Note 8 - Convertible Notes Receivable |
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Feb. 29, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
Note 8. Convertible notes receivable
Convertible notes receivable is comprised of the following:
HEXO Convertible Note
On June 22, 2023, the Company completed the HEXO Acquisition as described in Note 7 (Business acquisitions). Concurrently with the closing of the HEXO Acquisition, the HEXO convertible note was converted into shares of HEXO.
MedMen Convertible Note
On August 31, 2021, the Company issued 9,817,061 shares valued at $117,804 to acquire 68% interest in Superhero Acquisition L.P. (“SH Acquisition”), which purchased a senior secured convertible note issued by MedMen (the "MedMen Convertible Note"), together with certain associated warrants to acquire Class B subordinate voting shares of MedMen, in the principal amount of $165,799. The MedMen Convertible Note bears interest at the Secured Overnight Financing Rate ("SOFR") plus 6%, with a SOFR floor of 2.5% with any accrued interest being added to the outstanding principal amount. The outstanding principal amount, together with accrued interest is to be paid on August 17, 2028, the maturity date of the MedMen Convertible Note. SH Acquisition was also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the event that MedMen issues equity securities. SH Acquisition’s ability to convert the MedMen Convertible Note and exercise the Warrants is dependent upon U.S. federal legalization of cannabis or Tilray’s waiver of such requirement as well as any additional regulatory approvals.
During the three months ended February 29, 2024, the Company recognized an other-than-temporary change in fair value, which resulted in a non-cash expense of $42,681. The MedMen Convertible Note was valued based upon the fair value of the collateral assets net of disposal costs and has been reduced to reflect recent events, including the appointment of a chief restructuring officer on January 23, 2024 and pending asset sales. In the prior year, the Company used the Black-Scholes model using the following assumptions: the risk-free rate of expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of dividend yield of probability of legalization between 0% and and, the exercise price of the respective conversion feature.
The Company did not derive any revenue or cash from MedMen's operations, and fully complies with all limitations imposed by applicable U.S. law and regulations in connection with its ownership of the MedMen Convertible Note. In addition, the Company did recognize any interest income on the MedMen Convertible Note for the three and nine months ended February 29, 2024, which would have increased its value. |