Share Capital

9 Months Ended

Sep. 30, 2023

Stockholders' Equity Note [Abstract]

Share Capital

9. SHARE CAPITAL

Common shares, which include the Company’s Subordinate Voting Shares, Multiple Voting Shares and Super Voting Shares, are classified as equity. Incremental costs directly attributable to the issuance of common shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the applicable vesting periods are recorded as share capital. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes.

(a) Authorized

The Company has the following classes of share capital, with each class having no par value:

(i) Subordinate Voting Shares

The holders of the Subordinate Voting Shares are entitled to receive dividends which may be declared from time to time and are entitled to one vote per share at meetings of the Company’s shareholders. All Subordinate Voting Shares are ranked equally with regard to the Company’s residual assets. The Company is authorized to issue an unlimited number of no par value Subordinate Voting Shares. During the three months ended September 30, 2023, shareholders of the Company converted 25,000 Multiple Voting Shares into 2,500,000 Subordinate Voting Shares.

(ii) Multiple Voting Shares

Each Multiple Voting Share is entitled to 100 votes per share at shareholder meetings of the Company and is exchangeable for 100 Subordinate Voting Shares. At September 30, 2023, the Company had 38,531 issued and outstanding Multiple Voting Shares, which convert into 3,853,100 Subordinate Voting Shares. The Company is authorized to issue an unlimited number of Multiple Voting Shares. During the three months ended September 30, 2023, shareholders of the Company converted 25,000 Super Voting Shares into 25,000 Multiple Voting Shares and 25,000 Multiple Voting Shares into 2,500,000 Subordinate Voting Shares.

(iii) Super Voting Shares

Each Super Voting Share is entitled to 1,000 votes per share at shareholder meetings of the Company and is exchangeable for one Multiple Voting Share. At September 30, 2023, the Company had 226,690 issued and outstanding Super Voting Shares which ultimately convert into 22,669,000 Subordinate Voting Shares. The Company is authorized to issue an unlimited number of Super Voting Shares. During the three months ended September 30, 2023, shareholders of the Company converted 25,000 Super Voting Shares into 25,000 Multiple Voting Shares.

(b) Issued and Outstanding

A reconciliation of the beginning and ending amounts of the issued and outstanding shares by class is as follows:

	Issued and Outstanding
	Subordinate Voting Shares	Multiple Voting Shares	Super Voting Shares
As at January 1, 2023	206,991,275	38,531	251,690
Distribution of contingent consideration	1,614,871	—	—
Distribution of deferred shares	680,089	—	—
Issuance of shares upon exercise of options	365,521	—	—
Issuances of shares upon vesting of RSUs	390,676	—	—
Repurchase of Subordinate Voting Shares	(2,500,001)	—	—
Exchange of shares	2,500,000	—	(25,000)
As at September 30, 2023	210,042,431	38,531	226,690

9. SHARE CAPITAL (Continued)

(b) Issued and Outstanding (Continued)

(i) Distribution of Deferred Shares

As part of the consideration exchanged for certain acquisitions completed throughout 2021, the Company deferred the distribution of Subordinate Voting Shares to secure the Company's indemnification rights associated with post-acquisition costs. The following table summarizes the activity during the nine months ended September 30, 2023:

Related Acquisition	As at December 31, 2022	Distributed Shares	Cancelled Shares	As at September 30, 2023
Liberty Compassion, Inc.	214,768	(214,768)	—	—
Dharma Pharmaceuticals, LLC	229,878	(229,878)	—	—
Mobley Pain Management and Wellness Center, LLC and Canwell Processing, LLC	264,760	(12,305)	(84,122)	168,333
GreenStar Herbals, Inc.	161,306	(161,306)	—	—
Maryland Health and Wellness Center, Inc.	61,832	(61,832)	—	—
LeafLine Industries, LLC	386,002	—	—	386,002
Total	1,318,546	(680,089)	(84,122)	554,335

As of September 30, 2023 and December 31, 2022, the Company held deferred shares in the amount of $12,973 thousand and $36,211 thousand, respectively. In accordance with the relevant acquisition agreement, a portion of the outstanding deferred shares were cancelled in order to indemnify the Company for post-acquisition costs. As the cancellation of the deferred shares occurred outside of the purchase price allocation measurement period (generally one year from the acquisition date), the Company recorded a gain of $2,784 thousand within selling general and administrative expenses on the Company's unaudited interim condensed consolidated statements of operations during the nine months ended September 30, 2023.

(ii) Distribution of Contingent Consideration

Dharma Pharmaceuticals, LLC

In connection with the Company's 2021 acquisition of Dharma Pharmaceuticals, LLC (“Dharma”), the purchase agreement included contingent consideration of up to $65,000 thousand in Subordinate Voting Shares of Green Thumb, dependent upon the successful opening of up to five retail stores in the Virginia area within the first three years following the signing of the agreement and the legal sale of adult-use cannabis in a retail store by January 1, 2025. On June 1, 2023 and July 10, 2023, the Company issued 822,447 and 792,424 Subordinate Voting Shares, respectively, to the former owners of Dharma in connection with the successful opening of the fourth and fifth retail stores in Virginia. The shares had a combined fair value of $12,524 thousand at the date of issuance.

As of September 30, 2023 and December 31, 2022, the total estimated fair value of the contingent consideration associated with the acquisition of Dharma, which was valued based on the probability weighting of potential payouts, was $32,789 thousand, and $41,943 thousand, respectively. As of December 31, 2022, $11,400 thousand of the total value of the contingent consideration was included within current liabilities on the Company's unaudited interim condensed consolidated balance sheets. As of September 30, 2023, no portion of the contingent consideration was included within current liabilities on the Company's unaudited interim condensed consolidated balance sheets.

(iii) Repurchase of Subordinate Voting Shares

On September 5, 2023, the Company announced that its Board of Directors authorized the Company to repurchase up to 5%, or 10,486,951 of its Subordinate Voting Shares over a 12-month period at an aggregate cost of up to $50,000 thousand. During the month of September 2023, the Company repurchased 2,500,000 Subordinate Voting Shares at an average price of $9.96 per share.

9. SHARE CAPITAL (Continued)

(c) Stock-Based Compensation

The Company operates equity settled stock-based remuneration plans for its eligible directors, officers, employees and consultants. All goods and services received in exchange for the grant of any stock-based payments are measured at their fair value unless the fair value cannot be estimated reliably. If the Company cannot estimate reliably the fair value of the goods and services received, the Company measures their value indirectly by reference to the fair value of the equity instruments granted. For transactions with employees and others providing similar services, the Company measures the fair value of the services by reference to the fair value of the equity instruments granted. Equity settled stock-based payments under stock-based payment plans are ultimately recognized as an expense in profit or loss with a corresponding credit to equity.

In June 2018, the Company established the Green Thumb Industries Inc. 2018 Stock and Incentive Plan, which was amended by Amendment No. 1 and Amendment No. 2 thereto (as amended, the “Plan”). The maximum number of Restricted Stock Units (“RSUs”) and options outstanding under the Plan at any time shall not exceed 10% of the then issued and outstanding shares on an as-converted basis.

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

Option and RSU awards generally vest over three years, and options typically have a life of five to ten years. Option grants under the Plan are determined by the Compensation Committee of the Company’s Board of Directors with the option price set at no less than 100% of the fair market value of a share on the date of grant.

Stock option activity is summarized as follows:

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life
Balance as of December 31, 2022	9,577,947	$12.71	4.80
Granted	2,321,729	7.72	6.50
Exercised	(365,521)	7.34
Forfeited	(1,304,260)	12.25
Balance as of September 30, 2023	10,229,895	$11.82	4.60
Vested	5,341,985	$17.24
Exercisable as of September 30, 2023	3,566,406	$7.99	2.84

The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted during the nine months ended September 30, 2023 and the year ended December 31, 2022, using the following ranges of assumptions:

	September 30,	December 31,
	2023	2022
Risk-free interest rate	3.06% - 4%	1.18% - 3.54%
Expected dividend yield	0%	0%
Expected volatility	64%	60% - 64%
Expected option life	3.5 – 4.5 years	3 – 4.5 years

As permitted under ASC 718, the Company has made an accounting policy choice to account for forfeitures when they occur.

9. SHARE CAPITAL (Continued)

(c) Stock-Based Compensation (Continued)

The following table summarizes the number of unvested RSU awards as of September 30, 2023 and December 31, 2022 and the changes during the nine months ended September 30, 2023:

	Number of Shares		Weighted Average Grant Date Fair Value
Unvested Shares at December 31, 2022	947,502	$	17.91
Granted	3,307,909		7.67
Forfeited	(365,542)		10.83
Vested	(390,676)		15.50
Unvested Shares at September 30, 2023	3,499,193	$	9.24

The stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022 was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		(in thousands)				(in thousands)
Stock options expense	$	4,009	$	6,003	$	12,795	$	12,985
Restricted Stock Units		3,206		1,875		8,040		6,377
Total Stock Based Compensation Expense	$	7,215	$	7,878	$	20,835	$	19,362

As of September 30, 2023, $45,048 thousand of total unrecognized expense related to stock-based compensation awards is expected to be recognized over a weighted-average period of 2.05 years.