n
Inventories of harvested finished goods,\n work-in-process, and raw materials are valued at the lower of cost\n and net realizable value. Inventories of harvested cannabis and\n work-in-process are transferred from biological assets at their\n fair value at the point of harvest, which becomes the initial\n deemed cost. Any subsequent post-harvest costs, including direct\n costs attributable to processing and related overheads, are\n capitalized to inventory to the extent that cost is less than net\n realizable value. Net realizable value is determined as the\n estimated selling price in the ordinary course of business less the\n estimated costs of completion and the estimated variable costs to\n sell.
\n| 5. | \n\n New and revised standards and interpretations\n issued but not yet effective \n | \n
\n
\n| (a) | \n\n AMENDMENTS TO IFRS 2 SHARE-BASED PAYMENTS \n | \n
IFRS 2 clarifies how to account for certain types\n of share-based payment transactions. The amendments provide\n requirements on the accounting for the effects of vesting and\n non-vesting conditions on the measurement of cash-settled\n share-based payments, share-based payment transactions with a net\n settlement feature for withholding tax obligations, and a\n modification to the terms and conditions of a share-based payment\n that changes the classification of the transaction from\n cash-settled to equity-settled. The effective date of these\n amendments is January 1, 2018. The Company will adopt the\n amendments as of its effective date. The Company has performed a\n preliminary assessment and does not expect there to be significant\n impact on the consolidated financial statements as a result of\n these amendments.
\n\n
\n \n| (b) | \n\n IFRS 9 FINANCIAL INSTRUMENTS \n | \n
IFRS 9 addresses classification and measurement of\n financial assets and replaces the multiple category and measurement\n models in IAS 39 for debt instruments with a new mixed measurement\n model having only two categories: amortized cost and fair value\n through profit or loss. IFRS 9 also replaces the models for\n measuring equity instruments and such instruments are either\n recognized at fair value through profit or loss or at fair value\n through other comprehensive income. The effective date of this\n standard is January 1, 2018. The Company will adopt this new\n standard as of its effective date. As a result of the new\n classification model and measurement requirements under IFRS 9, the\n Company will elect to classify the available-for-sale investments as fair\n value through other comprehensive income investments. Under this\n classification, there is no recycling of gains or losses from\n accumulated other comprehensive income to profit or loss.\n Therefore, the gain recorded in other comprehensive income in the\n current year of $947 will not be recycled to profit or loss in\n future periods. The Company has performed a preliminary assessment\n and does not expect there to be any other significant impacts on\n the consolidated financial statements as a result of the adoption\n of this new standard.
\n\n
\n \n| (c) | \n\n IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS \n | \n
IFRS 15 was issued by the IASB in May 2014 and\n specifies how and when revenue should be recognized based on a\n five- step model, which is\n applied to all contracts with customers. IFRS 15 becomes effective\n for annual periods beginning on or after January 1, 2018 with early\n adoption permitted. The Company will adopt this new standard as of\n its effective date. The Company has performed a preliminary\n assessment and does not expect there to be any significant impact\n on the consolidated financial statements as a result of the\n adoption of this new standard.
\nDuring the year, the Company had undertaken an\n accounting impact analysis based on a review of the contractual\n terms of its principal revenue stream. Under IFRS 15, the revenue\n recognition model will change from one based on the transfer of\n risks and rewards of ownership to the transfer of control. The\n Company’s revenue is predominantly derived from sales of\n dried cannabis and cannabis oil. As the transfer of risks and\n rewards generally coincides with the transfer of control at a point\n in time, the timing and amount of revenue considering discounts,\n rebates, and variable considerations, recognized from this\n principal revenue stream is unlikely to be materially affected.
\n\n
\n \n| (d) | \n\n IFRS 16 LEASES \n | \n
IFRS 16 was issued in January 2016 and replaces the\n previous guidance on leases. This standard provides a single\n recognition and measurement model to be applied by lessees to\n leases, with required recognition of assets and liabilities for\n most leases. This standard is effective for annual periods\n beginning on or after January 1, 2019, with early adoption\n permitted if the Company is also applying IFRS 15, Revenue from\n Contracts with Customers. The Company will adopt this new standard\n as of its effective date. The Company is currently evaluating the\n impact of the adoption of this new standard on its consolidated\n financial statements.
\n| (c) | \n\n Biological assets \n | \n
The Company measures biological assets, consisting\n of cannabis plants, at fair value less costs to sell. Agricultural\n produce, consisting of medical cannabis, is measured at fair value\n less costs to sell at the point of harvest, which becomes the basis\n for the cost of finished goods inventory after harvest. Gains and\n losses arising from changes in fair values less cost to sell during\n the period are included in the net income of the related year.
\n| (l) | \n\n Earnings per share \n | \n
The Company presents basic and diluted earnings per\n share data for its common shares. Basic earnings per share is\n calculated by dividing the profit or loss attributable to common\n shareholders of the Company by the weighted average number of\n common shares outstanding during the period. Diluted earnings per\n share is determined by adjusting the profit or loss attributable to\n common shareholders and the weighted average number of common\n shares outstanding, for the effects of all potentially dilutive\n common shares, which comprise warrants and stock options.
\nThe purchase price allocation for this acquisition\n is shown below:
\n\n
\n| \n | \n | \n | \n | \n |
| \n \n Fair value of consideration transferred: \n | \n \n | \n | \n | \n |
| \n \n Cash \n | \n \n | $ | \n6,248 | \n\n |
| \n \n Liability (i) \n | \n \n | \n | 2,590 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 8,838 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Fair value of previously held interest: \n | \n \n | \n | \n | \n |
| \n \n Fair value of previously held interest immediately before\n acquisition \n | \n \n | \n | 3,315 | \n\n |
| \n \n Loss due to fair value remeasurement at acquisition date \n | \n \n | \n | (347 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 2,968 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n11,806 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Fair value of net assets acquired: \n | \n \n | \n | \n | \n |
| \n \n Cash \n | \n \n | $ | \n109 | \n\n |
| \n \n Accounts receivable \n | \n \n | \n | 51 | \n\n |
| \n \n Prepaid and deposits \n | \n \n | \n | 29 | \n\n |
| \n \n Inventory \n | \n \n | \n | 1,194 | \n\n |
| \n \n Biological assets \n | \n \n | \n | 866 | \n\n |
| \n \n Property and equipment \n | \n \n | \n | 10,282 | \n\n |
| \n \n Goodwill \n | \n \n | \n | 1,400 | \n\n |
| \n \n Health Canada license \n | \n \n | \n | 9,596 | \n\n |
| \n \n Accounts payable and accrued liabilities \n | \n \n | \n | (2,860 | \n) | \n
| \n \n Loans payable \n | \n \n | \n | (7,461 | \n) | \n
| \n \n Deferred tax liability \n | \n \n | \n | (1,400 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n11,806 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
The Company finalized its assessment of the\n purchase price allocation during the year ended December 31,\n 2017. The allocation of the consideration paid remains consistent\n with the initial valuation.
\n\n
\n| (i) | \n\n During the year ended December 31, 2017, the\n full balance of the purchase price liability was repaid by the\n Company. \n | \n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Cost \n | \n \n | Balance at \n January 1, 2017 | \n \n | \n | Additions | \n\n | \n | As at \n December 31, \n 2017 | \n \n | |||
| \n \n Land \n | \n \n | $ | \n1,558 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,558 | \n\n |
| \n \n Building structures \n | \n \n | \n | 2,761 | \n\n | \n | \n | 8,757 | \n\n | \n | \n | 11,518 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 63 | \n\n | \n | \n | 71 | \n\n | \n | \n | 134 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 88 | \n\n | \n | \n | 60 | \n\n | \n | \n | 148 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 474 | \n\n | \n | \n | 412 | \n\n | \n | \n | 886 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 2,106 | \n\n | \n | \n | 375 | \n\n | \n | \n | 2,481 | \n\n |
| \n \n Road \n | \n \n | \n | 137 | \n\n | \n | \n | \n — | \n\n | \n | \n | 137 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 1,429 | \n\n | \n | \n | 68 | \n\n | \n | \n | 1,497 | \n\n |
| \n \n Construction in progress \n | \n \n | \n | 6,034 | \n\n | \n | \n | 33,303 | \n\n | \n | \n | 39,337 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n14,650 | \n\n | \n | $ | \n43,046 | \n\n | \n | $ | \n57,696 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Accumulated depreciation \n | \n \n | Balance at \n January 1, 2017 | \n \n | \n | Additions | \n\n | \n | As at \n December 31, \n 2017 | \n \n | |||
| \n \n Building structures \n | \n \n | $ | \n120 | \n\n | \n | $ | \n313 | \n\n | \n | $ | \n433 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 18 | \n\n | \n | \n | 25 | \n\n | \n | \n | 43 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 36 | \n\n | \n | \n | 39 | \n\n | \n | \n | 75 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 60 | \n\n | \n | \n | 136 | \n\n | \n | \n | 196 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 103 | \n\n | \n | \n | 328 | \n\n | \n | \n | 431 | \n\n |
| \n \n Road \n | \n \n | \n | 5 | \n\n | \n | \n | 5 | \n\n | \n | \n | 10 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 186 | \n\n | \n | \n | 150 | \n\n | \n | \n | 336 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n528 | \n\n | \n | $ | \n996 | \n\n | \n | $ | \n1,524 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net book value \n | \n \n | $ | \n14,122 | \n\n | \n | \n | \n | \n | \n | $ | \n56,172 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Cost \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | Acquisitions \n (Note 6) | \n \n | \n | As at \n December 31, \n 2016 | \n \n | ||||
| \n \n Land \n | \n \n | $ | \n210 | \n\n | \n | $ | \n623 | \n\n | \n | $ | \n725 | \n\n | \n | $ | \n1,558 | \n\n |
| \n \n Building structures \n | \n \n | \n | 824 | \n\n | \n | \n | 62 | \n\n | \n | \n | 1,875 | \n\n | \n | \n | 2,761 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 27 | \n\n | \n | \n | \n — | \n\n | \n | \n | 36 | \n\n | \n | \n | 63 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 29 | \n\n | \n | \n | 38 | \n\n | \n | \n | 21 | \n\n | \n | \n | 88 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 183 | \n\n | \n | \n | 291 | \n\n | \n | \n | \n — | \n\n | \n | \n | 474 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 72 | \n\n | \n | \n | 409 | \n\n | \n | \n | 1,625 | \n\n | \n | \n | 2,106 | \n\n |
| \n \n Road \n | \n \n | \n | 137 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 137 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 1,363 | \n\n | \n | \n | 66 | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,429 | \n\n |
| \n \n Construction in progress \n | \n \n | \n | \n — | \n\n | \n | \n | 34 | \n\n | \n | \n | 6,000 | \n\n | \n | \n | 6,034 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n2,845 | \n\n | \n | $ | \n1,523 | \n\n | \n | $ | \n10,282 | \n\n | \n | $ | \n14,650 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Accumulated depreciation \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | As at \n December 31, \n 2016 | \n \n | |||
| \n \n Building structures \n | \n \n | $ | \n63 | \n\n | \n | $ | \n57 | \n\n | \n | $ | \n120 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 8 | \n\n | \n | \n | 10 | \n\n | \n | \n | 18 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 12 | \n\n | \n | \n | 24 | \n\n | \n | \n | 36 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 9 | \n\n | \n | \n | 51 | \n\n | \n | \n | 60 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 14 | \n\n | \n | \n | 89 | \n\n | \n | \n | 103 | \n\n |
| \n \n Road \n | \n \n | \n | \n — | \n\n | \n | \n | 5 | \n\n | \n | \n | 5 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 40 | \n\n | \n | \n | 146 | \n\n | \n | \n | 186 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n146 | \n\n | \n | $ | \n382 | \n\n | \n | $ | \n528 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net book value \n | \n \n | $ | \n2,699 | \n\n | \n | \n | \n | \n | \n | $ | \n14,122 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n\n
\n| 20. | \n\n Income taxes \n | \n
The components of the income tax\n provision (recovery) include:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Deferred \n | \n \n | \n | 298 | \n\n | \n | \n | (568 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n298 | \n\n | \n | $ | \n(568 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
The reconciliation of the combined\n Canadian federal and provincial statutory income tax rate of 26.5%\n (2016 - 26.5%) to the effective tax rate is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Income before income taxes \n | \n \n | $ | \n2,789 | \n\n | \n | $ | \n(1,758 | \n) | \n
| \n \n Combined statutory tax rate \n | \n \n | \n | 26.5 | \n% | \n\n | \n | 26.5 | \n% | \n
| \n \n Theoretical tax expense (recovery) \n | \n \n | $ | \n739 | \n\n | \n | $ | \n(466 | \n) | \n
| \n \n Non-deductible\n expense: \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Stock-based payments \n | \n \n | \n | 494 | \n\n | \n | \n | 81 | \n\n |
| \n \n Non-taxable income: \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Non-taxable portion of\n capital gains \n | \n \n | \n | (762 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Effect of provincial tax rate difference \n | \n \n | \n | 5 | \n\n | \n | \n | 4 | \n\n |
| \n \n Changes in unrecognized deferred tax assets \n | \n \n | \n | (178 | \n) | \n\n | \n | (187 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Income tax expense (recovery) \n | \n \n | $ | \n298 | \n\n | \n | $ | \n(568 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
The components of deferred tax are\n summarized below. Deferred tax assets and liabilities have been\n offset where they relate to income taxes levied by the same\n taxation authority and the Company has the legal right and intent\n to offset.
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Deferred tax assets \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Non-capital losses carried\n forward \n | \n \n | $ | \n5,690 | \n\n | \n | $ | \n2,400 | \n\n |
| \n \n Scientific research and experimental development \n | \n \n | \n | 28 | \n\n | \n | \n | 28 | \n\n |
| \n \n Financing fees \n | \n \n | \n | 31 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n | ||||||
| \n \n Deferred tax liabilities \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Biological assets \n | \n \n | \n | (986 | \n) | \n\n | \n | (18 | \n) | \n
| \n \n Inventory \n | \n \n | \n | (1,989 | \n) | \n\n | \n | (51 | \n) | \n
| \n \n Equity accounted investments \n | \n \n | \n | (153 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Investments \n | \n \n | \n | (91 | \n) | \n\n | \n | (696 | \n) | \n
| \n \n Property, plant and equipment \n | \n \n | \n | (968 | \n) | \n\n | \n | (158 | \n) | \n
| \n \n Health Canada licenses \n | \n \n | \n | (2,978 | \n) | \n\n | \n | (2,962 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net deferred tax liability \n | \n \n | $ | \n(1,416 | \n) | \n\n | $ | \n(1,457 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nThe movement in the net deferred tax\n liability is provided below:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Balance - beginning of year \n | \n \n | $ | \n1,457 | \n\n | \n | $ | \n195 | \n\n |
| \n \n Recognized in income \n | \n \n | \n | 298 | \n\n | \n | \n | (568 | \n) | \n
| \n \n Recognized in other comprehensive income \n | \n \n | \n | (339 | \n) | \n\n | \n | 430 | \n\n |
| \n \n Recognized in goodwill \n | \n \n | \n | \n — | \n\n | \n | \n | 1,400 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance - end of year \n | \n \n | $ | \n1,416 | \n\n | \n | $ | \n1,457 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
Deferred taxes are provided as a\n result of temporary differences that arise due to the differences\n between the income tax values and the carrying amount of assets and\n liabilities. Deferred tax assets have not been recognized in\n respect of the following deductible temporary differences because\n it is not probable that future taxable profit will be available\n against which the Company can utilize the benefits\n therefrom.
\nThe following are temporary\n differences that gave rise to deferred tax assets, which have not\n been recognized in these consolidated financial\n statements.
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Property, plant and equipment \n | \n \n | $ | \n684 | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Equity accounted investments \n | \n \n | \n | \n — | \n\n | \n | \n | 89 | \n\n |
| \n \n Share and debt issuance costs (i) \n | \n \n | \n | 2,834 | \n\n | \n | \n | 1,085 | \n\n |
| \n \n Losses carried forward (ii) \n | \n \n | \n | 7,814 | \n\n | \n | \n | 3,833 | \n\n |
| \n \n Other investments \n | \n \n | \n | \n — | \n\n | \n | \n | 6 | \n\n |
\n
\n| (i) | \n\n Share and debt issuance costs will be fully\n amortized in 2022. The remaining deductible temporary differences\n may be carried forward indefinitely. \n | \n
| (ii) | \n\n For income tax purposes, the Company has losses\n carried forward from prior years which can be used to reduce future\n years’ taxable income. These losses expire as follows: \n | \n
\n
\n| \n | \n | \n | \n | \n |
| \n | \n | Non-capital \n losses | \n \n | |
| \n \n 2030 \n | \n \n | $ | \n32 | \n\n |
| \n \n 2031 \n | \n \n | \n | 22 | \n\n |
| \n \n 2032 \n | \n \n | \n | 877 | \n\n |
| \n \n 2033 \n | \n \n | \n | 3,177 | \n\n |
| \n \n 2034 \n | \n \n | \n | 1,782 | \n\n |
| \n \n 2035 \n | \n \n | \n | 5,452 | \n\n |
| \n \n 2036 \n | \n \n | \n | 6,558 | \n\n |
| \n \n 2037 \n | \n \n | \n | 11,383 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n29,283 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n\n
| 18. | \n\n Related party transactions and balances \n | \n
The following is a summary of the Company’s\n related party transactions during the year:
\n\n
\n \n| (a) | \n\n Key management compensation \n | \n
Key management personnel are persons responsible\n for planning, directing and controlling activities of an entity,\n and include management executives of the Company. Compensation\n provided to key management is as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Short-term employee benefits, including salaries and fees \n | \n \n | $ | \n417 | \n\n | \n | $ | \n264 | \n\n |
| \n \n Professional fees \n | \n \n | \n | 234 | \n\n | \n | \n | 171 | \n\n |
| \n \n Stock-based payments (i) \n | \n \n | \n | 899 | \n\n | \n | \n | 208 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,550 | \n\n | \n | $ | \n643 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (i) | \n\n Stock-based payments are comprised of $Nil (2016 -\n $129) of shares issued in lieu of compensation, and $899 (2016 -\n $79) in stock options provided to key management of the Company.\n Refer to Note 16. \n | \n
As at December 31, 2017, there was a balance\n payable of $Nil to members of key management (2016 - $86).
\n\n
\n \n| (b) | \n\n Purchase of shares and warrants \n | \n
\n
\n \n| (i) | \n\n On May 27, 2016, a board member purchased 810,810\n units of the Company’s private placement. Refer to Note 15\n (a). The board member paid approximately $150 for these units,\n which represents the fair value. \n | \n
\n
\n \n| (ii) | \n\n On May 27, 2016, a shareholder with ownership\n interest exceeding 10%, purchased 4,665,187 units of the\n Company’s private placement. Refer to Note 15(a). The\n shareholder paid approximately $863 for these units, which\n represents the fair value. \n | \n
\n
\n \n| (c) | \n\n Issuance of options to directors \n | \n
\n
\n \n| (i) | \n\n During the year ended December 31, 2017, a total of\n 1,800,000 (2016 - 1,616,000) options were issued to directors of\n the Company. Stock-based payments of $601 (2016 - $49) were\n recognized for these options. Refer to Note 16. \n | \n
\n
\n| 12. | \n\n Intangible assets and goodwill \n | \n
\n
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Intangible assets \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2017 | \n \n | |||||
| \n \n Health Canada Licenses: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n OGBC \n | \n \n | $ | \n1,611 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,611 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,611 | \n\n |
| \n \n Peace Naturals (Note 6) \n | \n \n | \n | \n — | \n\n | \n | \n | 9,596 | \n\n | \n | \n | 9,596 | \n\n | \n | \n | \n — | \n\n | \n | \n | 9,596 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,611 | \n\n | \n | $ | \n9,596 | \n\n | \n | $ | \n11,207 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n11,207 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | \n | \n | \n | |||||||||||||||
| \n \n Goodwill \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2017 | \n \n | |||||
| \n \n OGBC \n | \n \n | $ | \n392 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n392 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n392 | \n\n |
| \n \n Peace Naturals (Note 6) \n | \n \n | \n | \n — | \n\n | \n | \n | 1,400 | \n\n | \n | \n | 1,400 | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,400 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n392 | \n\n | \n | $ | \n1,400 | \n\n | \n | $ | \n1,792 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,792 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
For purposes of impairment testing, intangible\n assets with an indefinite life and goodwill were allocated to the\n smallest identifiable group of assets that generate cash flows\n independently (a cash-generating unit or “CGU”).\n The Health Canada licenses issued to OGBC and Peace Naturals enable\n the entities to produce and sell dry cannabis and cannabis oils\n pursuant to the ACMPR, enabling the generation of cash flows\n through the ultimate sale thereof. In order for these licenses to\n generate such cash flows, the entities need to have the following\n resources including, but not limited to, the appropriate production\n facilities, skilled labour, and materials. As such, the Company has\n assessed that the smallest aggregation of assets that generate\n independent cash flows would be all of the assets and liabilities\n of each individual entity for their corresponding license.
\nThe recoverable amounts of the CGUs were determined\n based on a value-in-use\n calculation, determined using a five-year cash flow projection. The\n cash flows were estimated using forecasted earnings before\n interest, taxes, depreciation, and amortization less capital\n expenditures. The key assumptions used in the estimation of the\n recoverable amounts were as follows:
\n\n
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | OGBC | \n\n | \n | Peace Naturals | \n\n | ||
| \n \n Weighted average cost of capital (after-tax) \n | \n \n | \n | 37.0 | \n% | \n\n | \n | 36.0 | \n% | \n
| \n \n Average growth rate* \n | \n \n | \n | 490.0 | \n% | \n\n | \n | 140.0 | \n% | \n
\n
\n\n
\n| * | \n\n The average growth rate is determined by summing\n the expected year-over-year growth rate (in EBITDA)\n then dividing by five years. \n | \n
\n
\nThese assumptions are based on the Company’s\n historical results, the preliminary results of the first quarter of\n the following fiscal year, and management’s expectations of\n the cash flows based on budgeted results, taking into account\n estimated sales volume and price changes. The impairment test\n performed resulted in no impairment of licenses or goodwill at\n December 31, 2017 and 2016.
\nManagement has not identified a reasonably possible\n change in these key assumptions that could cause the carrying\n amount of either CGU to exceed its recoverable amount.
\n\n
\nFor the year ended December 31, 2017:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Investing \n segment | \n \n | \n | Operating \n segment | \n \n | \n | Inter-segment \n elimination | \n \n | \n | 2017 | \n\n | ||||
| \n \n Statement of Operations \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Product sales \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n4,082 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n4,082 | \n\n |
| \n \n Share of income from equity investment \n | \n \n | \n | 165 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 165 | \n\n |
| \n \n Unrealized gain on revaluation of biological assets \n | \n \n | \n | \n — | \n\n | \n | \n | 11,620 | \n\n | \n | \n | \n — | \n\n | \n | \n | 11,620 | \n\n |
| \n \n Production costs \n | \n \n | \n | \n — | \n\n | \n | \n | 3,983 | \n\n | \n | \n | \n — | \n\n | \n | \n | 3,983 | \n\n |
| \n \n Inventory expensed as cost of sales \n | \n \n | \n | \n — | \n\n | \n | \n | 4,489 | \n\n | \n | \n | \n — | \n\n | \n | \n | 4,489 | \n\n |
| \n \n Gain on disposition and revaluation of other investments \n | \n \n | \n | 4,858 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 4,858 | \n\n |
| \n \n Intercompany revenue \n | \n \n | \n | 624 | \n\n | \n | \n | \n — | \n\n | \n | \n | (624 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Stock-based compensation \n | \n \n | \n | 1,862 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,862 | \n\n |
| \n \n Interest expense \n | \n \n | \n | 1 | \n\n | \n | \n | 600 | \n\n | \n | \n | (475 | \n) | \n\n | \n | 126 | \n\n |
| \n \n Depreciation \n | \n \n | \n | 71 | \n\n | \n | \n | 470 | \n\n | \n | \n | \n — | \n\n | \n | \n | 541 | \n\n |
| \n \n Net income (loss) \n | \n \n | \n | (368 | \n) | \n\n | \n | 3,382 | \n\n | \n | \n | (523 | \n) | \n\n | \n | 2,491 | \n\n |
| \n \n Consolidated Statement of Financial Position \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Total assets \n | \n \n | $ | \n151,998 | \n\n | \n | $ | \n70,198 | \n\n | \n | $ | \n(121,167 | \n) | \n\n | $ | \n101,029 | \n\n |
| \n \n Total liabilities \n | \n \n | \n | 979 | \n\n | \n | \n | 67,957 | \n\n | \n | \n | (54,275 | \n) | \n\n | \n | 14,661 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Shareholders’ equity \n | \n \n | $ | \n151,019 | \n\n | \n | $ | \n2,241 | \n\n | \n | $ | \n(66,892 | \n) | \n\n | $ | \n86,368 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Other information \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Property, plant and equipment \n | \n \n | $ | \n1,153 | \n\n | \n | $ | \n53,175 | \n\n | \n | $ | \n1,844 | \n\n | \n | $ | \n56,172 | \n\n |
| \n \n Addition of property, plant, and equipment \n | \n \n | \n | 138 | \n\n | \n | \n | 42,908 | \n\n | \n | \n | \n — | \n\n | \n | \n | 43,046 | \n\n |
For the year ended December 31, 2016:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Investing | \n\n | \n | Operating | \n\n | \n | Inter-segment | \n\n | \n | \n | \n | ||||
| \n | \n | segment | \n\n | \n | segment | \n\n | \n | elimination | \n\n | \n | 2016 | \n\n | ||||
| \n \n Consolidated Statement of Operations \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Product sales \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n554 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n554 | \n\n |
| \n \n Share of income from Whistler investment \n | \n \n | \n | 163 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 163 | \n\n |
| \n \n Unrealized gain on revaluation of biological assets \n | \n \n | \n | \n — | \n\n | \n | \n | 2,179 | \n\n | \n | \n | \n — | \n\n | \n | \n | 2,179 | \n\n |
| \n \n Production costs \n | \n \n | \n | \n — | \n\n | \n | \n | 356 | \n\n | \n | \n | \n — | \n\n | \n | \n | 356 | \n\n |
| \n \n Inventory expensed to cost of sales \n | \n \n | \n | \n — | \n\n | \n | \n | 384 | \n\n | \n | \n | \n — | \n\n | \n | \n | 384 | \n\n |
| \n \n Reversal of impairment loss on loan receivable \n | \n \n | \n | 725 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 725 | \n\n |
| \n \n Loss on revaluation of other investments \n | \n \n | \n | (310 | \n) | \n\n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | (310 | \n) | \n
| \n \n Intercompany revenue \n | \n \n | \n | 437 | \n\n | \n | \n | \n — | \n\n | \n | \n | (437 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Stock-based payments \n | \n \n | \n | 307 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 307 | \n\n |
| \n \n Interest expense \n | \n \n | \n | 78 | \n\n | \n | \n | 350 | \n\n | \n | \n | (196 | \n) | \n\n | \n | (232 | \n) | \n
| \n \n Depreciation \n | \n \n | \n | 62 | \n\n | \n | \n | 323 | \n\n | \n | \n | (2 | \n) | \n\n | \n | 382 | \n\n |
| \n \n Net income (loss) \n | \n \n | \n | (1,381 | \n) | \n\n | \n | (379 | \n) | \n\n | \n | 570 | \n\n | \n | \n | (1,190 | \n) | \n
| \n \n Consolidated Statement of Financial Position \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Total assets \n | \n \n | $ | \n59,046 | \n\n | \n | $ | \n16,429 | \n\n | \n | $ | \n(32,575 | \n) | \n\n | $ | \n42,900 | \n\n |
| \n \n Total liabilities \n | \n \n | \n | 24,558 | \n\n | \n | \n | 17,577 | \n\n | \n | \n | (32,912 | \n) | \n\n | \n | 9,223 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Shareholders’ equity \n | \n \n | $ | \n34,488 | \n\n | \n | $ | \n(1,148 | \n) | \n\n | $ | \n337 | \n\n | \n | $ | \n33,677 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Other information \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Property, plant and equipment \n | \n \n | $ | \n1,085 | \n\n | \n | $ | \n10,872 | \n\n | \n | $ | \n2,165 | \n\n | \n | $ | \n14,122 | \n\n |
| \n \n Purchase of property, plant, and equipment \n | \n \n | \n | \n — | \n\n | \n | \n | 1,496 | \n\n | \n | \n | 27 | \n\n | \n | \n | 1,523 | \n\n |
\n
\nThe Company’s biological assets consist of\n cannabis plants. The changes in the carrying amount of the\n biological assets are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Biological assets - beginning of year \n | \n \n | $ | \n1,795 | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Gain on revaluation of biological assets \n | \n \n | \n | 11,620 | \n\n | \n | \n | 2,179 | \n\n |
| \n \n Increase due to acquisition of Peace Naturals \n | \n \n | \n | \n — | \n\n | \n | \n | 866 | \n\n |
| \n \n Transferred to inventory upon harvest \n | \n \n | \n | (9,693 | \n) | \n\n | \n | (1,250 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Biological assets - end of year \n | \n \n | $ | \n3,722 | \n\n | \n | $ | \n1,795 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
Reconciliation of the carrying amount of the\n investment is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Balance - beginning of the year \n | \n \n | $ | \n2,566 | \n\n | \n | $ | \n2,405 | \n\n |
| \n \n Purchase of additional shares \n | \n \n | \n | 1,076 | \n\n | \n | \n | \n — | \n\n |
| \n \n Company’s share of dividends paid \n | \n \n | \n | \n — | \n\n | \n | \n | (2 | \n) | \n
| \n \n Company’s share of income \n | \n \n | \n | 165 | \n\n | \n | \n | 163 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance - end of the year \n | \n \n | $ | \n3,807 | \n\n | \n | $ | \n2,566 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| (e) | \n\n Intangible assets \n | \n
Intangible assets, which have indefinite useful\n lives, are recorded at cost less impairment losses, if any.\n Intangible assets acquired in a business combination are measured\n at fair value at the acquisition date. Intangible assets with\n indefinite useful lives are not amortized, but are systematically\n tested for impairment annually in the fourth quarter or earlier if\n there is an indication of impairment.
\n\n
\n| (b) | \n\n Equity accounted investments \n | \n
Significant influence is the power to participate\n in the financial and operating policy decisions of the investee\n without control or joint control over those decisions. Significant\n influence is presumed if the Company holds between 20% and 50% of\n the voting rights, unless evidence exists to the contrary. The\n Company has assessed that it has significant influence over its\n investment in Whistler Medical Marijuana Company.
\nJoint control is the contractually agreed sharing\n of control of an arrangement, which exists only when decisions\n about the relevant activities require the unanimous consent of the\n parties sharing control. Investees in which the Company has joint\n control and rights to the net assets thereof, are defined as joint\n ventures. The Company’s interests in Cronos Australia and\n Indigenous Roots LP are classified as joint ventures.
\nInvestees in which the Company has significant\n influence or joint control are accounted for using the equity\n method. The Company’s interest in an investee is initially\n recorded at cost and is subsequently adjusted for the\n Company’s share of changes in net assets of the investee,\n less any impairment in the value of individual investments, less\n any dividends paid. Where the Company transacts with an investee,\n unrealized profits and losses are eliminated to the extent of the\n Company’s interest in that investee.
\n| (h) | \n\n Share capital \n | \n
Share capital is presented at the fair value of the\n shares issued. Costs related to the issuance of shares are reported\n in equity, net of tax, as a deduction from the issuance\n proceeds.
\n| (a) | \n\n Revenue recognition \n | \n
Revenue is recognized at the fair value of\n consideration received or receivable. Revenue from the sale of\n finished goods is recognized when the Company has transferred the\n significant risks and rewards of ownership to the buyer and\n collection is reasonably assured. The significant risks and rewards\n of ownership are considered to be transferred upon delivery.
\n| (k) | \n\n Stock-based payments \n | \n
Where equity instruments are granted to employees,\n they are recorded at the fair value of the equity instrument\n granted at the grant date. The grant date fair value is recognized\n in net income over the vesting period.
\nWhere equity instruments are granted to\n non-employees, they are\n recorded at the fair value of the goods or services received in the\n statement of operations. When the value of goods or services\n received in exchange for the stock-based payment cannot be reliably\n estimated, the fair value is measured by use of a valuation\n model.
\nThe cost recognized for all equity-settled\n stock-based payments are reflected in share-based reserve, until\n the instruments are exercised. Upon exercise, shares are issued\n from treasury and the amount previously reflected in share-based\n reserve are, along with any proceeds paid upon exercise, credited\n to share capital.
\n| 17. | \n\n Earnings (loss) per share \n | \n
Basic and diluted earnings (loss) per share are\n calculated using the following numerators and denominators:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Numerator \n | \n \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Net Income (loss) attributable to common shareholders \n | \n \n | $ | \n2,491 | \n\n | \n | $ | \n(1,190 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net Income (loss) used in computation of basic and diluted earnings\n (loss) per share \n | \n \n | $ | \n2,491 | \n\n | \n | $ | \n(1,190 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | ||||||
| \n \n Denominator \n | \n \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Weighted average number of common shares for computation of basic\n earnings (loss) per share \n | \n \n | \n | 134,803,542 | \n\n | \n | \n | 78,248,192 | \n\n |
| \n \n Dilutive effect of warrants \n | \n \n | \n | 38,378,288 | \n\n | \n | \n | \n — | \n\n |
| \n \n Dilutive effect of options \n | \n \n | \n | 3,607,331 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Weighted average number of common shares for computation of diluted\n earnings (loss) per share \n | \n \n | \n | 176,789,161 | \n\n | \n | \n | 78,248,192 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
As at December 31, 2017, all instruments were\n dilutive (2016 - all anti-dilutive).
\n\n
\n| 21. | \n\n Operating segment information \n | \n
For the years ended December 31, 2017 and 2016, The\n Company was divided into two operating segments corresponding to\n its two primary business models. The first segment related to\n pursuing equity investments into Licensed Producers in Canada,\n (“Investing Segment”). The second segment\n related to production and sale of medical cannabis through the\n Company’s wholly-owned subsidiaries, OGBC and Peace Naturals\n (Note 6), (“Operating Segment”). Reporting by\n operating segment follows the same accounting policies as those\n used to prepare the consolidated financial statements.
\nThe operating segments are presented in accordance\n with the same criteria used for internal reporting prepared for the\n chief operating decision-makers responsible for allocating\n resources and assessing performance. Inter-segment transactions are\n recorded at the stated values as agreed to by the segments.
\nAs at December 31, 2017 and 2016, substantially all\n of the Company’s assets were located in Canada.
\nFor the year ended December 31, 2017:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Investing \n segment | \n \n | \n | Operating \n segment | \n \n | \n | Inter-segment \n elimination | \n \n | \n | 2017 | \n\n | ||||
| \n \n Statement of Operations \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Product sales \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n4,082 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n4,082 | \n\n |
| \n \n Share of income from equity investment \n | \n \n | \n | 165 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 165 | \n\n |
| \n \n Unrealized gain on revaluation of biological assets \n | \n \n | \n | \n — | \n\n | \n | \n | 11,620 | \n\n | \n | \n | \n — | \n\n | \n | \n | 11,620 | \n\n |
| \n \n Production costs \n | \n \n | \n | \n — | \n\n | \n | \n | 3,983 | \n\n | \n | \n | \n — | \n\n | \n | \n | 3,983 | \n\n |
| \n \n Inventory expensed as cost of sales \n | \n \n | \n | \n — | \n\n | \n | \n | 4,489 | \n\n | \n | \n | \n — | \n\n | \n | \n | 4,489 | \n\n |
| \n \n Gain on disposition and revaluation of other investments \n | \n \n | \n | 4,858 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 4,858 | \n\n |
| \n \n Intercompany revenue \n | \n \n | \n | 624 | \n\n | \n | \n | \n — | \n\n | \n | \n | (624 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Stock-based compensation \n | \n \n | \n | 1,862 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,862 | \n\n |
| \n \n Interest expense \n | \n \n | \n | 1 | \n\n | \n | \n | 600 | \n\n | \n | \n | (475 | \n) | \n\n | \n | 126 | \n\n |
| \n \n Depreciation \n | \n \n | \n | 71 | \n\n | \n | \n | 470 | \n\n | \n | \n | \n — | \n\n | \n | \n | 541 | \n\n |
| \n \n Net income (loss) \n | \n \n | \n | (368 | \n) | \n\n | \n | 3,382 | \n\n | \n | \n | (523 | \n) | \n\n | \n | 2,491 | \n\n |
| \n \n Consolidated Statement of Financial Position \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Total assets \n | \n \n | $ | \n151,998 | \n\n | \n | $ | \n70,198 | \n\n | \n | $ | \n(121,167 | \n) | \n\n | $ | \n101,029 | \n\n |
| \n \n Total liabilities \n | \n \n | \n | 979 | \n\n | \n | \n | 67,957 | \n\n | \n | \n | (54,275 | \n) | \n\n | \n | 14,661 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Shareholders’ equity \n | \n \n | $ | \n151,019 | \n\n | \n | $ | \n2,241 | \n\n | \n | $ | \n(66,892 | \n) | \n\n | $ | \n86,368 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Other information \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Property, plant and equipment \n | \n \n | $ | \n1,153 | \n\n | \n | $ | \n53,175 | \n\n | \n | $ | \n1,844 | \n\n | \n | $ | \n56,172 | \n\n |
| \n \n Addition of property, plant, and equipment \n | \n \n | \n | 138 | \n\n | \n | \n | 42,908 | \n\n | \n | \n | \n — | \n\n | \n | \n | 43,046 | \n\n |
For the year ended December 31, 2016:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Investing | \n\n | \n | Operating | \n\n | \n | Inter-segment | \n\n | \n | \n | \n | ||||
| \n | \n | segment | \n\n | \n | segment | \n\n | \n | elimination | \n\n | \n | 2016 | \n\n | ||||
| \n \n Consolidated Statement of Operations \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Product sales \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n554 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n554 | \n\n |
| \n \n Share of income from Whistler investment \n | \n \n | \n | 163 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 163 | \n\n |
| \n \n Unrealized gain on revaluation of biological assets \n | \n \n | \n | \n — | \n\n | \n | \n | 2,179 | \n\n | \n | \n | \n — | \n\n | \n | \n | 2,179 | \n\n |
| \n \n Production costs \n | \n \n | \n | \n — | \n\n | \n | \n | 356 | \n\n | \n | \n | \n — | \n\n | \n | \n | 356 | \n\n |
| \n \n Inventory expensed to cost of sales \n | \n \n | \n | \n — | \n\n | \n | \n | 384 | \n\n | \n | \n | \n — | \n\n | \n | \n | 384 | \n\n |
| \n \n Reversal of impairment loss on loan receivable \n | \n \n | \n | 725 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 725 | \n\n |
| \n \n Loss on revaluation of other investments \n | \n \n | \n | (310 | \n) | \n\n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | (310 | \n) | \n
| \n \n Intercompany revenue \n | \n \n | \n | 437 | \n\n | \n | \n | \n — | \n\n | \n | \n | (437 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Stock-based payments \n | \n \n | \n | 307 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 307 | \n\n |
| \n \n Interest expense \n | \n \n | \n | 78 | \n\n | \n | \n | 350 | \n\n | \n | \n | (196 | \n) | \n\n | \n | (232 | \n) | \n
| \n \n Depreciation \n | \n \n | \n | 62 | \n\n | \n | \n | 323 | \n\n | \n | \n | (2 | \n) | \n\n | \n | 382 | \n\n |
| \n \n Net income (loss) \n | \n \n | \n | (1,381 | \n) | \n\n | \n | (379 | \n) | \n\n | \n | 570 | \n\n | \n | \n | (1,190 | \n) | \n
| \n \n Consolidated Statement of Financial Position \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Total assets \n | \n \n | $ | \n59,046 | \n\n | \n | $ | \n16,429 | \n\n | \n | $ | \n(32,575 | \n) | \n\n | $ | \n42,900 | \n\n |
| \n \n Total liabilities \n | \n \n | \n | 24,558 | \n\n | \n | \n | 17,577 | \n\n | \n | \n | (32,912 | \n) | \n\n | \n | 9,223 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Shareholders’ equity \n | \n \n | $ | \n34,488 | \n\n | \n | $ | \n(1,148 | \n) | \n\n | $ | \n337 | \n\n | \n | $ | \n33,677 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Other information \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Property, plant and equipment \n | \n \n | $ | \n1,085 | \n\n | \n | $ | \n10,872 | \n\n | \n | $ | \n2,165 | \n\n | \n | $ | \n14,122 | \n\n |
| \n \n Purchase of property, plant, and equipment \n | \n \n | \n | \n — | \n\n | \n | \n | 1,496 | \n\n | \n | \n | 27 | \n\n | \n | \n | 1,523 | \n\n |
\n
\n| (i) | \n\n Foreign exchange translation \n | \n
The consolidated financial statements of the\n Company are presented in Canadian dollars, which is the functional\n currency of the Company and all of its subsidiaries. Transactions\n in foreign currencies are recorded at the exchange rate prevailing\n at the date of the transaction. At each reporting date, foreign\n currency denominated monetary assets and liabilities are translated\n at year-end exchange\n rates. Non-monetary assets\n and liabilities that are measured in terms of historical cost in a\n foreign currency are translated using the exchange rate at the date\n of the transaction. Exchange differences arising from operating\n transactions are recorded in operating profit or loss for the\n period; exchange differences related to financing transactions are\n recognized in finance income or directly in equity.
\n| (g) | \n\n Provisions \n | \n
Provision for risks and expenses are recognized for\n probable outflows of resources that can be estimated and that\n result from present obligations resulting from past events. In the\n case where a potential obligation resulting from past events\n exists, but where occurrence of the outflow of resources is not\n probable or the estimate is not reliable, these contingent\n liabilities are disclosed as commitments and litigation.\n Provisions, if any, are measured based on management’s best\n estimates of outcomes on the basis of facts known at the reporting\n date.
\n| (m) | \n\n Financial instruments \n | \n
The Company aggregates its financial instruments\n into classes based on their nature and characteristics. Management\n determines the classification when the instruments are initially\n recognized.
\nAll financial assets except those classified as\n fair value through profit or loss are reviewed at each reporting\n date to determine whether there is any indication of impairment.\n Financial assets are considered to be impaired when there is\n objective evidence that, as a result of one or more events that\n occurred after the initial recognition of the financial asset, the\n estimated future cash flows of the investment have been\n affected.
\n\n
\nThe Company’s accounting policy for each\n class of financial instruments is as follows:
\n\n
\n| (i) | \n\n Fair value through profit or loss \n | \n
Financial instruments classified as fair value\n through profit or loss are reported at fair value at each reporting\n date, and any change in fair value is recognized in net income in\n the period during which the change occurs. In these consolidated\n financial statements, cash and the investment in warrants of AbCann\n Global Corp. have been classified as fair value through profit or\n loss.
\n\n
\n| (ii) | \n\n Available-for-sale \n | \n
Financial instruments classified as\n available-for-sale are initially recorded at fair value at the time\n of acquisition, with transaction costs included in the amount\n initially recognized. Thereafter, at each reporting date,\n available-for-sale financial assets are recognized at fair value\n and the changes in fair value, other than impairment losses and\n foreign exchange losses, are recognized in other comprehensive\n income (loss) and presented in accumulated other comprehensive\n income in shareholders’ equity. In determining if the\n investment is impaired, the Company evaluates whether there is a\n significant or prolonged decline in the fair value of the\n investment. Significant or prolonged decline is defined as an\n unrealized loss at 50% or a decline under its cost over two\n consecutive fiscal years, respectively. When the financial assets\n are sold or an impairment write-down is required, gains or losses\n previously recognized in accumulated other comprehensive income are\n reclassified to profit or loss. In these consolidated financial\n statements, investments in Hydropothecary Corporation, Canopy\n Growth Corporation, AbCann Global Corp., and Evergreen Medicinal\n Supply Inc. have been classified as available-for-sale.
\n\n
\n| (iii) | \n\n Loans and receivables and other financial\n liabilities \n | \n
Financial instruments classified as loans and\n receivables and other financial liabilities are carried at\n amortized cost using the effective interest method. Transaction\n costs are included in the amount initially recognized. In these\n consolidated financial statements, accounts receivable, loans\n receivable, and other receivables have been classified as loans and\n receivables. Accounts payable and other liabilities, purchase price\n liability, mortgage payable, and construction loan payable have\n been classified as other financial liabilities.
\n| (f) | \n\n Property, plant and equipment \n | \n
Property, plant, and equipment are stated at cost\n less accumulated depreciation. The assets are depreciated over\n their estimated useful lives using the following methods and\n rates:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Method | \n\n | Rate | \n\n | |
| \n Building structures \n | \n \n | \n Straight-line \n | \n \n | \n | \n 15 to 20 years | \n\n |
| \n Furniture and equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 5 years | \n\n |
| \n Computer equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 3 years | \n\n |
| \n Security equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 5 years | \n\n |
| \n Production equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 7 years | \n\n |
| \n Road \n | \n \n | \n Straight-line \n | \n \n | \n | 25 years | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n Straight-line \n | \n \n | \n | 5 to 10 years | \n\n |
An asset’s residual value, useful life and\n depreciation method are reviewed at each financial year end and\n adjusted if appropriate. When parts of an item of property, plant\n and equipment have different useful lives, they are accounted for\n as separate components.
\nConstruction in progress is not depreciated until\n it is completed and available for use.
\n| 25. | \n\n Subsequent events \n | \n
\n
\n| (a) | \n\n On January 24, 2018, the Company announced the\n closing of a bought deal offering, pursuant to which the Company\n sold a total of 5,257,143 common shares at a price of $8.75 per\n common share for aggregate gross proceeds of approximately $46,000.\n The bought deal was completed by way of a short form prospectus\n offering in Canada. \n | \n
\n
\n| (b) | \n\n Subsequent to December 31, 2017, 10,823,795\n warrants were exercised in exchange for $2,223 in cash, and 82,692\n warrants expired on January 18, 2018. \n | \n
\n
\n| (c) | \n\n Subsequent to December 31, 2017, a total of 342,256\n options were exercised in exchange for $522 in cash. These options\n had a weighted average exercise price of $1.53 per common\n share. \n | \n
\n
\n| (d) | \n\n Subsequent to December 31, 2017, 430,000\n options were granted to various employees, which vest evenly over a\n 48 month period, with a weighted average exercise price of $8.61\n per common share. \n | \n
\n
\n| (e) | \n\n Subsequent to December 31, 2017, the Company\n sold some of its shares of Canopy for proceeds of $687. \n | \n
\n
\n| (f) | \n\n On March 9, 2018, Philip Illingworth filed a\n claim in the Supreme Court of British Columbia against Evergreen,\n its directors, Welton Construction Limited, 0611389 B.C. Ltd. and\n Hortican, claiming among other things, declarations and an order\n for specific performance that the plaintiff is the owner of 50% of\n the shares of Evergreen. It is the opinion of the Company that the\n plaintiff has not stated a valid claim against Hortican, and the\n Company intends to vigorously defend this claim. \n | \n
\n
\n| (g) | \n\n In September 2017, the Company announced a\n strategic joint venture in Israel with the Israeli agricultural\n collective settlement Kibbutz Gan Shmuel (“Gan\n Shmuel”) for the production, manufacture and distribution\n of medical cannabis. Following the transfer of the Israel licenses\n from Gan Shmuel to Cronos Israel, the Company (through its wholly\n owned subsidiary Cronos Global) will hold a 70% interest in each of\n the nursery and cultivation operations and a 90% interest in each\n of the manufacturing and distribution operations of Cronos Israel.\n Subsequent to December 31, 2017, the Company advanced $1,000\n to Cronos Israel to fund construction of building structures. \n | \n
\n
\n| (h) | \n\n In March 2018, the Company announced a strategic\n joint venture with MedMen Enterprises USA, LLC\n (“MedMen”). The Company (through its wholly\n owned subsidiary Cronos Canada Holdings Inc.) and MedMen each owns\n a 50% equity interest in the joint venture, called MedMen Canada\n Inc. (“MedMen Canada”) and have equal board\n representation. MedMen Canada holds the exclusive license of the\n MedMen brand in Canada for a minimum term of 20 years. Each of\n Cronos and MedMen will contribute capital equally to MedMen Canada\n for working capital purposes. MedMen Canada is focused on creating\n a Canadian branded retail chain in provinces that permit private\n retailers, branded products and research and development activities\n in Canada. MedMen Canada will have access to our production\n facilities while leveraging MedMen’s brand recognition. In\n addition, the Company will be leveraging its regulatory expertise\n and know-how to obtain\n the requisite licenses, approvals and permits from Health Canada\n for MedMen Canada to commence its operations. \n | \n
\n
\n| (i) | \n\n On April 6, 2018, the Company announced the\n closing of a bought deal offering, pursuant to which the Company\n sold a total of 10,420,000 common shares at a price of $9.60 per\n common share for aggregate gross proceeds of approximately\n $100,000. The common shares were offered in the United States\n pursuant to the Company’s effective registration statement on\n Form F-10 filed with the\n U.S. Securities and Exchange Commission and in Canada by way of a\n short form prospectus offering. \n | \n
| 23. | \n\n Fair value hierarchy \n | \n
Assets recorded at fair value on the consolidated\n statements of financial position are classified using a fair value\n hierarchy that reflects the significance of the inputs used in\n making the measurements. The fair value hierarchy has the following\n levels:
\nLevel 1 - valuation based on quoted prices\n (unadjusted) in active markets for identical assets and\n liabilities. In these consolidated financial statements, cash and\n other investments (Canopy) are included in this category.
\nLevel 2 - valuation techniques based on inputs\n other than quoted prices included in Level 1 that are\n observable for the asset or liability, either directly or\n indirectly. In these consolidated financial statements, AbCann\n share purchase warrants, and the Company’s options and\n warrants are included in this category.
\n\n
\nLevel 3 - valuation techniques using the\n inputs for the asset or liability that are not based on observable\n market data. In these consolidated financial statements, other\n investments (Evergreen), and biological assets are included in this\n category.
\nThe Company’s policy for determining when\n transfers between levels of the fair value hierarchy occur is based\n on the date of the event or changes in circumstances that caused\n the transfer.
\nDuring the year ended December 31, 2017,\n Hydropothecary and AbCann became publicly traded. Due to these\n events, the investments in shares of Hydropothecary and AbCann were\n transferred out of Level 3 as the inputs for the valuation of\n the investments were no longer unobservable. The investments in\n Hydropothecary and AbCann were transferred into Level 1 of the\n fair value hierarchy, as the valuation of the investments was based\n on quoted prices in an active market. As at December 31, 2017, all\n of these instruments were disposed of. There were no other\n transfers between levels during the years ended December 31, 2016\n and 2017.
\n\n
\n| \n | \n The following is a summary of the Company’s\n minimum operating lease obligations for its premises due in future\n fiscal years: \n | \n
\n
\n| \n | \n | \n | \n | \n |
| \n \n 2018 \n | \n \n | $ | \n81 | \n\n |
| \n \n 2019 \n | \n \n | \n | 88 | \n\n |
| \n \n 2020 \n | \n \n | \n | 92 | \n\n |
| \n \n 2021 \n | \n \n | \n | 92 | \n\n |
| \n \n 2022 \n | \n \n | \n | 95 | \n\n |
| \n \n Thereafter \n | \n \n | \n | 8 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n456 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
As at December 31, 2017, the Company has\n outstanding warrants as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Grant date \n | \n \n | Number of \n warrants | \n \n | \n | Exercise price | \n\n | \n | Expiry | \n||
| \n \n January 18, 2013 \n | \n \n | \n | 2,981,476 | \n\n | \n | $ | \n0.08 | \n\n | \n | January 18, 2018 | \n
| \n \n October 8, 2015 \n | \n \n | \n | 4,101,680 | \n\n | \n | \n | 0.31 | \n\n | \n | October 8, 2020 | \n
| \n \n October 23, 2015 \n | \n \n | \n | 1,478,245 | \n\n | \n | \n | 0.31 | \n\n | \n | October 23, 2020 | \n
| \n \n October 28, 2015 \n | \n \n | \n | 9,548 | \n\n | \n | \n | 0.31 | \n\n | \n | October 28, 2020 | \n
| \n \n May 13, 2016 \n | \n \n | \n | 8,510,812 | \n\n | \n | \n | 0.245 | \n\n | \n | May 13, 2021 | \n
| \n \n May 27, 2016 \n | \n \n | \n | 21,572,893 | \n\n | \n | \n | 0.245 | \n\n | \n | May 27, 2021 | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n |
| \n | \n | \n | 38,654,654 | \n\n | \n | $ | \n0.242 | \n\n | \n | \n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n |
\n
\n| 16. | \n\n Stock-based payments \n | \n
\n
\n| (a) | \n\n Option plan details \n | \n
The Company has an incentive stock option plan,\n under which non-transferrable options to purchase\n common shares of the Company may be granted to directors, officers,\n employees, or consultants of the Company. The terms of the plan\n provide that the Board of Directors may grant options to acquire\n common shares of the Company at not less than the discounted market\n price (as set out in the plan) with the market price deemed to be\n the closing price on the day preceding the grant at varying rates.\n The maximum number of common shares reserved for issuance for\n options that may be granted under the plan is 10% of the common\n shares outstanding. No amounts are paid or payable by the recipient\n on receipt of the option, and the Board of Directors has the\n authority to determine the terms, limitations, restrictions, and\n conditions (including any criteria) in respect of any grants.
\n\n
\n \n| (b) | \n\n Summary of changes \n | \n
The following is a summary of the changes in\n options for the period from January 1, 2016 to December 31,\n 2016:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Grant date | \n\n | \n | Exercise price | \n\n | \n | Number of \n options | \n \n | \n | Amount | \n\n | ||||
| \n \n Balance at January 1, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 1,610,003 | \n\n | \n | $ | \n599 | \n\n |
| \n \n Issuance of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n May \n | \n \n | \n | \n May 17 and 27, 2016 | \n\n | \n | $ | \n0.285 | \n\n | \n | \n | 157,850 | \n\n | \n | \n | 6 | \n\n |
| \n \n August \n | \n \n | \n | August 5, 2016 | \n\n | \n | \n | 0.50 | \n\n | \n | \n | 1,225,000 | \n\n | \n | \n | 30 | \n\n |
| \n \n October \n | \n \n | \n | October 6, 2016 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | 3,618,500 | \n\n | \n | \n | 114 | \n\n |
| \n \n November \n | \n \n | \n | Multiple | \n\n | \n | \n | Multiple | \n\n | \n | \n | 482,000 | \n\n | \n | \n | 28 | \n\n |
| \n \n Exercise of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n — | \n\n |
| \n \n August \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (213,390 | \n) | \n\n | \n | (31 | \n) | \n
| \n \n August \n | \n \n | \n | May 17 and 27, 2016 | \n\n | \n | \n | 0.285 | \n\n | \n | \n | (157,390 | \n) | \n\n | \n | (6 | \n) | \n
| \n \n October \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (32,008 | \n) | \n\n | \n | (5 | \n) | \n
| \n \n Expiry of options \n | \n \n | \n | \n | \n | \n | \n | 0.96 | \n\n | \n | \n | (512,971 | \n) | \n\n | \n | \n — | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 6,177,594 | \n\n | \n | $ | \n735 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nThe following is a summary of the changes in\n options for the period from January 1, 2017 to December 31,\n 2017:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Grant date | \n\n | \n | Exercise price | \n\n | \n | Number of \n options | \n \n | \n | Amount | \n\n | ||||
| \n \n Balance at January 1, 2017 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 6,177,594 | \n\n | \n | $ | \n735 | \n\n |
| \n \n Issuance of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n April \n | \n \n | \n | April 12, 2017 | \n\n | \n | \n | 3.14 | \n\n | \n | \n | 3,299,000 | \n\n | \n | \n | \n — | \n\n |
| \n \n August \n | \n \n | \n | August 23, 2017 | \n\n | \n | \n | 2.42 | \n\n | \n | \n | 2,903,000 | \n\n | \n | \n | \n — | \n\n |
| \n \n November \n | \n \n | \n | November 9, 2017 | \n\n | \n | \n | 3.32 | \n\n | \n | \n | 200,000 | \n\n | \n | \n | \n — | \n\n |
| \n \n Exercise of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n January \n | \n \n | \n | January 30, 2014 | \n\n | \n | \n | 0.71 | \n\n | \n | \n | (32,009 | \n) | \n\n | \n | (14 | \n) | \n
| \n \n February \n | \n \n | \n | August 5, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (32,000 | \n) | \n\n | \n | (23 | \n) | \n
| \n \n March \n | \n \n | \n | \n September 19, December 17, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (171,695 | \n) | \n\n | \n | (104 | \n) | \n
| \n \n April \n | \n \n | \n | August 5, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (93,000 | \n) | \n\n | \n | (66 | \n) | \n
| \n \n April \n | \n \n | \n | October 6, 2016 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | (30,416 | \n) | \n\n | \n | (15 | \n) | \n
| \n \n May \n | \n \n | \n | August 5, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (35,043 | \n) | \n\n | \n | (25 | \n) | \n
| \n \n July \n | \n \n | \n | August 5, 2016 | \n\n | \n | \n | 0.50 | \n\n | \n | \n | (83,333 | \n) | \n\n | \n | (19 | \n) | \n
| \n \n September \n | \n \n | \n | October 6, 2016 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | (1,250 | \n) | \n\n | \n | (1 | \n) | \n
| \n \n December \n | \n \n | \n | December 17, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (92,500 | \n) | \n\n | \n | (41 | \n) | \n
| \n \n Expiry of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (404,598 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Vesting of issued options \n | \n \n | \n | \n | \n | \n | \n | 1.15 | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,862 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 11,603,750 | \n\n | \n | $ | \n2,289 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
The weighted average share price at the dates of\n exercise of options during the year ended December 31, 2017 was\n $3.66 (2016 - $0.52).
\nAs at December 31, 2017, the Company had\n outstanding and exercisable options as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | \n | \n | \n | \n | \n | \n | Weighted average | \n\n | |||||||
| \n \n Grant date \n | \n \n | Vesting terms | \n\n | \n | Number of \n options | \n \n | \n | Exercise price | \n\n | \n | Remaining \n contractual life \n (years) | \n \n | ||||
| \n \n August 5, 2016 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 1,141,666 | \n\n | \n | $ | \n0.50 | \n\n | \n | \n | 3.60 | \n\n |
| \n \n October 6, 2016 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 3,578,084 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | 3.77 | \n\n |
| \n \n November 16, 2016 \n | \n \n | \n | On May 15, 2017 | \n\n | \n | \n | 300,000 | \n\n | \n | \n | 1.50 | \n\n | \n | \n | 0.37 | \n\n |
| \n \n November 21, 2016 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 182,000 | \n\n | \n | \n | 1.84 | \n\n | \n | \n | 3.88 | \n\n |
| \n \n April 12, 2017 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 3,299,000 | \n\n | \n | \n | 3.14 | \n\n | \n | \n | 4.28 | \n\n |
| \n \n August 23, 2017 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 2,903,000 | \n\n | \n | \n | 2.42 | \n\n | \n | \n | 4.65 | \n\n |
| \n \n November 9, 2017 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 200,000 | \n\n | \n | \n | 3.32 | \n\n | \n | \n | 4.86 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Outstanding at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | 11,603,750 | \n\n | \n | $ | \n2.05 | \n\n | \n | \n | 4.05 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Exercisable at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | 2,744,387 | \n\n | \n | $ | \n1.71 | \n\n | \n | \n | 3.57 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
These options shall expire at the earlier of 180\n days of the death, disability or incapacity of the holder or five\n years after the date of issue, and can only be settled in\n equity.
\nAs at December 31, 2017, the weighted average\n exercise price of options outstanding is $2.05 (2016 - $1.10). The\n weighted average exercise price of options exercisable is $1.71\n (2016 - $1.09).
\n \n| (c) | \n\n Fair Value of Options Issued During the Year \n | \n
The fair value of the options was determined using\n the Black-Scholes option\n pricing model. The following inputs were used:
\n\n
\n \n| \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | 2016 | \n
| \n \n Share price at grant date \n | \n \n | $2.42 - $3.27 | \n\n | $0.19 - $1.77 | \n
| \n \n Exercise price \n | \n \n | \n $2.42 - $3.32 | \n\n | $0.285 - $1.84 | \n
| \n \n Risk free interest rate \n | \n \n | 0.96% - 1.59% | \n\n | 0.54% - 0.67% | \n
| \n \n Expected life of options (years) \n | \n \n | 5 | \n\n | 0.25 - 5 | \n
| \n \n Expected annualized volatility \n | \n \n | 55% | \n\n | 55% - 150% | \n
| \n \n Expected dividend yield \n | \n \n | 0% | \n\n | 0% | \n
| \n \n Weighted average Black Scholes value at grant date \n | \n \n | $1.39 | \n\n | $0.43 | \n
Volatility was estimated using the historical\n volatility of the Company and other companies that the Company\n considers comparable that have trading and volatility history prior\n to the Company becoming public.
\n\n
\n \n| (d) | \n\n Expenses Arising from Stock-based Payments \n | \n
Total expenses arising from stock-based payments\n recognized during the year ended December 31, 2017 were $1,862\n (2016 $307).
\n\n
\nBasic and diluted earnings (loss) per share are\n calculated using the following numerators and denominators:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Numerator \n | \n \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Net Income (loss) attributable to common shareholders \n | \n \n | $ | \n2,491 | \n\n | \n | $ | \n(1,190 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net Income (loss) used in computation of basic and diluted earnings\n (loss) per share \n | \n \n | $ | \n2,491 | \n\n | \n | $ | \n(1,190 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | ||||||
| \n \n Denominator \n | \n \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Weighted average number of common shares for computation of basic\n earnings (loss) per share \n | \n \n | \n | 134,803,542 | \n\n | \n | \n | 78,248,192 | \n\n |
| \n \n Dilutive effect of warrants \n | \n \n | \n | 38,378,288 | \n\n | \n | \n | \n — | \n\n |
| \n \n Dilutive effect of options \n | \n \n | \n | 3,607,331 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Weighted average number of common shares for computation of diluted\n earnings (loss) per share \n | \n \n | \n | 176,789,161 | \n\n | \n | \n | 78,248,192 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| 6. | \n\n Acquisition of Peace Naturals \n | \n
On September 6, 2016, the Company acquired all of\n the remaining issued and outstanding shares of Peace Naturals, a\n Licensed Producer, headquartered in Stayner, Ontario. Consideration\n for the acquisition included $6,248 in cash and $2,590\n (approximately 30%) to be paid once all conditions of the agreement\n were settled. The conditions were based on the passage of time to\n ensure there were no additional liabilities identified. As the\n Company previously held shares of Peace Naturals, the acquisition\n is considered a step acquisition and resulted in a loss due to fair\n value remeasurement.
\nThe purchase price allocation for this acquisition\n is shown below:
\n\n
\n \n| \n | \n | \n | \n | \n |
| \n \n Fair value of consideration transferred: \n | \n \n | \n | \n | \n |
| \n \n Cash \n | \n \n | $ | \n6,248 | \n\n |
| \n \n Liability (i) \n | \n \n | \n | 2,590 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 8,838 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Fair value of previously held interest: \n | \n \n | \n | \n | \n |
| \n \n Fair value of previously held interest immediately before\n acquisition \n | \n \n | \n | 3,315 | \n\n |
| \n \n Loss due to fair value remeasurement at acquisition date \n | \n \n | \n | (347 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 2,968 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n11,806 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Fair value of net assets acquired: \n | \n \n | \n | \n | \n |
| \n \n Cash \n | \n \n | $ | \n109 | \n\n |
| \n \n Accounts receivable \n | \n \n | \n | 51 | \n\n |
| \n \n Prepaid and deposits \n | \n \n | \n | 29 | \n\n |
| \n \n Inventory \n | \n \n | \n | 1,194 | \n\n |
| \n \n Biological assets \n | \n \n | \n | 866 | \n\n |
| \n \n Property and equipment \n | \n \n | \n | 10,282 | \n\n |
| \n \n Goodwill \n | \n \n | \n | 1,400 | \n\n |
| \n \n Health Canada license \n | \n \n | \n | 9,596 | \n\n |
| \n \n Accounts payable and accrued liabilities \n | \n \n | \n | (2,860 | \n) | \n
| \n \n Loans payable \n | \n \n | \n | (7,461 | \n) | \n
| \n \n Deferred tax liability \n | \n \n | \n | (1,400 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n11,806 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
The Company finalized its assessment of the\n purchase price allocation during the year ended December 31, 2017.\n The allocation of the consideration paid remains consistent with\n the initial valuation.
\n\n
\n \n| (i) | \n\n During the year ended December 31, 2017, the full\n balance of the purchase price liability was repaid by the\n Company. \n | \n
| 4. | \n\n Adoption of new accounting\n pronouncements \n | \n
\n
\n| (a) | \n\n AMENDMENTS TO IAS 7 STATEMENT OF CASH FLOWS \n | \n
International Accounting Standard\n (“IAS”) 7 amendments include additional\n disclosures to enable users of the consolidated financial\n statements to evaluate changes in liabilities arising from\n financing activities, including changes arising from cash flows and\n non-cash changes. These amendments became effective for annual\n periods beginning on or after January 1, 2017. The Company has\n adopted these amendments as of the effective date and has assessed\n no significant changes as a result of the adoption of these\n amendments on the current or prior periods.
\n\n
\n \n| (b) | \n\n IAS 12 INCOME TAXES \n | \n
IAS 12 amendments include: (a) unrealized\n losses on debt instruments measured at fair value and measured at\n cost for tax purposes give rise to a deductible temporary\n difference regardless of whether the debt instrument’s holder\n expects to recover the carrying amount of the debt instrument by\n sale or by use; (b) the carrying amount of an asset does not\n limit the estimation of probable future taxable profits;\n (c) estimates for future taxable profits exclude tax\n deductions resulting from the reversal of deductible temporary\n differences; and (d) an entity assesses a deferred tax asset\n for recoverability in combination with other deferred tax assets.\n Where tax law restricts the utilization of tax losses, an entity\n would assess a deferred tax asset for recoverability in combination\n with other deferred tax assets of the same type. These amendments\n became effective for annual periods beginning on or after January\n 1, 2017. The Company has adopted these amendments as of the\n effective date and has assessed no significant changes as a result\n of the adoption of these amendments on the current or prior\n periods.
\nThe effect of changes in fair value of biological\n assets and inventory during the year include:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Unrealized change in fair value of biological assets \n | \n \n | $ | \n(11,620 | \n) | \n\n | $ | \n(2,179 | \n) | \n
| \n \n Realized fair value increments on inventory sold during the\n year \n | \n \n | \n | 3,956 | \n\n | \n | \n | 266 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net effect of changes in fair value of biological assets and\n inventory \n | \n \n | $ | \n(7,664 | \n) | \n\n | $ | \n(1,913 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
| 9. | \n\n Investment in Whistler \n | \n
As at December 31, 2017, the investment represents\n an approximate 20.3% (2016 - 21.5%) ownership in Whistler Medical\n Marijuana Company (“Whistler”), incorporated in\n Canada. Whistler is a Licensed Producer with operations in British\n Columbia, Canada.
\nSummarized financial information of Whistler is as\n follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current assets \n | \n \n | $ | \n4,163 | \n\n | \n | $ | \n2,233 | \n\n |
| \n \n Non-current assets \n | \n \n | \n | 13,645 | \n\n | \n | \n | 3,855 | \n\n |
| \n \n Current liabilities \n | \n \n | \n | 3,676 | \n\n | \n | \n | 1,649 | \n\n |
| \n \n Non-current\n liabilities \n | \n \n | \n | \n — | \n\n | \n | \n | 865 | \n\n |
| \n \n Revenue \n | \n \n | $ | \n3,813 | \n\n | \n | $ | \n2,817 | \n\n |
| \n \n Income from continuing operations \n | \n \n | \n | 814 | \n\n | \n | \n | 757 | \n\n |
Reconciliation of the carrying amount of the\n investment is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Balance - beginning of the year \n | \n \n | $ | \n2,566 | \n\n | \n | $ | \n2,405 | \n\n |
| \n \n Purchase of additional shares \n | \n \n | \n | 1,076 | \n\n | \n | \n | \n — | \n\n |
| \n \n Company’s share of dividends paid \n | \n \n | \n | \n — | \n\n | \n | \n | (2 | \n) | \n
| \n \n Company’s share of income \n | \n \n | \n | 165 | \n\n | \n | \n | 163 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance - end of the year \n | \n \n | $ | \n3,807 | \n\n | \n | $ | \n2,566 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| 10. | \n\n Other investments \n | \n
Other investments consist of investments in common\n shares and warrants of several companies in the medical cannabis\n industry. These investments, with the exception of shares of\n Evergreen Medicinal Supply Inc. and warrants of AbCann Global\n Corp., are traded in an active market, and as a result have a\n reliably measurable fair value.
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Available-for-sale\n investments \n | \n \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n The Hydropothecary Corporation\n (“Hydropothecary”) (i) \n | \n \n | $ | \n— | \n\n | \n | $ | \n412 | \n\n |
| \n \n Canopy Growth Corporation (“Canopy”) (ii) \n | \n \n | \n | 877 | \n\n | \n | \n | 337 | \n\n |
| \n \n AbCann Global Corp. (“AbCann”) (iii) \n | \n \n | \n | \n — | \n\n | \n | \n | 3,073 | \n\n |
| \n \n Evergreen Medicinal Supply Inc. (“Evergreen”)\n (iv) \n | \n \n | \n | 300 | \n\n | \n | \n | 300 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,177 | \n\n | \n | $ | \n4,122 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Fair value through profit or loss investment \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n AbCann Global Corp. - share warrants (v) \n | \n \n | $ | \n170 | \n\n | \n | $ | \n1,005 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,347 | \n\n | \n | $ | \n5,127 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (i) | \n\n During the year ended December 31, 2016, the\n Company received bonus shares pursuant to the original agreement,\n for $Nil consideration. The transaction price was less than the\n fair value at the date of receipt, and the gain of $25 on initial\n recognition was deferred as the fair value was based on other than\n level 1 inputs. The deferred gain was taken into income as factors\n that market participants would consider when valuing the shares had\n changed. The fair value of the shares was based on the share price\n of the financing that took place in December 2016. \n | \n
\n
\n \n| \n | \n During the year ended December 31, 2017, BFK\n Capital Corp. acquired all of the outstanding shares of\n Hydropothecary, and began trading as Hydropothecary Corporation,\n (TSX-V:THCX). The Company\n sold all of its shares of Hydropothecary for proceeds of $932. \n | \n
\n
\n \n| (ii) | \n\n During the year ended December 31, 2016, Canopy\n acquired all of the outstanding shares of Vert. In exchange for\n shares in Vert, Canopy issued the former Vert shareholders, shares\n of Canopy. The fair value of the Canopy shares at the date of the\n transaction of $258 determined the proceeds on derecognition of the\n Vert shares. Since the gain was realized, it was recorded as\n income. The fair value of the Canopy shares at the date of the\n transaction was also the deemed cost of the Canopy shares. \n | \n
\n
\n \n| (iii) | \n\n During the year ended December 31, 2017, the\n Company sold some of its shares of Canopy for proceeds of $88.\n During the year ended December 31, 2016, the Company received bonus\n shares pursuant to the original agreement, for $Nil consideration.\n The transaction price was less than the fair value at the date of\n receipt, and the gain of $75 on initial recognition was initially\n deferred as the fair value was based on other than level 1 inputs.\n During the year, the deferred gain was taken into income as factors\n that market participants would consider when valuing the shares had\n changed. The fair value of all of the shares was estimated based on\n a valuation of the investee’s peer group. \n | \n
\n
\n \n| \n | \n During the year ended December 31, 2017, AbCann\n Medicinals Inc. performed a reverse takeover with Panda Capital\n Inc. As a result of this transaction, AbCann began trading as\n AbCann Global Corp. (TSX-V:ABCN). The Company purchased an\n additional 1,270,000 shares of AbCann for $1,016 in cash and\n subsequently sold all of its shares of AbCann for proceeds of\n $9,859. Refer to Note 10 (v) for remaining warrants held. \n | \n
\n
\n \n| (iv) | \n\n During the year ended December 31, 2016, management\n revised their estimate of the fair value of the investment back to\n its original value, based on management’s assessment of the\n likelihood Evergreen would receive a license to produce and sell\n medical marijuana. The gain on the revaluation of the investment\n has been recognized as other comprehensive income. \n | \n
\n
\n \n| (iv) | \n\n During the year ended December 31, 2017, Evergreen\n received a cultivation license under the ACMPR. As a result, the\n Company completed its subscription for a second tranche of shares\n of Evergreen for $100 and exercised its option to acquire an\n additional 5% of the equity of Evergreen for $500, for a total\n additional investment of $600. However, Evergreen, through its\n counsel, has indicated that the Company is not entitled to any\n interest in Evergreen and has rejected the payment. The Company\n filed a statement of claim in the Supreme Court of British Columbia\n against Evergreen and its directors, seeking, among other things,\n declarations that the Company holds equity of Evergreen and that\n the agreement between the parties in respect of Evergreen’s\n equity is a valid and binding contract. Evergreen has filed a\n statement of defence. The Company intends to vigorously pursue the\n enforcement of its rights to acquire equity in Evergreen. \n | \n
\n
\n \n| (v) | \n\n During the year ended December 31, 2016, the\n Company received bonus warrants pursuant to the original agreement,\n for $Nil consideration. The transaction price was less than the\n fair value at the date of receipt, and the gain of $24 on initial\n recognition was initially deferred as the fair value was based on\n other than level 1 inputs. During the year, the deferred gain on\n the bonus warrants and the original warrants was taken into income\n as factors that market participants would consider when valuing the\n warrants have changed. As at December 31, 2016, the fair value of\n the warrants was estimated using the Black-Scholes option pricing model\n with the following assumptions: risk free rate: 0.60 - 0.73%;\n volatility: 65%; share price: $0.80; expected life: 0.70 - 1.7\n years; and dividend yield: Nil%. The share price was estimated\n using the price from the most recent equity financing and\n volatility was estimated based on publicly traded companies which\n management has assessed as being comparable to AbCann. \n | \n
During the year ended December 31, 2017, the\n Company exercised 3,658,537 warrants for $2,268, for additional\n shares of AbCann. As at December 31, 2017, the fair value of the\n remaining 182,927 warrants was estimated using the Black-Scholes option pricing model\n with the following assumptions: risk free rate: 1.66%; volatility:\n 65%; share price $1.53; expected life 0.76; and dividend yield:\n Nil%.
\nThe gains recognized upon the increase in fair\n value on other investments is as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n The Hydropothecary Corporation (i) \n | \n \n | $ | \n657 | \n\n | \n | $ | \n25 | \n\n |
| \n \n Canopy Growth Corporation (ii) \n | \n \n | \n | 36 | \n\n | \n | \n | 258 | \n\n |
| \n \n AbCann Global Corp. - shares (iii) \n | \n \n | \n | 4,160 | \n\n | \n | \n | 75 | \n\n |
| \n \n AbCann Global Corp. - share warrants (v) \n | \n \n | \n | 5 | \n\n | \n | \n | 1,005 | \n\n |
| \n \n Peace Naturals \n | \n \n | \n | \n — | \n\n | \n | \n | (1,326 | \n) | \n
| \n \n Peace Naturals - immediately before acquisition (Note 6) \n | \n \n | \n | \n — | \n\n | \n | \n | (347 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Gain (loss) recognized through profit-and-loss \n | \n \n | $ | \n4,858 | \n\n | \n | $ | \n(310 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | ||||||
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n The Hydropothecary Corporation (i) \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n137 | \n\n |
| \n \n Canopy Growth Corporation (ii) \n | \n \n | \n | 608 | \n\n | \n | \n | 79 | \n\n |
| \n \n AbCann Global Corp. - shares (iii) \n | \n \n | \n | \n — | \n\n | \n | \n | 1,498 | \n\n |
| \n \n Vert/Green Medical Inc. - shares \n | \n \n | \n | \n — | \n\n | \n | \n | 300 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Gain recognized through other comprehensive income \n | \n \n | $ | \n608 | \n\n | \n | $ | \n2,014 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nAs at December 31, 2017, the Company had\n outstanding and exercisable options as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | \n | \n | \n | \n | \n | \n | Weighted average | \n\n | |||||||
| \n \n Grant date \n | \n \n | Vesting terms | \n\n | \n | Number of \n options | \n \n | \n | Exercise price | \n\n | \n | Remaining \n contractual life \n (years) | \n \n | ||||
| \n \n August 5, 2016 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 1,141,666 | \n\n | \n | $ | \n0.50 | \n\n | \n | \n | 3.60 | \n\n |
| \n \n October 6, 2016 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 3,578,084 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | 3.77 | \n\n |
| \n \n November 16, 2016 \n | \n \n | \n | On May 15, 2017 | \n\n | \n | \n | 300,000 | \n\n | \n | \n | 1.50 | \n\n | \n | \n | 0.37 | \n\n |
| \n \n November 21, 2016 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 182,000 | \n\n | \n | \n | 1.84 | \n\n | \n | \n | 3.88 | \n\n |
| \n \n April 12, 2017 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 3,299,000 | \n\n | \n | \n | 3.14 | \n\n | \n | \n | 4.28 | \n\n |
| \n \n August 23, 2017 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 2,903,000 | \n\n | \n | \n | 2.42 | \n\n | \n | \n | 4.65 | \n\n |
| \n \n November 9, 2017 \n | \n \n | \n | \n Evenly over 48 months | \n\n | \n | \n | 200,000 | \n\n | \n | \n | 3.32 | \n\n | \n | \n | 4.86 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Outstanding at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | 11,603,750 | \n\n | \n | $ | \n2.05 | \n\n | \n | \n | 4.05 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Exercisable at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | 2,744,387 | \n\n | \n | $ | \n1.71 | \n\n | \n | \n | 3.57 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Intangible assets \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2017 | \n \n | |||||
| \n \n Health Canada Licenses: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n OGBC \n | \n \n | $ | \n1,611 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,611 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,611 | \n\n |
| \n \n Peace Naturals (Note 6) \n | \n \n | \n | \n — | \n\n | \n | \n | 9,596 | \n\n | \n | \n | 9,596 | \n\n | \n | \n | \n — | \n\n | \n | \n | 9,596 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,611 | \n\n | \n | $ | \n9,596 | \n\n | \n | $ | \n11,207 | \n\n | \n | $ | \n— | \n\n | \n | $ | \n11,207 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | \n | \n | \n | |||||||||||||||
| \n \n Goodwill \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2016 | \n \n | \n | Additions | \n\n | \n | Balance at \n December 31, \n 2017 | \n \n | |||||
| \n \n OGBC \n | \n \n | $ | \n392 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n392 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n392 | \n\n |
| \n \n Peace Naturals (Note 6) \n | \n \n | \n | \n — | \n\n | \n | \n | 1,400 | \n\n | \n | \n | 1,400 | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,400 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n392 | \n\n | \n | $ | \n1,400 | \n\n | \n | $ | \n1,792 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,792 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
Summarized financial information of Whistler is as\n follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current assets \n | \n \n | $ | \n4,163 | \n\n | \n | $ | \n2,233 | \n\n |
| \n \n Non-current assets \n | \n \n | \n | 13,645 | \n\n | \n | \n | 3,855 | \n\n |
| \n \n Current liabilities \n | \n \n | \n | 3,676 | \n\n | \n | \n | 1,649 | \n\n |
| \n \n Non-current\n liabilities \n | \n \n | \n | \n — | \n\n | \n | \n | 865 | \n\n |
| \n \n Revenue \n | \n \n | $ | \n3,813 | \n\n | \n | $ | \n2,817 | \n\n |
| \n \n Income from continuing operations \n | \n \n | \n | 814 | \n\n | \n | \n | 757 | \n\n |
| 3. | \n\n Significant accounting policies \n | \n
The principal accounting policies applied to the\n preparation of these consolidated financial statements are set out\n below:
\n\n
\n \n| (a) | \n\n Revenue recognition \n | \n
Revenue is recognized at the fair value of\n consideration received or receivable. Revenue from the sale of\n finished goods is recognized when the Company has transferred the\n significant risks and rewards of ownership to the buyer and\n collection is reasonably assured. The significant risks and rewards\n of ownership are considered to be transferred upon delivery.
\n\n
\n \n| (b) | \n\n Equity accounted investments \n | \n
Significant influence is the power to participate\n in the financial and operating policy decisions of the investee\n without control or joint control over those decisions. Significant\n influence is presumed if the Company holds between 20% and 50% of\n the voting rights, unless evidence exists to the contrary. The\n Company has assessed that it has significant influence over its\n investment in Whistler Medical Marijuana Company.
\nJoint control is the contractually agreed sharing\n of control of an arrangement, which exists only when decisions\n about the relevant activities require the unanimous consent of the\n parties sharing control. Investees in which the Company has joint\n control and rights to the net assets thereof, are defined as joint\n ventures. The Company’s interests in Cronos Australia and\n Indigenous Roots LP are classified as joint ventures.
\nInvestees in which the Company has significant\n influence or joint control are accounted for using the equity\n method. The Company’s interest in an investee is initially\n recorded at cost and is subsequently adjusted for the\n Company’s share of changes in net assets of the investee,\n less any impairment in the value of individual investments, less\n any dividends paid. Where the Company transacts with an investee,\n unrealized profits and losses are eliminated to the extent of the\n Company’s interest in that investee.
\n\n
\n \n| (c) | \n\n Biological assets \n | \n
The Company measures biological assets, consisting\n of cannabis plants, at fair value less costs to sell. Agricultural\n produce, consisting of medical cannabis, is measured at fair value\n less costs to sell at the point of harvest, which becomes the basis\n for the cost of finished goods inventory after harvest. Gains and\n losses arising from changes in fair values less cost to sell during\n the period are included in the net income of the related year.
\n\n
\n \n| (d) | \n\n Inventory \n | \n
Inventories of harvested finished goods,\n work-in-process, and raw\n materials are valued at the lower of cost and net realizable value.\n Inventories of harvested cannabis and work-in-process are transferred from\n biological assets at their fair value at the point of harvest,\n which becomes the initial deemed cost. Any subsequent post-harvest\n costs, including direct costs attributable to processing and\n related overheads, are capitalized to inventory to the extent that\n cost is less than net realizable value. Net realizable value is\n determined as the estimated selling price in the ordinary course of\n business less the estimated costs of completion and the estimated\n variable costs to sell.
\n\n
\n \n| (e) | \n\n Intangible assets \n | \n
Intangible assets, which have indefinite useful\n lives, are recorded at cost less impairment losses, if any.\n Intangible assets acquired in a business combination are measured\n at fair value at the acquisition date. Intangible assets with\n indefinite useful lives are not amortized, but are systematically\n tested for impairment annually in the fourth quarter or earlier if\n there is an indication of impairment.
\n\n
\n \n| (f) | \n\n Property, plant and equipment \n | \n
Property, plant, and equipment are stated at cost\n less accumulated depreciation. The assets are depreciated over\n their estimated useful lives using the following methods and\n rates:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Method | \n\n | Rate | \n\n | |
| \n Building structures \n | \n \n | \n Straight-line \n | \n \n | \n | \n 15 to 20 years | \n\n |
| \n Furniture and equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 5 years | \n\n |
| \n Computer equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 3 years | \n\n |
| \n Security equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 5 years | \n\n |
| \n Production equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 7 years | \n\n |
| \n Road \n | \n \n | \n Straight-line \n | \n \n | \n | 25 years | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n Straight-line \n | \n \n | \n | 5 to 10 years | \n\n |
An asset’s residual value, useful life and\n depreciation method are reviewed at each financial year end and\n adjusted if appropriate. When parts of an item of property, plant\n and equipment have different useful lives, they are accounted for\n as separate components.
\nConstruction in progress is not depreciated until\n it is completed and available for use.
\n\n
\n \n| (g) | \n\n Provisions \n | \n
Provision for risks and expenses are recognized for\n probable outflows of resources that can be estimated and that\n result from present obligations resulting from past events. In the\n case where a potential obligation resulting from past events\n exists, but where occurrence of the outflow of resources is not\n probable or the estimate is not reliable, these contingent\n liabilities are disclosed as commitments and litigation.\n Provisions, if any, are measured based on management’s best\n estimates of outcomes on the basis of facts known at the reporting\n date.
\n\n
\n \n| (h) | \n\n Share capital \n | \n
Share capital is presented at the fair value of the\n shares issued. Costs related to the issuance of shares are reported\n in equity, net of tax, as a deduction from the issuance\n proceeds.
\n\n
\n \n| (i) | \n\n Foreign exchange translation \n | \n
The consolidated financial statements of the\n Company are presented in Canadian dollars, which is the functional\n currency of the Company and all of its subsidiaries. Transactions\n in foreign currencies are recorded at the exchange rate prevailing\n at the date of the transaction. At each reporting date, foreign\n currency denominated monetary assets and liabilities are translated\n at year-end exchange\n rates. Non-monetary assets and liabilities that are measured in\n terms of historical cost in a foreign currency are translated using\n the exchange rate at the date of the transaction. Exchange\n differences arising from operating transactions are recorded in\n operating profit or loss for the period; exchange differences\n related to financing transactions are recognized in finance income\n or directly in equity.
\n\n
\n \n| (j) | \n\n Income taxes \n | \n
The Company accounts for its income taxes using the\n deferred tax assets and liabilities method. Deferred income tax\n assets and liabilities are determined based on the difference\n between the carrying amount and the tax basis of the assets and\n liabilities. Any change in the net amount of deferred income tax\n assets and liabilities is included in profit or loss or equity.\n Deferred income tax assets and liabilities are determined based on\n enacted or substantively enacted tax rates and laws which are\n expected to apply to taxable profit for the years in which the\n assets and liabilities will be recovered or settled. Deferred\n income tax assets are recognized when it is probable they will be\n realized. Deferred tax assets and liabilities are not\n discounted.
\n\n
\n \n| (k) | \n\n Stock-based payments \n | \n
Where equity instruments are granted to employees,\n they are recorded at the fair value of the equity instrument\n granted at the grant date. The grant date fair value is recognized\n in net income over the vesting period.
\nWhere equity instruments are granted to\n non-employees, they are recorded at the fair value of the goods or\n services received in the statement of operations. When the value of\n goods or services received in exchange for the stock-based payment\n cannot be reliably estimated, the fair value is measured by use of\n a valuation model.
\nThe cost recognized for all equity-settled\n stock-based payments are reflected in share-based reserve, until\n the instruments are exercised. Upon exercise, shares are issued\n from treasury and the amount previously reflected in share-based reserve are, along with\n any proceeds paid upon exercise, credited to share capital.
\n\n
\n \n| (l) | \n\n Earnings per share \n | \n
The Company presents basic and diluted earnings per\n share data for its common shares. Basic earnings per share is\n calculated by dividing the profit or loss attributable to common\n shareholders of the Company by the weighted average number of\n common shares outstanding during the period. Diluted earnings per\n share is determined by adjusting the profit or loss attributable to\n common shareholders and the weighted average number of common\n shares outstanding, for the effects of all potentially dilutive\n common shares, which comprise warrants and stock options.
\n\n
\n \n| (m) | \n\n Financial instruments \n | \n
The Company aggregates its financial instruments\n into classes based on their nature and characteristics. Management\n determines the classification when the instruments are initially\n recognized.
\nAll financial assets except those classified as\n fair value through profit or loss are reviewed at each reporting\n date to determine whether there is any indication of impairment.\n Financial assets are considered to be impaired when there is\n objective evidence that, as a result of one or more events that\n occurred after the initial recognition of the financial asset, the\n estimated future cash flows of the investment have been\n affected.
\n\n
\nThe Company’s accounting policy for each\n class of financial instruments is as follows:
\n\n
\n \n| (i) | \n\n Fair value through profit or loss \n | \n
Financial instruments classified as fair value\n through profit or loss are reported at fair value at each reporting\n date, and any change in fair value is recognized in net income in\n the period during which the change occurs. In these consolidated\n financial statements, cash and the investment in warrants of AbCann\n Global Corp. have been classified as fair value through profit or\n loss.
\n\n
\n \n| (ii) | \n\n Available-for-sale \n | \n
Financial instruments classified as available-for-sale are initially\n recorded at fair value at the time of acquisition, with transaction\n costs included in the amount initially recognized. Thereafter, at\n each reporting date, available-for-sale financial assets\n are recognized at fair value and the changes in fair value, other\n than impairment losses and foreign exchange losses, are recognized\n in other comprehensive income (loss) and presented in accumulated\n other comprehensive income in shareholders’ equity. In\n determining if the investment is impaired, the Company evaluates\n whether there is a significant or prolonged decline in the fair\n value of the investment. Significant or prolonged decline is\n defined as an unrealized loss at 50% or a decline under its cost\n over two consecutive fiscal years, respectively. When the financial\n assets are sold or an impairment write-down is required, gains or\n losses previously recognized in accumulated other comprehensive\n income are reclassified to profit or loss. In these consolidated\n financial statements, investments in Hydropothecary Corporation,\n Canopy Growth Corporation, AbCann Global Corp., and Evergreen\n Medicinal Supply Inc. have been classified as\n available-for-sale.
\n\n
\n \n| (iii) | \n\n Loans and receivables and other financial\n liabilities \n | \n
Financial instruments classified as loans and\n receivables and other financial liabilities are carried at\n amortized cost using the effective interest method. Transaction\n costs are included in the amount initially recognized. In these\n consolidated financial statements, accounts receivable, loans\n receivable, and other receivables have been classified as loans and\n receivables. Accounts payable and other liabilities, purchase price\n liability, mortgage payable, and construction loan payable have\n been classified as other financial liabilities.
\n\n
\nKey management personnel are persons responsible\n for planning, directing and controlling activities of an entity,\n and include management executives of the Company. Compensation\n provided to key management is as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Short-term employee benefits, including salaries and fees \n | \n \n | $ | \n417 | \n\n | \n | $ | \n264 | \n\n |
| \n \n Professional fees \n | \n \n | \n | 234 | \n\n | \n | \n | 171 | \n\n |
| \n \n Stock-based payments (i) \n | \n \n | \n | 899 | \n\n | \n | \n | 208 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,550 | \n\n | \n | $ | \n643 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (i) | \n\n Stock-based payments are comprised of $Nil (2016 -\n $129) of shares issued in lieu of compensation, and $899 (2016 -\n $79) in stock options provided to key management of the Company.\n Refer to Note 16. \n | \n
| 22. | \n\n Financial instruments \n | \n
\n
\n| (i) | \n\n Credit risk \n | \n
Credit risk is the risk of financial loss to the\n Company if a customer or counterparty to a financial instrument\n fails to meet its contractual obligations, and arises principally\n from the Company’s accounts receivable and loans receivable.\n The maximum exposure to credit risk is the carrying value of these\n financial assets. The Company provides credit to its customers in\n the normal course of business and has established credit evaluation\n and monitoring processes to mitigate credit risk.
\nAs at December 31, 2017, the value of its loans\n receivable was $314 (2016 - $309) and the value of its accounts\n receivable was $1,140 (2016 - $107). The Company is not\n significantly exposed to credit risk, as these receivables comprise\n 1.4% (2016 - 1.0%) of the Company’s total assets. As at\n December 31, 2017 89.3% (2016 - 27.5%) of the Company’s trade\n receivables were due from 2 customers (2016 - 1 customer).
\nThe following represents an analysis of the age of\n trade receivables as at December 31:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Less than 30 days past billing date \n | \n \n | \n | 1,020 | \n\n | \n | \n | 63 | \n\n |
| \n \n 31 to 60 days past billing date \n | \n \n | \n | 85 | \n\n | \n | \n | 16 | \n\n |
| \n \n 61 to 90 days past billing date \n | \n \n | \n | 35 | \n\n | \n | \n | 9 | \n\n |
| \n \n Over 90 days past billing date \n | \n \n | \n | \n — | \n\n | \n | \n | 19 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,140 | \n\n | \n | $ | \n107 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (ii) | \n\n Liquidity risk \n | \n
Liquidity risk is the risk that the Company will\n not be able to meet its financial obligations as they become due.\n The Company’s policy is to review liquidity resources and\n ensure that sufficient funds are available to meet financial\n obligations as they become due. Further, the Company’s\n management is responsible for ensuring funds exist and are readily\n accessible to support business opportunities as they arise. The\n Company’s funding is provided in the form of capital raised\n through the issuance of shares and warrants.
\nThe following represents an analysis of the age of\n accounts payable as at December 31:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current \n | \n \n | $ | \n5,922 | \n\n | \n | $ | \n147 | \n\n |
| \n \n Less than 30 days past billing date \n | \n \n | \n | 803 | \n\n | \n | \n | 150 | \n\n |
| \n \n 31 to 60 days past billing date \n | \n \n | \n | 113 | \n\n | \n | \n | 33 | \n\n |
| \n \n 61 to 90 days past billing date \n | \n \n | \n | 66 | \n\n | \n | \n | 16 | \n\n |
| \n \n Over 90 days past billing date \n | \n \n | \n | 172 | \n\n | \n | \n | 240 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n7,076 | \n\n | \n | $ | \n586 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (iii) | \n\n Market risk \n | \n
\n
\n \n| (1) | \n\n Price risk \n | \n
Price risk is the risk that the fair value of, or\n future cash flows from, the Company’s financial instruments\n will significantly fluctuate due to changes in market prices. The\n value of the financial instruments can be affected by changes in\n interest rates, market and economic conditions, and equity and\n commodity prices. The Company is exposed to price risk in divesting\n its investments, in that, unfavourable market conditions could\n result in dispositions of investments at less than favourable\n prices. Further, in the revaluation of securities classified as\n available-for-sale, this could\n result in significant write-downs of the Company’s\n investments, which would have an adverse impact on the\n Company’s financial position.
\nThe Company manages price risk by having a\n portfolio of securities from multiple issuers, such that the\n Company is not singularly exposed to any one issuer. The Company\n also has set thresholds on purchases of investments over which the\n approval of the Board of Directors is required.
\n\n
\n \n| (2) | \n\n Concentration risk \n | \n
Concentration risk is the risk that any single\n investment or group thereof, has the potential to materially affect\n the operating results of the Company. The Company is exposed to\n this risk as all of its investments are currently within the\n medical marijuana industry. As such, the Company’s financial\n results may be adversely affected by the unfavourable performance\n of those investments or the industry in which they operate.
\nIt is management’s opinion that the Company\n is not subject to significant interest rate risk.
\n\n
\nThe key assumptions used in the estimation of\n the recoverable amounts were as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | OGBC | \n\n | \n | Peace Naturals | \n\n | ||
| \n \n Weighted average cost of capital (after-tax) \n | \n \n | \n | 37.0 | \n% | \n\n | \n | 36.0 | \n% | \n
| \n \n Average growth rate* \n | \n \n | \n | 490.0 | \n% | \n\n | \n | 140.0 | \n% | \n
\n
\n \n| * | \n\n The average growth rate is determined by summing\n the expected year-over-year growth rate (in EBITDA)\n then dividing by five years. \n | \n
| 11. | \n\n Property, plant and equipment \n | \n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Cost \n | \n \n | Balance at \n January 1, 2017 | \n \n | \n | Additions | \n\n | \n | As at \n December 31, \n 2017 | \n \n | |||
| \n \n Land \n | \n \n | $ | \n1,558 | \n\n | \n | $ | \n\n — | \n\n | \n | $ | \n1,558 | \n\n |
| \n \n Building structures \n | \n \n | \n | 2,761 | \n\n | \n | \n | 8,757 | \n\n | \n | \n | 11,518 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 63 | \n\n | \n | \n | 71 | \n\n | \n | \n | 134 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 88 | \n\n | \n | \n | 60 | \n\n | \n | \n | 148 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 474 | \n\n | \n | \n | 412 | \n\n | \n | \n | 886 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 2,106 | \n\n | \n | \n | 375 | \n\n | \n | \n | 2,481 | \n\n |
| \n \n Road \n | \n \n | \n | 137 | \n\n | \n | \n | \n — | \n\n | \n | \n | 137 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 1,429 | \n\n | \n | \n | 68 | \n\n | \n | \n | 1,497 | \n\n |
| \n \n Construction in progress \n | \n \n | \n | 6,034 | \n\n | \n | \n | 33,303 | \n\n | \n | \n | 39,337 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n14,650 | \n\n | \n | $ | \n43,046 | \n\n | \n | $ | \n57,696 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
In 2017, there were non-cash additions from the\n capitalization of financing costs on construction in progress\n amounting to $345 (2016 - $Nil). Refer to Note 14. In addition,\n during 2017, $6,034 (2016 - $Nil) was transferred out of\n construction in progress to building structures.
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Accumulated depreciation \n | \n \n | Balance at \n January 1, 2017 | \n \n | \n | Additions | \n\n | \n | As at \n December 31, \n 2017 | \n \n | |||
| \n \n Building structures \n | \n \n | $ | \n120 | \n\n | \n | $ | \n313 | \n\n | \n | $ | \n433 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 18 | \n\n | \n | \n | 25 | \n\n | \n | \n | 43 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 36 | \n\n | \n | \n | 39 | \n\n | \n | \n | 75 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 60 | \n\n | \n | \n | 136 | \n\n | \n | \n | 196 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 103 | \n\n | \n | \n | 328 | \n\n | \n | \n | 431 | \n\n |
| \n \n Road \n | \n \n | \n | 5 | \n\n | \n | \n | 5 | \n\n | \n | \n | 10 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 186 | \n\n | \n | \n | 150 | \n\n | \n | \n | 336 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n528 | \n\n | \n | $ | \n996 | \n\n | \n | $ | \n1,524 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net book value \n | \n \n | $ | \n14,122 | \n\n | \n | \n | \n | \n | \n | $ | \n56,172 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n |
In 2017, $455 (2016 - $Nil) of depreciation expense\n is recorded as part of inventory expensed to cost of sales,\n production costs, and general and administration.
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Cost \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | Acquisitions \n (Note 6) | \n \n | \n | As at \n December 31, \n 2016 | \n \n | ||||
| \n \n Land \n | \n \n | $ | \n210 | \n\n | \n | $ | \n623 | \n\n | \n | $ | \n725 | \n\n | \n | $ | \n1,558 | \n\n |
| \n \n Building structures \n | \n \n | \n | 824 | \n\n | \n | \n | 62 | \n\n | \n | \n | 1,875 | \n\n | \n | \n | 2,761 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 27 | \n\n | \n | \n | \n — | \n\n | \n | \n | 36 | \n\n | \n | \n | 63 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 29 | \n\n | \n | \n | 38 | \n\n | \n | \n | 21 | \n\n | \n | \n | 88 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 183 | \n\n | \n | \n | 291 | \n\n | \n | \n | \n — | \n\n | \n | \n | 474 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 72 | \n\n | \n | \n | 409 | \n\n | \n | \n | 1,625 | \n\n | \n | \n | 2,106 | \n\n |
| \n \n Road \n | \n \n | \n | 137 | \n\n | \n | \n | \n — | \n\n | \n | \n | \n — | \n\n | \n | \n | 137 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 1,363 | \n\n | \n | \n | 66 | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,429 | \n\n |
| \n \n Construction in progress \n | \n \n | \n | \n — | \n\n | \n | \n | 34 | \n\n | \n | \n | 6,000 | \n\n | \n | \n | 6,034 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n2,845 | \n\n | \n | $ | \n1,523 | \n\n | \n | $ | \n10,282 | \n\n | \n | $ | \n14,650 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Accumulated depreciation \n | \n \n | Balance at \n January 1, \n 2016 | \n \n | \n | Additions | \n\n | \n | As at \n December 31, \n 2016 | \n \n | |||
| \n \n Building structures \n | \n \n | $ | \n63 | \n\n | \n | $ | \n57 | \n\n | \n | $ | \n120 | \n\n |
| \n \n Furniture and equipment \n | \n \n | \n | 8 | \n\n | \n | \n | 10 | \n\n | \n | \n | 18 | \n\n |
| \n \n Computer equipment \n | \n \n | \n | 12 | \n\n | \n | \n | 24 | \n\n | \n | \n | 36 | \n\n |
| \n \n Security equipment \n | \n \n | \n | 9 | \n\n | \n | \n | 51 | \n\n | \n | \n | 60 | \n\n |
| \n \n Production equipment \n | \n \n | \n | 14 | \n\n | \n | \n | 89 | \n\n | \n | \n | 103 | \n\n |
| \n \n Road \n | \n \n | \n | \n — | \n\n | \n | \n | 5 | \n\n | \n | \n | 5 | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n | 40 | \n\n | \n | \n | 146 | \n\n | \n | \n | 186 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n146 | \n\n | \n | $ | \n382 | \n\n | \n | $ | \n528 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net book value \n | \n \n | $ | \n2,699 | \n\n | \n | \n | \n | \n | \n | $ | \n14,122 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| 15. | \n\n Share capital and reserves \n | \n
\n
\n| (a) | \n\n Share capital \n | \n
\n
\n| (i) | \n\n Common Shares \n | \n
The Company is authorized to issue an unlimited\n number of no par value common shares.
\nThe holders of the common shares are entitled to\n receive dividends which may be declared from time to time, and are\n entitled to one vote per share at meetings of the Company. All\n shares are ranked equally with regards to the Company’s\n residual assets.
\nDuring the year ended December 31, 2016, 75,289,565\n common shares were issued in private placements, 32,432,425 of\n which were issued as units, where the holder received one common\n share and one common share purchase warrant. Total consideration\n raised through private placements in 2016 was $20,928, of which\n $129 was recognized as share-based payment expense in lieu of\n compensation (Note 18).
\nDuring the year ended December 31, 2016,\n convertible loans were converted, resulting in the issuance of\n 1,150,000 common shares at a value of $115.
\nDuring the year ended December 31, 2017, the\n Company issued 7,705,000 common shares for aggregate gross proceeds\n of $17,336, and 5,476,190 common shares for aggregate gross\n proceeds of $17,248, through bought deals. In addition, 6,671,112\n common shares were issued in private placements, for aggregate\n gross proceeds of $15,010.
\nAs at December 31, 2017, none of the\n Company’s shares were held in escrow (2016 - 3,233,992). The\n release of the shares held in escrow at December 31, 2016 was\n subject to regulatory approval.
\n\n
\n \n| (ii) | \n\n Special Shares \n | \n
The Company is authorized to issue an unlimited\n number of special shares, issuable in series.
\nThe special shares may be issued in one or more\n series and the directors are authorized to fix the number of shares\n in each series and to determine the designation, right, privileges,\n restrictions and conditions attached to the shares in each series.\n No special shares have been issued since the Company’s\n inception.
\n \n| (b) | \n\n Warrants \n | \n
The following is a summary of the changes in\n warrants for the period from January 1, 2016 to December 31,\n 2017:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | \n | \n | \n | \n | \n | \n | Number of | \n\n | \n | \n | \n | ||||
| \n | \n | Grant date | \n\n | \n | Exercise price | \n\n | \n | warrants | \n\n | \n | Amount | \n\n | ||||
| \n \n Balance at January 1, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 15,795,422 | \n\n | \n | $ | \n1,329 | \n\n |
| \n \n Issuance of warrants (i) \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n May \n | \n \n | \n | \n May 13 and 27, 2016 | \n\n | \n | $ | \n0.245 | \n\n | \n | \n | 32,432,425 | \n\n | \n | \n | 2,832 | \n\n |
| \n \n Exercise of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n July \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (55,000 | \n) | \n\n | \n | \n — | \n\n |
| \n \n August \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (100,000 | \n) | \n\n | \n | (15 | \n) | \n
| \n \n October \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (661,505 | \n) | \n\n | \n | (96 | \n) | \n
| \n \n November \n | \n \n | \n | October 25, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (460,877 | \n) | \n\n | \n | (31 | \n) | \n
| \n \n November \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (422,443 | \n) | \n\n | \n | (28 | \n) | \n
| \n \n December \n | \n \n | \n | December 18, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (53,347 | \n) | \n\n | \n | (1 | \n) | \n
| \n \n December \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (511,252 | \n) | \n\n | \n | (7 | \n) | \n
| \n \n Expiry of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (78,251 | \n) | \n\n | \n | \n — | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 45,885,172 | \n\n | \n | $ | \n3,983 | \n\n |
| \n \n Exercise of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n January \n | \n \n | \n | January 30, 2014 | \n\n | \n | \n | 0.71 | \n\n | \n | \n | (375,565 | \n) | \n\n | \n | (164 | \n) | \n
| \n \n January \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (298,066 | \n) | \n\n | \n | \n — | \n\n |
| \n \n March \n | \n \n | \n | October 8, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (1,140,351 | \n) | \n\n | \n | (117 | \n) | \n
| \n \n April \n | \n \n | \n | October 28, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (350,877 | \n) | \n\n | \n | (66 | \n) | \n
| \n \n April \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (744,198 | \n) | \n\n | \n | \n — | \n\n |
| \n \n May \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (165,377 | \n) | \n\n | \n | \n — | \n\n |
| \n \n May \n | \n \n | \n | October 28, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (192,982 | \n) | \n\n | \n | (36 | \n) | \n
| \n \n June \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (50,000 | \n) | \n\n | \n | \n — | \n\n |
| \n \n July \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (248,066 | \n) | \n\n | \n | \n — | \n\n |
| \n \n July \n | \n \n | \n | October 28, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (157,894 | \n) | \n\n | \n | (30 | \n) | \n
| \n \n August \n | \n \n | \n | May 13, 2016 | \n\n | \n | \n | 0.245 | \n\n | \n | \n | (2,300,000 | \n) | \n\n | \n | (202 | \n) | \n
| \n \n September \n | \n \n | \n | May 27, 2016 | \n\n | \n | \n | 0.245 | \n\n | \n | \n | (48,720 | \n) | \n\n | \n | (4 | \n) | \n
| \n \n September \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (951,064 | \n) | \n\n | \n | \n — | \n\n |
| \n \n November \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (133,022 | \n) | \n\n | \n | \n — | \n\n |
| \n \n December \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (55,126 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Expiry of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (19,210 | \n) | \n\n | \n | \n — | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 38,654,654 | \n\n | \n | $ | \n3,364 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (i) | \n\n 32,432,425 units were issued in two private\n placements. Each unit consisted of one common share and one common\n share purchase warrant, for total consideration of $5,978. \n | \n
\n
\nAs at December 31, 2017, the Company has\n outstanding warrants as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Grant date \n | \n \n | Number of \n warrants | \n \n | \n | Exercise price | \n\n | \n | Expiry | \n||
| \n \n January 18, 2013 \n | \n \n | \n | 2,981,476 | \n\n | \n | $ | \n0.08 | \n\n | \n | January 18, 2018 | \n
| \n \n October 8, 2015 \n | \n \n | \n | 4,101,680 | \n\n | \n | \n | 0.31 | \n\n | \n | October 8, 2020 | \n
| \n \n October 23, 2015 \n | \n \n | \n | 1,478,245 | \n\n | \n | \n | 0.31 | \n\n | \n | October 23, 2020 | \n
| \n \n October 28, 2015 \n | \n \n | \n | 9,548 | \n\n | \n | \n | 0.31 | \n\n | \n | October 28, 2020 | \n
| \n \n May 13, 2016 \n | \n \n | \n | 8,510,812 | \n\n | \n | \n | 0.245 | \n\n | \n | May 13, 2021 | \n
| \n \n May 27, 2016 \n | \n \n | \n | 21,572,893 | \n\n | \n | \n | 0.245 | \n\n | \n | May 27, 2021 | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n |
| \n | \n | \n | 38,654,654 | \n\n | \n | $ | \n0.242 | \n\n | \n | \n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n |
\n
\nProperty, plant, and equipment are stated at cost\n less accumulated depreciation. The assets are depreciated over\n their estimated useful lives using the following methods and\n rates:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Method | \n\n | Rate | \n\n | |
| \n Building structures \n | \n \n | \n Straight-line \n | \n \n | \n | \n 15 to 20 years | \n\n |
| \n Furniture and equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 5 years | \n\n |
| \n Computer equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 3 years | \n\n |
| \n Security equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 5 years | \n\n |
| \n Production equipment \n | \n \n | \n Straight-line \n | \n \n | \n | 7 years | \n\n |
| \n Road \n | \n \n | \n Straight-line \n | \n \n | \n | 25 years | \n\n |
| \n \n Leasehold improvements \n | \n \n | \n Straight-line \n | \n \n | \n | 5 to 10 years | \n\n |
\n
The fair value of the options was determined using\n the Black-Scholes option\n pricing model. The following inputs were used:
\n\n
\n \n| \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | 2016 | \n
| \n \n Share price at grant date \n | \n \n | $2.42 - $3.27 | \n\n | $0.19 - $1.77 | \n
| \n \n Exercise price \n | \n \n | \n $2.42 - $3.32 | \n\n | $0.285 - $1.84 | \n
| \n \n Risk free interest rate \n | \n \n | 0.96% - 1.59% | \n\n | 0.54% - 0.67% | \n
| \n \n Expected life of options (years) \n | \n \n | 5 | \n\n | 0.25 - 5 | \n
| \n \n Expected annualized volatility \n | \n \n | 55% | \n\n | 55% - 150% | \n
| \n \n Expected dividend yield \n | \n \n | 0% | \n\n | 0% | \n
| \n \n Weighted average Black Scholes value at grant date \n | \n \n | $1.39 | \n\n | $0.43 | \n
\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Property, plant and equipment \n | \n \n | $ | \n684 | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Equity accounted investments \n | \n \n | \n | \n — | \n\n | \n | \n | 89 | \n\n |
| \n \n Share and debt issuance costs (i) \n | \n \n | \n | 2,834 | \n\n | \n | \n | 1,085 | \n\n |
| \n \n Losses carried forward (ii) \n | \n \n | \n | 7,814 | \n\n | \n | \n | 3,833 | \n\n |
| \n \n Other investments \n | \n \n | \n | \n — | \n\n | \n | \n | 6 | \n\n |
\n
\n| (i) | \n\n Share and debt issuance costs will be fully\n amortized in 2022. The remaining deductible temporary differences\n may be carried forward indefinitely. \n | \n
| (ii) | \n\n For income tax purposes, the Company has losses\n carried forward from prior years which can be used to reduce future\n years’ taxable income. These losses expire as follows: \n | \n
| 24. | \n\n Capital management \n | \n
The Company’s objectives when managing its\n capital are to maintain sufficient capital base to: (i) meet\n its short-term obligations, (ii) sustain future operations and\n expansions, (iii) ensure its ability to continue as a going\n concern, and (iv) retain stakeholder confidence. The Company\n defines capital as its net assets, total assets less total\n liabilities. Currently, there are no quantitative criteria\n established as the Company is experiencing significant growth.
\nAs at December 31, 2017, the Company managed net\n assets of $86,368 (2016 - $33,677).
\n\n
\n| 2. | \n\n Basis of presentation \n | \n
\n
\n| (a) | \n\n Basis of consolidation \n | \n
These consolidated financial statements include the\n accounts of Cronos Group Inc., Hortican Inc., Original BC Ltd.,\n Peace Naturals Project Inc., Indigenous Roots Inc., Cronos\n Indigenous Holdings Inc., and Cronos Global Holdings Inc. All\n intercompany transactions, balances, revenues and expenses have\n been eliminated on consolidation. The Company applies the\n acquisition method to account for business combinations.\n Acquisition related costs are expensed as incurred.
\n\n
\n\n
\n \n| (b) | \n\n Going concern \n | \n
These consolidated financial statements have been\n prepared with the assumption that the Company will be able to\n realize its assets and discharge its liabilities in the normal\n course of business rather than through a process of forced\n liquidation. During the year ended December 31, 2017, the Company\n had negative cash flows from operations of $5,548 and was dependent\n on the Company’s ability to obtain additional financing.\n These circumstances may cast significant doubt on the\n Company’s ability to continue as a going concern and\n ultimately on the appropriateness of the use of the accounting\n principles applicable to a going concern. In assessing whether the\n going concern assumption was appropriate, management took into\n account all relevant information available, which was at least, but\n not limited to, the twelve month period subsequent to December 31,\n 2017. The Company is currently implementing various strategies,\n including the following:
\n\n
\n \n| \n | • | \n\n | \n On February 27, 2018, Cronos became listed on the\n NASDAQ under the trading symbol “CRON”, providing\n access to a major U.S. exchange to raise financing in support of\n the Company’s growth and operations; \n | \n
\n
\n \n| \n | • | \n\n | \n In 2018, the Company announced strategic joint\n ventures in Canada and Australia, with MedMen Enterprises USA, LLC\n and NewSouthern Capital Pty Ltd., respectively, which are expected\n to enable the Company to expand its capacity and establish a\n low-cost, global\n footprint; \n | \n
\n
\n \n| \n | • | \n\n | \n In 2018, the Company has raised an additional\n $146,000 in gross proceeds through two common share offerings;\n and \n | \n
\n
\n \n| \n | • | \n\n | \n The Company has available, $33,696 of additional\n liquidity available under its construction loan, which includes\n $5,000 contingent upon an appraisal of OGBC. \n | \n
The Company believes that based on its previous\n success in raising capital, and the availability under its\n construction loan, any shortfall in its cash flows is expected to\n be mitigated by the Company’s ability to access other sources\n of liquidity.
\n\n
\n \n| (c) | \n\n Statement of compliance \n | \n
These consolidated financial statements have been\n prepared in accordance with International Financial Reporting\n Standards (“IFRS”) as issued by the\n International Accounting Standards Board\n (“IASB”).
\nThese consolidated financial statements were\n approved by the Board of Directors on April 27, 2018.
\n\n
\n \n| (d) | \n\n Basis of measurement \n | \n
Apart from certain assets and liabilities measured\n at fair value as required under certain IFRSs, the consolidated\n financial statements have been presented and prepared on the basis\n of historical cost.
\n\n
\n \n| (e) | \n\n Functional and presentation currency \n | \n
These consolidated financial statements are\n presented in Canadian dollars, which is the functional currency of\n the Company and all of its subsidiaries.
\n\n
\n \n| (f) | \n\n Estimates and critical judgments by management \n | \n
The preparation of these consolidated financial\n statements in conformity with IFRS requires management to make\n estimates and assumptions that affect the reported amounts of\n assets and liabilities, the disclosure of contingent assets and\n liabilities at the date of the consolidated financial statements,\n and the reported amounts of revenues and expenses during the\n reporting period. These estimates are reviewed periodically and\n adjustments are made as appropriate in the year they become known.\n Items for which actual results may differ materially from these\n estimates are described in the following section.
\n\n
\n \n| (i) | \n\n Warrants and options \n | \n
Warrants and options are initially recognized at\n fair value, based on the application of the Black-Scholes option\n pricing model. This pricing model requires management to make\n various assumptions and estimates which are susceptible to\n uncertainty, including the volatility of the share price, expected\n dividend yield, expected term of the warrant or option and expected\n risk-free interest rate.
\n\n
\n \n| (ii) | \n\n Useful lives and impairment of long-lived\n assets \n | \n
Long-lived assets are defined as property, plant\n and equipment and intangible assets. Depreciation is dependent upon\n estimates of useful lives and impairment is dependent upon\n estimates of recoverable amounts. These are determined through the\n exercise of judgment, and are dependent upon estimates that take\n into account factors such as economic and market conditions,\n frequency of use, anticipated changes in laws, and technological\n improvements.
\n\n
\n \n| (iii) | \n\n Impairment of cash-generating units and\n goodwill \n | \n
The impairment test for cash generating units\n (“CGUs”) to which goodwill is allocated is based\n on the value in use of the CGU, determined in accordance with the\n expected cash flow approach. The calculation is based on\n assumptions used to estimate future cash flows, the cash flow\n growth rate and the discount rate.
\n\n
\n \n| (iv) | \n\n Fair value of privately held financial assets\n available-for-sale \n | \n
The Company’s management considers specific\n information about the investee companies, trends in general market\n conditions, and the share performance of similar publicly traded\n companies when valuing the Company’s privately held\n investments.
\nManagement considers the following factors to\n indicate a change in the fair value, or impairment of, a privately\n held investment, and may adjust the value if:
\na. there has been significant subsequent equity\n financing provided by outside investors at a value which differs\n from the current recorded value of the investee company, in which\n case the fair value of the investment is adjusted to equal the\n value at which that financing took place;
\nb. there have been significant corporate,\n political, legal, or operating events affecting the investee\n company such that management believes they will materially impact\n the investee company’s prospects and therefore its fair\n value. In these circumstances, the adjustment to fair value of the\n investment will be based on management’s judgment;
\nc. the investee company is placed into receivership\n or bankruptcy;
\nd. based on financial information received from the\n investee company, it is evident that the investee company is\n unlikely to be able to continue as a going concern;
\ne. receipt or denial by the investee company of\n medical marijuana licenses from Health Canada, which allow the\n investee company to initiate or continue operations; and
\nf. management changes by the investee company that\n the Company’s management believes will have an impact on the\n investee company’s ability to achieve its objectives and\n build value for shareholders.
\n\n
\n \n| (v) | \n\n Income taxes \n | \n
Income taxes and tax exposures recognized in the\n consolidated financial statements reflect management’s best\n estimate of the outcome based on facts known at the reporting date.\n When the Company anticipates a future income tax payment based on\n its estimates, it recognizes a liability. The difference between\n the expected amount and the final tax outcome has an impact on\n current and deferred taxes when the Company becomes aware of this\n difference.
\n\n
\nIn addition, when the Company incurs losses for\n income tax purposes, it assesses the probability of taxable income\n being available in the future based on its budgeted forecasts.\n These forecasts are adjusted to take into account certain\n non-taxable income and expenses and specific rules on the use of\n unused credits and tax losses. When the forecasts indicate that\n sufficient future taxable income will be available to deduct the\n temporary differences, a deferred tax asset is recognized for all\n deductible temporary differences.
\n\n
\n \n| (vii) | \n\n Biological assets and inventory \n | \n
Biological assets, consisting of cannabis plants,\n are measured at fair value less costs to sell. At the point of\n harvest, the biological assets are transferred to inventory at fair\n value less costs to sell. As a result, critical estimates related\n to the valuation of biological assets are also applicable to\n inventory.
\nDetermining the fair value less costs to sell\n requires the Company to make assumptions about the expected future\n yield from the cannabis plants, the value associated with each\n stage of the plants’ growth cycle, estimated selling price,\n costs to convert harvested cannabis into finished goods, and costs\n to sell. The Company’s estimates are, by their nature,\n subject to change.
\n\n
\nThe following is a summary of the changes in\n options for the period from January 1, 2016 to December 31,\n 2016:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Grant date | \n\n | \n | Exercise price | \n\n | \n | Number of \n options | \n \n | \n | Amount | \n\n | ||||
| \n \n Balance at January 1, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 1,610,003 | \n\n | \n | $ | \n599 | \n\n |
| \n \n Issuance of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n May \n | \n \n | \n | \n May 17 and 27, 2016 | \n\n | \n | $ | \n0.285 | \n\n | \n | \n | 157,850 | \n\n | \n | \n | 6 | \n\n |
| \n \n August \n | \n \n | \n | August 5, 2016 | \n\n | \n | \n | 0.50 | \n\n | \n | \n | 1,225,000 | \n\n | \n | \n | 30 | \n\n |
| \n \n October \n | \n \n | \n | October 6, 2016 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | 3,618,500 | \n\n | \n | \n | 114 | \n\n |
| \n \n November \n | \n \n | \n | Multiple | \n\n | \n | \n | Multiple | \n\n | \n | \n | 482,000 | \n\n | \n | \n | 28 | \n\n |
| \n \n Exercise of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n — | \n\n |
| \n \n August \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (213,390 | \n) | \n\n | \n | (31 | \n) | \n
| \n \n August \n | \n \n | \n | May 17 and 27, 2016 | \n\n | \n | \n | 0.285 | \n\n | \n | \n | (157,390 | \n) | \n\n | \n | (6 | \n) | \n
| \n \n October \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (32,008 | \n) | \n\n | \n | (5 | \n) | \n
| \n \n Expiry of options \n | \n \n | \n | \n | \n | \n | \n | 0.96 | \n\n | \n | \n | (512,971 | \n) | \n\n | \n | \n — | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 6,177,594 | \n\n | \n | $ | \n735 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nThe following is a summary of the changes in\n options for the period from January 1, 2017 to December 31,\n 2017:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Grant date | \n\n | \n | Exercise price | \n\n | \n | Number of \n options | \n \n | \n | Amount | \n\n | ||||
| \n \n Balance at January 1, 2017 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 6,177,594 | \n\n | \n | $ | \n735 | \n\n |
| \n \n Issuance of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n April \n | \n \n | \n | April 12, 2017 | \n\n | \n | \n | 3.14 | \n\n | \n | \n | 3,299,000 | \n\n | \n | \n | \n — | \n\n |
| \n \n August \n | \n \n | \n | August 23, 2017 | \n\n | \n | \n | 2.42 | \n\n | \n | \n | 2,903,000 | \n\n | \n | \n | \n — | \n\n |
| \n \n November \n | \n \n | \n | November 9, 2017 | \n\n | \n | \n | 3.32 | \n\n | \n | \n | 200,000 | \n\n | \n | \n | \n — | \n\n |
| \n \n Exercise of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n January \n | \n \n | \n | January 30, 2014 | \n\n | \n | \n | 0.71 | \n\n | \n | \n | (32,009 | \n) | \n\n | \n | (14 | \n) | \n
| \n \n February \n | \n \n | \n | August 5, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (32,000 | \n) | \n\n | \n | (23 | \n) | \n
| \n \n March \n | \n \n | \n | \n September 19, December 17, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (171,695 | \n) | \n\n | \n | (104 | \n) | \n
| \n \n April \n | \n \n | \n | August 5, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (93,000 | \n) | \n\n | \n | (66 | \n) | \n
| \n \n April \n | \n \n | \n | October 6, 2016 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | (30,416 | \n) | \n\n | \n | (15 | \n) | \n
| \n \n May \n | \n \n | \n | August 5, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (35,043 | \n) | \n\n | \n | (25 | \n) | \n
| \n \n July \n | \n \n | \n | August 5, 2016 | \n\n | \n | \n | 0.50 | \n\n | \n | \n | (83,333 | \n) | \n\n | \n | (19 | \n) | \n
| \n \n September \n | \n \n | \n | October 6, 2016 | \n\n | \n | \n | 1.23 | \n\n | \n | \n | (1,250 | \n) | \n\n | \n | (1 | \n) | \n
| \n \n December \n | \n \n | \n | December 17, 2014 | \n\n | \n | \n | 1.15 | \n\n | \n | \n | (92,500 | \n) | \n\n | \n | (41 | \n) | \n
| \n \n Expiry of options \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (404,598 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Vesting of issued options \n | \n \n | \n | \n | \n | \n | \n | 1.15 | \n\n | \n | \n | \n — | \n\n | \n | \n | 1,862 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 11,603,750 | \n\n | \n | $ | \n2,289 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
Inventory as at December 31 consists of the\n following:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Dry cannabis \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Finished goods \n | \n \n | $ | \n6,145 | \n\n | \n | $ | \n1,502 | \n\n |
| \n \n Work-in-process \n | \n \n | \n | 1,630 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 7,775 | \n\n | \n | \n | 1,502 | \n\n |
| \n \n Cannabis oils \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Finished goods \n | \n \n | \n | 332 | \n\n | \n | \n | \n — | \n\n |
| \n \n Raw materials \n | \n \n | \n | 183 | \n\n | \n | \n | 194 | \n\n |
| \n \n Supplies and consumables \n | \n \n | \n | 126 | \n\n | \n | \n | 212 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n8,416 | \n\n | \n | $ | \n1,908 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| 8. | \n\n Loans receivable \n | \n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Loan receivable from Evergreen Medicinal Supply Inc.\n (“Evergreen”) (i) \n | \n \n | $ | \n309 | \n\n | \n | $ | \n265 | \n\n |
| \n \n Loan receivable from Vert/Green Medical Inc.\n (“Vert”) (ii) \n | \n \n | \n | \n — | \n\n | \n | \n | 375 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 309 | \n\n | \n | \n | 640 | \n\n |
| \n \n Add: Accrued interest \n | \n \n | \n | 5 | \n\n | \n | \n | 92 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 314 | \n\n | \n | \n | 732 | \n\n |
| \n \n Less: Principal and interest received \n | \n \n | \n | \n — | \n\n | \n | \n | (423 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Loans receivable \n | \n \n | $ | \n314 | \n\n | \n | $ | \n309 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| (i) | \n\n The loan is due on demand, bearing interest at 8%\n per year, calculated and payable annually in arrears. \n | \n
| (ii) | \n\n During the year ended December 31, 2016, the\n full amount of the loan plus accrued interest was repaid and the\n previously recorded impairment loss was reversed. The loan was due\n on demand, and bore interest at 8% per year, calculated and payable\n semi-annually in arrears. \n | \n
| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Loan receivable from Evergreen Medicinal Supply Inc.\n (“Evergreen”) (i) \n | \n \n | $ | \n309 | \n\n | \n | $ | \n265 | \n\n |
| \n \n Loan receivable from Vert/Green Medical Inc.\n (“Vert”) (ii) \n | \n \n | \n | \n — | \n\n | \n | \n | 375 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 309 | \n\n | \n | \n | 640 | \n\n |
| \n \n Add: Accrued interest \n | \n \n | \n | 5 | \n\n | \n | \n | 92 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 314 | \n\n | \n | \n | 732 | \n\n |
| \n \n Less: Principal and interest received \n | \n \n | \n | \n — | \n\n | \n | \n | (423 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Loans receivable \n | \n \n | $ | \n314 | \n\n | \n | $ | \n309 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n| (i) | \n\n The loan is due on demand, bearing interest at 8%\n per year, calculated and payable annually in arrears. \n | \n
| (ii) | \n\n During the year ended December 31, 2016, the\n full amount of the loan plus accrued interest was repaid and the\n previously recorded impairment loss was reversed. The loan was due\n on demand, and bore interest at 8% per year, calculated and payable\n semi-annually in arrears. \n | \n
| 14. | \n\n Construction loan payable \n | \n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n First advance \n | \n \n | $ | \n6,304 | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Less: transaction costs (net of amortization) \n | \n \n | \n | (1,122 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Add: accrued interest \n | \n \n | \n | 185 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n5,367 | \n\n | \n | $ | \n\n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
On August 23, 2017, Peace Naturals, as borrower,\n entered into a construction loan agreement with Romspen Investment\n Corporation as lender, to borrow $40,000, to be funded by way of\n multiple advances. The aggregate advances are limited to $35,000\n until the lender receives an appraisal valuing the property in\n British Columbia at an amount of not less than $8,000. The loan\n bears interest at a rate of 12% per annum, calculated and\n compounded monthly, in arrears, on the amounts advanced from the\n date of each advance. The term of the loan is two years, with the\n borrower’s option to extend for another twelve months. The\n loan is guaranteed by Cronos Group, Hortican, OGBC, the\n responsible-person-in-charge\n and the senior-\n person-in-charge of OGBC and Peace Naturals. The loan is secured by\n the following:
\n\n
\n\n
\n| (a) | \n\n first-ranking charge on the land owned\n by OGBC, Peace Naturals, and Hortican, (the\n “Property”) with a net book value of\n approximately $1,558 as at December 31, 2017; \n | \n
\n
\n\n
\n| (b) | \n\n first-ranking general assignment of\n all present and future leases of each Property; \n | \n
\n
\n\n
\n| (c) | \n\n general security agreements creating first-ranking\n security interests charging all the personal property of Peace\n Naturals and the corporate guarantors including without limitation,\n goods, chattels, paper, documents, accounts, intangible assets,\n securities, monies, books and records; \n | \n
\n
\n\n
\n| (d) | \n\n specific assignment of each Property’s right,\n title, and interest in the construction project for which the loan\n is being used to fund, including licenses, permits, plans and\n specifications, development approvals and agreements; \n | \n
\n
\n\n
\n| (e) | \n\n acknowledgement of the status and terms of any\n contracts affecting or with respect to each Property including\n without limitation, any pertaining to ownership, insurance, shared\n facilities, passageway agreements, or similar matters, confirming\n the good status of such contracts, and the rights of the lender\n under such contracts; \n | \n
\n
\n\n
\n| (f) | \n\n the subordination of all other indebtedness of\n Peace Naturals; \n | \n
\n
\n\n
\n| (g) | \n\n an unconditional, joint and several covenant by the\n guarantors as principal debtor for the performance of obligations\n by Peace Naturals, it being understood that the lender is not\n obliged to proceed against Peace Naturals or exhaust any security\n before proceeding against the guarantors; \n | \n
\n
\n\n
\n| (h) | \n\n assignment, postponement, and subordination by the\n corporate guarantors in favour of the lender; \n | \n
\n
\n\n
\n| (i) | \n\n assignment of all insurance policies with respect\n to each Property and the construction project; \n | \n
\n
\n\n
\n| (j) | \n\n pledge of the shares of Peace Naturals, OGBC, and\n Hortican; \n | \n
\n
\n\n
\n| (k) | \n\n an environmental indemnity from Peace Naturals and\n the corporate guarantors; and \n | \n
\n
\n\n
\n| (l) | \n\n deficiency and completion guarantee from Peace\n Naturals and the corporate guarantors. \n | \n
\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n First advance \n | \n \n | $ | \n6,304 | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Less: transaction costs (net of amortization) \n | \n \n | \n | (1,122 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Add: accrued interest \n | \n \n | \n | 185 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n5,367 | \n\n | \n | $ | \n\n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
The reconciliation of the combined Canadian federal\n and provincial statutory income tax rate of 26.5% (2016 - 26.5%) to\n the effective tax rate is as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Income before income taxes \n | \n \n | $ | \n2,789 | \n\n | \n | $ | \n(1,758 | \n) | \n
| \n \n Combined statutory tax rate \n | \n \n | \n | 26.5 | \n% | \n\n | \n | 26.5 | \n% | \n
| \n \n Theoretical tax expense (recovery) \n | \n \n | $ | \n739 | \n\n | \n | $ | \n(466 | \n) | \n
| \n \n Non-deductible\n expense: \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Stock-based payments \n | \n \n | \n | 494 | \n\n | \n | \n | 81 | \n\n |
| \n \n Non-taxable income: \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Non-taxable portion of\n capital gains \n | \n \n | \n | (762 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Effect of provincial tax rate difference \n | \n \n | \n | 5 | \n\n | \n | \n | 4 | \n\n |
| \n \n Changes in unrecognized deferred tax assets \n | \n \n | \n | (178 | \n) | \n\n | \n | (187 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Income tax expense (recovery) \n | \n \n | $ | \n298 | \n\n | \n | $ | \n(568 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
| 13. | \n\n Mortgage payable \n | \n
On September 6, 2016, the Company obtained a\n mortgage in connection with the acquisition of Peace Naturals (Note\n 6) with a principal balance of $4,000. The mortgage was\n interest-bearing at 12% per annum compounded and payable monthly.\n The mortgage was secured by a first charge on Peace Natural’s\n property as well as a first ranking security interest charging all\n the personal property of Peace Naturals and each covenantor in the\n amount of the loan. The mortgage matured on June 1, 2017 and was\n fully repaid.
\n\n
\n| 1. | \n\n Nature of business \n | \n
Cronos Group Inc. (“Cronos” or\n the “Company”), was incorporated under the\n Business Corporations Act (Ontario) . Cronos is a publicly\n traded corporation, with its head office located at 720 King Street\n West, Suite 320, Toronto, Ontario, M5V 2T3. The Company’s\n common shares are currently listed on the TSX Venture Exchange\n (“TSX-V”) and Nasdaq\n Global Market under the trading symbol “CRON”.
\nHortican Inc. (“Hortican”), is a\n wholly owned subsidiary of Cronos, incorporated under the Canada\n Business Corporations Act\n (“CBCA “).
\nCronos operates two wholly owned Licensed\n Producers, namely Peace Naturals Project Inc. (“Peace\n Naturals”), which has production facilities near Stayner,\n Ontario, and Original BC Ltd. (“OGBC”), which\n has a production facility in Armstrong, British Columbia.\n Currently, Cronos sells dry cannabis and cannabis oils under its\n medical cannabis brand, Peace Naturals.
\nOGBC was incorporated as In the Zone Produce Ltd.\n (“In the Zone”) under the Business\n Corporations Act (British Columbia) and was acquired by\n Hortican on November 5, 2014. In the Zone changed its name to OGBC\n on October 16, 2017, and was continued under the CBCA on the\n same day. OGBC is a licensed producer and seller\n (“Licensed Producer” ) of medical cannabis\n pursuant to the provisions of the Controlled Drugs and Substances\n Act and its Regulations (“CDSA” and its relevant\n regulation, the Access to Cannabis for Medical Purposes Regulation\n (“ACMPR”). On February 26, 2014, Health Canada\n issued an initial cultivation license to OGBC under the ACMPR which\n has since been amended and supplemented. OGBC’s current\n license has an effective term from February 28, 2017 to February\n 28, 2020 and grants OGBC the authority to engage in the production\n and sale of dried cannabis flower. The license was amended to\n reflect its name change on October 20, 2017.
\nPeace Naturals was incorporated under the\n CBCA , and was acquired by Hortican on September 6, 2016.\n Peace Naturals is a Licensed Producer pursuant to the provisions of\n the ACMPR and the CDSA. On October 31, 2013, Health Canada issued\n an initial license to Peace Naturals for activities related to the\n production and sale of dried cannabis flower under the ACMPR, which\n has since been amended and supplemented. Peace Naturals’\n current license has an effective term from November 1, 2016 to\n November 1, 2019 and grants Peace Naturals the authority to engage\n in, among other things, the production and sale of dried cannabis\n flower, cannabis resin, cannabis seeds, cannabis plants, and\n cannabis oils. Additional information on the acquisition of Peace\n Naturals is provided in Note 6.
\nCronos Australia PTY Ltd. (“Cronos\n Australia”) was incorporated under the Corporations\n Act 2001 (Australia) on December 6, 2016 by Cronos. Cronos\n holds 50% of the outstanding shares of Cronos Australia.
\nIndigenous Roots Inc. and Cronos Indigenous\n Holdings Inc. were incorporated under the CBCA on February\n 9, 2017 and March 16, 2017, respectively. Both corporations are\n wholly owned by Hortican. These two corporations, along with a\n third party limited partnership, formed Indigenous Roots LP on\n April 18, 2017.
\nCronos Global Holdings Inc. (“Cronos\n Global”) was incorporated under the CBCA on April\n 25, 2017 by Hortican. Cronos Global will be the holding company for\n the Company’s future global operations.
\n| \n | \n \n | \n
Other investments consist of investments in common\n shares and warrants of several companies in the medical cannabis\n industry. These investments, with the exception of shares of\n Evergreen Medicinal Supply Inc. and warrants of AbCann Global\n Corp., are traded in an active market, and as a result have a\n reliably measurable fair value.
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Available-for-sale\n investments \n | \n \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n The Hydropothecary Corporation\n (“Hydropothecary”) (i) \n | \n \n | $ | \n— | \n\n | \n | $ | \n412 | \n\n |
| \n \n Canopy Growth Corporation (“Canopy”) (ii) \n | \n \n | \n | 877 | \n\n | \n | \n | 337 | \n\n |
| \n \n AbCann Global Corp. (“AbCann”) (iii) \n | \n \n | \n | \n — | \n\n | \n | \n | 3,073 | \n\n |
| \n \n Evergreen Medicinal Supply Inc. (“Evergreen”)\n (iv) \n | \n \n | \n | 300 | \n\n | \n | \n | 300 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,177 | \n\n | \n | $ | \n4,122 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Fair value through profit or loss investment \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n AbCann Global Corp. - share warrants (v) \n | \n \n | $ | \n170 | \n\n | \n | $ | \n1,005 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,347 | \n\n | \n | $ | \n5,127 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (i) | \n\n During the year ended December 31, 2016, the\n Company received bonus shares pursuant to the original agreement,\n for $Nil consideration. The transaction price was less than the\n fair value at the date of receipt, and the gain of $25 on initial\n recognition was deferred as the fair value was based on other than\n level 1 inputs. The deferred gain was taken into income as factors\n that market participants would consider when valuing the shares had\n changed. The fair value of the shares was based on the share price\n of the financing that took place in December 2016. \n | \n
\n
\n \n| \n | \n During the year ended December 31, 2017, BFK\n Capital Corp. acquired all of the outstanding shares of\n Hydropothecary, and began trading as Hydropothecary Corporation,\n (TSX-V:THCX). The Company\n sold all of its shares of Hydropothecary for proceeds of $932. \n | \n
\n
\n \n| (ii) | \n\n During the year ended December 31, 2016, Canopy\n acquired all of the outstanding shares of Vert. In exchange for\n shares in Vert, Canopy issued the former Vert shareholders, shares\n of Canopy. The fair value of the Canopy shares at the date of the\n transaction of $258 determined the proceeds on derecognition of the\n Vert shares. Since the gain was realized, it was recorded as\n income. The fair value of the Canopy shares at the date of the\n transaction was also the deemed cost of the Canopy shares. \n | \n
\n
\n \n| (iii) | \n\n During the year ended December 31, 2017, the\n Company sold some of its shares of Canopy for proceeds of $88.\n During the year ended December 31, 2016, the Company received bonus\n shares pursuant to the original agreement, for $Nil consideration.\n The transaction price was less than the fair value at the date of\n receipt, and the gain of $75 on initial recognition was initially\n deferred as the fair value was based on other than level 1 inputs.\n During the year, the deferred gain was taken into income as factors\n that market participants would consider when valuing the shares had\n changed. The fair value of all of the shares was estimated based on\n a valuation of the investee’s peer group. \n | \n
\n
\n \n| \n | \n During the year ended December 31, 2017, AbCann\n Medicinals Inc. performed a reverse takeover with Panda Capital\n Inc. As a result of this transaction, AbCann began trading as\n AbCann Global Corp. (TSX-V:ABCN). The Company purchased an\n additional 1,270,000 shares of AbCann for $1,016 in cash and\n subsequently sold all of its shares of AbCann for proceeds of\n $9,859. Refer to Note 10 (v) for remaining warrants held. \n | \n
\n
\n \n| (iv) | \n\n During the year ended December 31, 2016, management\n revised their estimate of the fair value of the investment back to\n its original value, based on management’s assessment of the\n likelihood Evergreen would receive a license to produce and sell\n medical marijuana. The gain on the revaluation of the investment\n has been recognized as other comprehensive income. \n | \n
\n
\n \n| (iv) | \n\n During the year ended December 31, 2017, Evergreen\n received a cultivation license under the ACMPR. As a result, the\n Company completed its subscription for a second tranche of shares\n of Evergreen for $100 and exercised its option to acquire an\n additional 5% of the equity of Evergreen for $500, for a total\n additional investment of $600. However, Evergreen, through its\n counsel, has indicated that the Company is not entitled to any\n interest in Evergreen and has rejected the payment. The Company\n filed a statement of claim in the Supreme Court of British Columbia\n against Evergreen and its directors, seeking, among other things,\n declarations that the Company holds equity of Evergreen and that\n the agreement between the parties in respect of Evergreen’s\n equity is a valid and binding contract. Evergreen has filed a\n statement of defence. The Company intends to vigorously pursue the\n enforcement of its rights to acquire equity in Evergreen. \n | \n
\n
\n \n| (v) | \n\n During the year ended December 31, 2016, the\n Company received bonus warrants pursuant to the original agreement,\n for $Nil consideration. The transaction price was less than the\n fair value at the date of receipt, and the gain of $24 on initial\n recognition was initially deferred as the fair value was based on\n other than level 1 inputs. During the year, the deferred gain on\n the bonus warrants and the original warrants was taken into income\n as factors that market participants would consider when valuing the\n warrants have changed. As at December 31, 2016, the fair value of\n the warrants was estimated using the Black-Scholes option pricing model\n with the following assumptions: risk free rate: 0.60 - 0.73%;\n volatility: 65%; share price: $0.80; expected life: 0.70 - 1.7\n years; and dividend yield: Nil%. The share price was estimated\n using the price from the most recent equity financing and\n volatility was estimated based on publicly traded companies which\n management has assessed as being comparable to AbCann. \n | \n
During the year ended December 31, 2017, the\n Company exercised 3,658,537 warrants for $2,268, for additional\n shares of AbCann. As at December 31, 2017, the fair value of the\n remaining 182,927 warrants was estimated using the Black-Scholes option pricing model\n with the following assumptions: risk free rate: 1.66%; volatility:\n 65%; share price $1.53; expected life 0.76; and dividend yield:\n Nil%.
\n\n
The gains recognized upon the increase in fair\n value on other investments is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n The Hydropothecary Corporation (i) \n | \n \n | $ | \n657 | \n\n | \n | $ | \n25 | \n\n |
| \n \n Canopy Growth Corporation (ii) \n | \n \n | \n | 36 | \n\n | \n | \n | 258 | \n\n |
| \n \n AbCann Global Corp. - shares (iii) \n | \n \n | \n | 4,160 | \n\n | \n | \n | 75 | \n\n |
| \n \n AbCann Global Corp. - share warrants (v) \n | \n \n | \n | 5 | \n\n | \n | \n | 1,005 | \n\n |
| \n \n Peace Naturals \n | \n \n | \n | \n — | \n\n | \n | \n | (1,326 | \n) | \n
| \n \n Peace Naturals - immediately before acquisition (Note 6) \n | \n \n | \n | \n — | \n\n | \n | \n | (347 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Gain (loss) recognized through profit-and-loss \n | \n \n | $ | \n4,858 | \n\n | \n | $ | \n(310 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | ||||||
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n The Hydropothecary Corporation (i) \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n137 | \n\n |
| \n \n Canopy Growth Corporation (ii) \n | \n \n | \n | 608 | \n\n | \n | \n | 79 | \n\n |
| \n \n AbCann Global Corp. - shares (iii) \n | \n \n | \n | \n — | \n\n | \n | \n | 1,498 | \n\n |
| \n \n Vert/Green Medical Inc. - shares \n | \n \n | \n | \n — | \n\n | \n | \n | 300 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Gain recognized through other comprehensive income \n | \n \n | $ | \n608 | \n\n | \n | $ | \n2,014 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
The following is a summary of the changes in\n warrants for the period from January 1, 2016 to December 31,\n 2017:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | \n | \n | \n | \n | \n | \n | Number of | \n\n | \n | \n | \n | ||||
| \n | \n | Grant date | \n\n | \n | Exercise price | \n\n | \n | warrants | \n\n | \n | Amount | \n\n | ||||
| \n \n Balance at January 1, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 15,795,422 | \n\n | \n | $ | \n1,329 | \n\n |
| \n \n Issuance of warrants (i) \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n May \n | \n \n | \n | \n May 13 and 27, 2016 | \n\n | \n | $ | \n0.245 | \n\n | \n | \n | 32,432,425 | \n\n | \n | \n | 2,832 | \n\n |
| \n \n Exercise of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n July \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (55,000 | \n) | \n\n | \n | \n — | \n\n |
| \n \n August \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (100,000 | \n) | \n\n | \n | (15 | \n) | \n
| \n \n October \n | \n \n | \n | October 1, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (661,505 | \n) | \n\n | \n | (96 | \n) | \n
| \n \n November \n | \n \n | \n | October 25, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (460,877 | \n) | \n\n | \n | (31 | \n) | \n
| \n \n November \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (422,443 | \n) | \n\n | \n | (28 | \n) | \n
| \n \n December \n | \n \n | \n | December 18, 2013 | \n\n | \n | \n | 0.24 | \n\n | \n | \n | (53,347 | \n) | \n\n | \n | (1 | \n) | \n
| \n \n December \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (511,252 | \n) | \n\n | \n | (7 | \n) | \n
| \n \n Expiry of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (78,251 | \n) | \n\n | \n | \n — | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2016 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 45,885,172 | \n\n | \n | $ | \n3,983 | \n\n |
| \n \n Exercise of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n January \n | \n \n | \n | January 30, 2014 | \n\n | \n | \n | 0.71 | \n\n | \n | \n | (375,565 | \n) | \n\n | \n | (164 | \n) | \n
| \n \n January \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (298,066 | \n) | \n\n | \n | \n — | \n\n |
| \n \n March \n | \n \n | \n | October 8, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (1,140,351 | \n) | \n\n | \n | (117 | \n) | \n
| \n \n April \n | \n \n | \n | October 28, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (350,877 | \n) | \n\n | \n | (66 | \n) | \n
| \n \n April \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (744,198 | \n) | \n\n | \n | \n — | \n\n |
| \n \n May \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (165,377 | \n) | \n\n | \n | \n — | \n\n |
| \n \n May \n | \n \n | \n | October 28, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (192,982 | \n) | \n\n | \n | (36 | \n) | \n
| \n \n June \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (50,000 | \n) | \n\n | \n | \n — | \n\n |
| \n \n July \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (248,066 | \n) | \n\n | \n | \n — | \n\n |
| \n \n July \n | \n \n | \n | October 28, 2015 | \n\n | \n | \n | 0.31 | \n\n | \n | \n | (157,894 | \n) | \n\n | \n | (30 | \n) | \n
| \n \n August \n | \n \n | \n | May 13, 2016 | \n\n | \n | \n | 0.245 | \n\n | \n | \n | (2,300,000 | \n) | \n\n | \n | (202 | \n) | \n
| \n \n September \n | \n \n | \n | May 27, 2016 | \n\n | \n | \n | 0.245 | \n\n | \n | \n | (48,720 | \n) | \n\n | \n | (4 | \n) | \n
| \n \n September \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (951,064 | \n) | \n\n | \n | \n — | \n\n |
| \n \n November \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (133,022 | \n) | \n\n | \n | \n — | \n\n |
| \n \n December \n | \n \n | \n | January 18, 2013 | \n\n | \n | \n | 0.08 | \n\n | \n | \n | (55,126 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Expiry of warrants \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (19,210 | \n) | \n\n | \n | \n — | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance at December 31, 2017 \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | 38,654,654 | \n\n | \n | $ | \n3,364 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n \n| (i) | \n\n 32,432,425 units were issued in two private\n placements. Each unit consisted of one common share and one common\n share purchase warrant, for total consideration of $5,978. \n | \n
The components of deferred tax are summarized\n below. Deferred tax assets and liabilities have been offset where\n they relate to income taxes levied by the same taxation authority\n and the Company has the legal right and intent to offset.
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Deferred tax assets \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Non-capital losses carried\n forward \n | \n \n | $ | \n5,690 | \n\n | \n | $ | \n2,400 | \n\n |
| \n \n Scientific research and experimental development \n | \n \n | \n | 28 | \n\n | \n | \n | 28 | \n\n |
| \n \n Financing fees \n | \n \n | \n | 31 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n | ||||||
| \n \n Deferred tax liabilities \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Biological assets \n | \n \n | \n | (986 | \n) | \n\n | \n | (18 | \n) | \n
| \n \n Inventory \n | \n \n | \n | (1,989 | \n) | \n\n | \n | (51 | \n) | \n
| \n \n Equity accounted investments \n | \n \n | \n | (153 | \n) | \n\n | \n | \n — | \n\n |
| \n \n Investments \n | \n \n | \n | (91 | \n) | \n\n | \n | (696 | \n) | \n
| \n \n Property, plant and equipment \n | \n \n | \n | (968 | \n) | \n\n | \n | (158 | \n) | \n
| \n \n Health Canada licenses \n | \n \n | \n | (2,978 | \n) | \n\n | \n | (2,962 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net deferred tax liability \n | \n \n | $ | \n(1,416 | \n) | \n\n | $ | \n(1,457 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n\n
The movement in the net deferred tax liability is\n provided below:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Balance - beginning of year \n | \n \n | $ | \n1,457 | \n\n | \n | $ | \n195 | \n\n |
| \n \n Recognized in income \n | \n \n | \n | 298 | \n\n | \n | \n | (568 | \n) | \n
| \n \n Recognized in other comprehensive income \n | \n \n | \n | (339 | \n) | \n\n | \n | 430 | \n\n |
| \n \n Recognized in goodwill \n | \n \n | \n | \n — | \n\n | \n | \n | 1,400 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Balance - end of year \n | \n \n | $ | \n1,416 | \n\n | \n | $ | \n1,457 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
For income tax purposes, the Company\n has losses carried forward from prior years which can be used to\n reduce future years’ taxable income. These losses expire as\n follows:
\n\n
\n| \n | \n | \n | \n | \n |
| \n | \n | Non-capital \n losses | \n \n | |
| \n \n 2030 \n | \n \n | $ | \n32 | \n\n |
| \n \n 2031 \n | \n \n | \n | 22 | \n\n |
| \n \n 2032 \n | \n \n | \n | 877 | \n\n |
| \n \n 2033 \n | \n \n | \n | 3,177 | \n\n |
| \n \n 2034 \n | \n \n | \n | 1,782 | \n\n |
| \n \n 2035 \n | \n \n | \n | 5,452 | \n\n |
| \n \n 2036 \n | \n \n | \n | 6,558 | \n\n |
| \n \n 2037 \n | \n \n | \n | 11,383 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n29,283 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nThe following represents an analysis of the age of\n accounts payable as at December 31:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current \n | \n \n | $ | \n5,922 | \n\n | \n | $ | \n147 | \n\n |
| \n \n Less than 30 days past billing date \n | \n \n | \n | 803 | \n\n | \n | \n | 150 | \n\n |
| \n \n 31 to 60 days past billing date \n | \n \n | \n | 113 | \n\n | \n | \n | 33 | \n\n |
| \n \n 61 to 90 days past billing date \n | \n \n | \n | 66 | \n\n | \n | \n | 16 | \n\n |
| \n \n Over 90 days past billing date \n | \n \n | \n | 172 | \n\n | \n | \n | 240 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n7,076 | \n\n | \n | $ | \n586 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nThe following represents an analysis\n of the age of trade receivables as at December 31:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Less than 30 days past billing date \n | \n \n | \n | 1,020 | \n\n | \n | \n | 63 | \n\n |
| \n \n 31 to 60 days past billing date \n | \n \n | \n | 85 | \n\n | \n | \n | 16 | \n\n |
| \n \n 61 to 90 days past billing date \n | \n \n | \n | 35 | \n\n | \n | \n | 9 | \n\n |
| \n \n Over 90 days past billing date \n | \n \n | \n | \n — | \n\n | \n | \n | 19 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n1,140 | \n\n | \n | $ | \n107 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\n\n
| 7. | \n\n Biological assets and inventory \n | \n
The Company’s biological assets consist of\n cannabis plants. The changes in the carrying amount of the\n biological assets are as follows:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Biological assets - beginning of year \n | \n \n | $ | \n1,795 | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Gain on revaluation of biological assets \n | \n \n | \n | 11,620 | \n\n | \n | \n | 2,179 | \n\n |
| \n \n Increase due to acquisition of Peace Naturals \n | \n \n | \n | \n — | \n\n | \n | \n | 866 | \n\n |
| \n \n Transferred to inventory upon harvest \n | \n \n | \n | (9,693 | \n) | \n\n | \n | (1,250 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Biological assets - end of year \n | \n \n | $ | \n3,722 | \n\n | \n | $ | \n1,795 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nThe effect of changes in fair value of biological\n assets and inventory during the year include:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Unrealized change in fair value of biological assets \n | \n \n | $ | \n(11,620 | \n) | \n\n | $ | \n(2,179 | \n) | \n
| \n \n Realized fair value increments on inventory sold during the\n year \n | \n \n | \n | 3,956 | \n\n | \n | \n | 266 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n \n Net effect of changes in fair value of biological assets and\n inventory \n | \n \n | $ | \n(7,664 | \n) | \n\n | $ | \n(1,913 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
The Company values its biological assets at the end\n of each reporting period at fair value less costs to sell. This is\n determined using a valuation model to estimate the expected harvest\n yield per plant applied to the estimated price per gram less\n processing and selling costs. This model also considers the\n progress in the plant life cycle.
\nManagement has made the following estimates in this\n valuation model:
\n\n
\n \n| \n | • | \n\n | \n The average number of weeks in the growing cycle is\n fifteen weeks from propagation to harvest; \n | \n
\n
\n \n| \n | • | \n\n | \n The average harvest yield of whole flower is 182\n grams per plant; \n | \n
\n
\n \n| \n | • | \n\n | \n The average selling price of whole flower is $8.50\n per gram; \n | \n
\n
\n \n| \n | • | \n\n | \n Processing costs include drying and curing, testing\n and packaging, post-harvest overhead allocation, and oil extraction\n costs estimated to be $0.82 per gram; and \n | \n
\n
\n \n| \n | • | \n\n | \n Selling costs include shipping, order fulfillment,\n and labelling, estimated to be $0.97 per gram. \n | \n
The estimates of growing cycle, harvest yield, and\n costs per gram are based on the Company’s historical results.\n The estimate of the selling price per gram is based on the\n Company’s historical sales in addition to the Company’s\n expected sales price going forward.
\nManagement has quantified the sensitivity of the\n inputs, and determined the following:
\n\n
\n \n| \n | • | \n\n | \n Selling price per gram – a decrease in the\n selling price per gram by 5% would result in the biological asset\n value decreasing by $227 (2016 - $88) and inventory decreasing by\n $443 (2016 - $68) \n | \n
\n
\n \n| \n | • | \n\n | \n Harvest yield per plant – a decrease in the\n harvest yield per plant of 5% would result in the biological asset\n value decreasing by $181 (2016 - $110) \n | \n
These inputs are level 3 on the fair value\n hierarchy, and are subject to volatility and several uncontrollable\n factors, which could significantly affect the fair value of\n biological assets in future periods.
\nAs at December 31, 2017, the biological assets were\n on average, 46% complete (2016 – 50%), and the estimated fair\n value less costs to sell of dry cannabis was $6.71 per gram. As of\n December 31, 2017, it is expected that the Company’s\n biological assets will ultimately yield approximately 1,695 kg of\n cannabis (2016 - 213 kg). As at December 31, 2017, the Company has\n 7,353 plants that are biological assets (2016 - 2,558 plants).
\nInventory as at December 31 consists of the\n following:
\n\n
\n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Dry cannabis \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Finished goods \n | \n \n | $ | \n6,145 | \n\n | \n | $ | \n1,502 | \n\n |
| \n \n Work-in-process \n | \n \n | \n | 1,630 | \n\n | \n | \n | \n — | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | \n | 7,775 | \n\n | \n | \n | 1,502 | \n\n |
| \n \n Cannabis oils \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n \n Finished goods \n | \n \n | \n | 332 | \n\n | \n | \n | \n — | \n\n |
| \n \n Raw materials \n | \n \n | \n | 183 | \n\n | \n | \n | 194 | \n\n |
| \n \n Supplies and consumables \n | \n \n | \n | 126 | \n\n | \n | \n | 212 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n8,416 | \n\n | \n | $ | \n1,908 | \n\n |
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
\n
\nAs at December 31, 2017, the Company held 815 kg of\n dry cannabis and 137 L of cannabis oil as finished goods (2016 -\n 236 kg). In addition, the Company held 243 kg of work-in-process\n (2016 - Nil), which is comprised of harvested cannabis in the\n processing stage, and 0.288 kg of seeds in raw materials (2016 -\n 0.298 kg).
\n\n
\nThe components of the income tax\n provision (recovery) include:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2017 | \n\n | \n | 2016 | \n\n | ||
| \n \n Current \n | \n \n | $ | \n\n — | \n\n | \n | $ | \n\n — | \n\n |
| \n \n Deferred \n | \n \n | \n | 298 | \n\n | \n | \n | (568 | \n) | \n
| \n | \n | \n \n \n | \n \n \n \n | \n \n | \n | \n \n \n | \n \n \n \n | \n \n |
| \n | \n | $ | \n298 | \n\n | \n | $ | \n(568 | \n) | \n
| \n |