Share Capital

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

10.	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 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 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 nine months ending September 30, 2020, the shareholders of the Company converted 252,440 Multiple Voting Shares into 25,244,000 Subordinate Voting Shares and 22,953 Super Voting Shares into 2,295,300 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, 2020, the Company had 120,910 issued and outstanding Multiple Voting Shares, which convert into 12,091,000 Subordinate Voting Shares. The Company is authorized to issue an unlimited number of Multiple Voting Shares. During the nine months ending September 30, 2020, the shareholders of the Company converted 252,440 Multiple Voting Shares into 25,244,000 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 100 Subordinate Voting Shares or one Multiple Voting Share. At September 30, 2020, the Company had 379,336 issued and outstanding Super Voting Shares which convert into 37,933,600 Subordinate Voting Shares. The Company is authorized to issue an unlimited number of Super Voting Shares. During the nine months ending September 30, 2020, the shareholders of the Company converted 22,953 Super Voting Shares into 2,295,300 Subordinate 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 December 31, 2019		128,999,964		373,350			402,289
Issuance of shares under business combinations and investments		238,450		—			—
Distribution of contingent consideration		2,713,463		—			—
Distribution of deferred shares		1,220,548		—			—
Issuance of shares for redemption of noncontrolling interests		1,315,789		—			—
Issuance of shares upon exercise of options and warrants		71,384		—			—
Issuances of shares upon vesting of RSUs		901,023		—			—
Exchange of shares		27,539,300		(252,440	)		(22,953	)

As at September 30, 2020		162,999,921		120,910			379,336

Issuance of Shares Under Business Combinations and Investments

MC Brands, LLC

On June 29, 2020, the Company issued

190,000 Subordinate Voting Shares with a value of $1,840,009

in connection with the Company’s June 27, 2019 acquisition of MC Brands, LLC. The shares issued resulted in an increase in share capital and a corresponding increase to intangible assets on the Company’s unaudited interim condensed consolidated balance sheets.

KW Ventures, LLC

On February 10, 2020, the Company issued 48,450 Subordinate Voting Shares which were issued at a value of $400,413 in connection with its January 1, 2019 acquisition of KW Ventures, LLC. Such shares were held back as part of the transaction and resulted in an increase in share capital and a reduction in accrued liabilities.

GTI New Jersey, LLC

In connection with the Company’s April 23, 2019 acquisition of the non-controlling interest in GTI New Jersey, LLC, the Company agreed to award the previous minority shareholders of the entity up to $3,000,000 in Subordinate Voting Shares. On May 7, 2020, the Company received approval from the New Jersey Department of Health to begin buildout of an additional retail dispensary. As a result, the Company recorded a current obligation and corresponding reduction to contributed surplus of $2,000,000 representing the maximum value of the shares to be issuable to the former minority shareholders of GTI New Jersey, LLC.

Distribution of Contingent Consideration

As of September 30, 2020, the Company issued 2,713,463 Subordinate Voting Shares to the previous owners of several entities in connection with acquisitions completed during 2019. Upon issuance, the Company recorded a reduction to contingent consideration payable and an increase in share capital. The following table represents the contingent shares issued as of September 30, 2020 in relation to each acquisition:

Contingent

Shares Issued


		September 30, 2020
Transaction	Date of Transaction	Units		Value

Advanced Grow Labs, LLC	February 12, 2019		1,396,533	$	11,544,855
For Success Holdings Company	February 21, 2019		779,690		6,686,432
Integral Associates, LLC	June 5, 2019		537,240		4,654,526

			2,713,463	$	22,885,813

Distribution of Deferred Shares

As a result of several acquisitions that occurred during 2019, the Company held 1,367,643 deferred shares with a value of $16,587,798 as of December 31, 2019. The deferred shares were to be issued upon the passage

of twelve to twenty-four

months from the close of each transaction as defined within each respective acquisition agreement. On May 15, 2020, Green Thumb issued 101,695 Subordinate Voting Shares with a value of $1,307,798 in connection with the Company’s May 15, 2019 acquisition of Salveo. On August 12, 2020, the Company issued 472,500 Subordinate Voting Shares with a value of $5,380,00 in connection with the Company’s February 12, 2019 acquisition of Advanced Grow Labs, LLC. Additionally, on August 26, 2020, the Company issued 646,353 Subordinate Voting Shares with a value of $8,064,668 in connection with the Company’s February 21, 2019 acquisition of For Success Holdings Company. The three distributions discussed above resulted in a reduction to deferred share issuances and a corresponding increase to share capital on the Company’s unaudited interim condensed consolidated statement of changes in shareholders’ equity.

(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 thereto (as amended, the “Plan”). The maximum number of Restricted Stock Units (“RSUs”) and options issued under the Plan shall not exceed

10%

of the 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 share 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 grants generally vest over three years, and options typically have a life of five or ten years. Option grants 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 (CAD)		Weighted Average Contractual Life (Years)		Aggregate Intrinsic Value
Balance as at December 31, 2019		3,839,017			13.21		5.81	$	218,234
Granted		2,496,511			9.76		5.00
Exercised		(65,443	)		11.02		3.98
Forfeited		(487,486	)		13.82		5.22

Balance as at September 30, 2020		5,782,599			11.69		5.53
Vested		1,635,030			13.36		6.65
Exercisable at September 30, 2020		1,516,872			13.22		6.73	$	4,601,129

The aggregate intrinsic value in the table above represents the total

pre-tax

intrinsic value (the difference between the Company’s closing stock price on September 30, 2020 and December 31, 2019, respectively, and the exercise price, multiplied by the number of

in-the-money

options) that would have been received by the option holders had all option holders exercised their

in-the-money

options on September 30, 2020 and December 31, 2019. This amount will change in future periods based on the fair market value of the Company’s Subordinate Voting Shares and the number of options outstanding.

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, 2020, using the following ranges of assumptions:


Risk-free interest rate			0.36% - 2.33%
Expected dividend yield			0%
Expected volatility			80% - 100%
Expected option life			3 – 10 years

As the Company became publicly traded in June 2018, sufficient historical trading information was not available to determine an expected volatility rate. The volatility rate was based on comparable companies within the same industry. As permitted under ASC 718, the Company has made an accounting policy choice to account for forfeitures when they occur.

The following table summarizes the number of

non-vested

RSU awards as of September 30, 2020 and December 31, 2019 and the changes during the nine months ended September 30, 2020:


	Number of Shares			Weighted Average Grant Date Fair Value (CAD)
Nonvested Shares at December 31, 2019		1,399,762			9.30
Granted		254,268			12,65
Forfeited		(64,500	)		15.60
Vested		(901,023	)		14.85

Nonvested Shares at September 30, 2020		688,507			16.77

The stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 was as followed:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Stock options expense	$	2,614,273	$	1,666,465	$	8,209,557	$	4,248,461
RSUs		1,821,054		1,897,630		6,999,963		9,075,622

Total Stock Based Compensation Expense	$	4,435,634	$	3,564,095	$	15,209,520	$	13,324,083

As of September 30, 2020, $25,815,117 of total unrecognized expense related to Stock Based Compensation awards is expected to be recognized over a weighted-average period of 1.93 years.

(

)

Issuance of Shares for Redemption of Noncontrolling Interest

On August 8, 2020, the Company and its joint venture partner in Ohio Investors 2017, LLC reached an agreement allowing Green Thumb to purchase the remaining noncontrolling interest in Ohio Investors 2017, LLC from the partner. As a result, on August 31, 2020, the Company

issued 1,315,789 Subordinate Voting Shares with a value of $20,078,940 in consideration for the noncontrolling partner’s interest in Ohio Investors 2017, LLC. Upon the closing of the transaction, the Company recorded a reduction to the current liability established for the purchase of the noncontrolling interest of $11,200,000, an increase in share capital for the fair value of the noncontrolling partners interest of $20,078,940 and a reduction to contributed capital of $8,878,940.