| Goodwill and Intangible Assets |
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GOODWILL AND INTANGIBLE ASSETS | Goodwill and intangible assets consist of the following:
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As of December 31, 2023 |
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$ |
— |
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$ |
129,755 |
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$ |
24,881 |
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$ |
15,263 |
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$ |
169,899 |
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Impairment |
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— |
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(1,029 |
) |
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(1,071 |
) |
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— |
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(2,100 |
) |
Sale |
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— |
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(2,517 |
) |
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— |
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— |
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(2,517 |
) |
Available for sale |
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— |
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(16,236 |
) |
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— |
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— |
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(16,236 |
) |
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As of December 31, 2024 |
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$ |
— |
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$ |
109,973 |
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$ |
23,810 |
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$ |
15,263 |
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$ |
149,046 |
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As of December 31, 2023 |
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$ |
— |
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$ |
(59,158 |
) |
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$ |
(20,565 |
) |
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$ |
(13,409 |
) |
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$ |
(93,132 |
) |
Sale |
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— |
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965 |
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— |
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— |
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965 |
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Available for sale |
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— |
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5,773 |
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— |
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— |
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5,773 |
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Amortization |
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— |
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(9,366 |
) |
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(1,621 |
) |
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(416 |
) |
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(11,403 |
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As of December 31, 2024 |
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$ |
— |
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$ |
(61,786 |
) |
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$ |
(22,186 |
) |
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$ |
(13,825 |
) |
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$ |
(97,797 |
) |
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As of December 31, 2022 |
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$ |
19,274 |
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$ |
156,911 |
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$ |
45,936 |
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$ |
16,944 |
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$ |
239,065 |
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Impairment |
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(19,274 |
) |
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(23,512 |
) |
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(21,055 |
) |
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(1,681 |
) |
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(65,522 |
) |
Disposals |
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— |
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(3,644 |
) |
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— |
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— |
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(3,644 |
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As of December 31, 2023 |
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$ |
— |
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$ |
129,755 |
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$ |
24,881 |
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$ |
15,263 |
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$ |
169,899 |
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As of December 31, 2022 |
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$ |
— |
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$ |
(46,306 |
) |
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$ |
(15,601 |
) |
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$ |
(12,619 |
) |
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$ |
(74,526 |
) |
Amortization |
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— |
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(12,852 |
) |
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(4,964 |
) |
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(790 |
) |
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(18,606 |
) |
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As of December 31, 2023 |
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$ |
— |
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$ |
(59,158 |
) |
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$ |
(20,565 |
) |
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$ |
(13,409 |
) |
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$ |
(93,132 |
) |
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| The carrying value of goodwill in each reporting unit is indicative of the expected growth and development of the business. In the fourth quarter of fiscal 2024, the Company identified qualitative indicators of impairment as a result of a strategic reassessment of its business, including an evaluation of current operations and its future growth outlook due to changing consumer trends within certain markets. The decision to reduce the long-term growth outlook resulted in a downward adjustment of the future financial forecasts for the Company’s California and Colorado businesses, which indicated that impairment of the goodwill asset was a more-likely-than-not outcome. The following table outlines the key assumptions used in calculating the recoverable amount for each Reporting Unit used in the impairment analysis performed during the fourth quarter of 2024:
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Goodwill impairment testing |
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Colorado |
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California |
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Significant estimates used by management |
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Years of cash flows before terminal value |
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5 Years |
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5 Years |
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Discount rate |
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14 |
% |
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14 |
% |
Terminal value multiple / rate |
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2 |
% |
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2 |
% | The recoverable amount of the reporting unit to which goodwill is allocated and the asset group to which intangibles are allocated were determined based on fair value using Level 3 inputs in a discounted cash flow analysis. Management performed the impairment test on the Colorado and California asset groups for the definite lived assets impairment. The Company determined that the Colorado reporting units were not impaired. The significant assumptions applied in the determination of the recoverable amount are described below:
| i. |
Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well as industry and market trends. Estimated cash flows are primarily driven by sales volumes, selling prices and operating costs. The forecasts are extended to a total of five years (and a terminal year thereafter); |
| ii. |
Terminal value growth rate: The terminal growth rate was based on historical and projected consumer price inflation, historical and projected economic indicators, and projected industry growth; |
| iii. |
Corporate overhead allocation and the eventual reappeal of Schedule 208E. |
| iv. |
Post-tax discount rate: The post-tax discount rate is reflective of the reporting unit’s Weighted Average Cost of Capital (“WACC”). The WACC was estimated based on the risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a direct comparison approach, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields; and |
| v. |
Tax rate: The tax rates used in determining the future cash flows were those substantively enacted at the respective valuation date. | There was indication of impairment in the Company’s California Reporting Unit and $2,100 recorded as impairment of its intangible assets. The Company separately performed sensitivity analyses to evaluate the changes in the fair value of goodwill and intangibles that would result from changes in certain assumptions, including cash flows and discount rate.
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• |
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The Company performed the aforementioned sensitivity analyses as follows: |
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• |
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If revenues for all years were to decrease 10% |
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• |
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If EBITDA is reduced by 5% each year |
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• |
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If the discount rate changes +2 and +5% |
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• |
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In addition, the Company ran a sensitivity on the terminal value multiple as well: |
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• |
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If the terminal value multiple is reduced -2 and -5% | These changes would result in material adjustments to the goodwill and intangible amounts for Colorado in these scenarios. In the fourth quarter of fiscal 2023, the Company identified qualitative indicators of impairment as a result of a strategic reassessment of its business, including an evaluation of current operations and its future growth outlook due to changing consumer trends within certain markets. This resulted in a downward adjustment of the future financial forecasts for the Company’s Colorado and California businesses, which indicated that impairment of the goodwill asset was a more-likely-than-not outcome. The recoverable amount of the reporting unit to which goodwill is allocated and the asset group to which intangibles are allocated were determined based on fair value using Level 3 inputs in a discounted cash flow analysis. Management tested the Colorado and California asset groups for the definite lived assets impairment. Where applicable, the Company uses its market capitalization and comparative market multiples to corroborate discounted cash flow results. The following table outlines the key assumptions used in calculating the recoverable amount for each Reporting Unit used in the impairment analysis during the fourth quarter:
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Goodwill impairment testing |
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Colorado |
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California |
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Significant estimates used by management |
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Years of cash flows before terminal value |
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5 |
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5 |
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Discount rate |
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17.00 |
% |
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17.0 |
% |
Terminal value multiple / rate |
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3.0 |
% |
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3.0 |
% | The impairment assessment process for 2023 covered the Colorado and California Reporting Units, with no difference in estimates used in 2022. The below table summarizes the estimated aggregate amortization expense expected to be recognized on the intangible assets: Selling, general and administrative expenses included the following:
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Goodwill impairment |
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$ |
— |
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$ |
19,274 |
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$ |
170,642 |
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Amortization expenses |
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11,403 |
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18,606 |
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44,530 |
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Future estimated amortization expense: |
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2025 |
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$ |
9,534 |
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2026 |
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8,449 |
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2027 |
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8,178 |
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2028 |
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7,973 |
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2029 |
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7,768 |
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2029 and thereafter |
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9,347 |
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Total |
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$ |
51,249 |
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| The Company will continue to monitor the impact of the goodwill associated with this reporting unit, and should it suffer additional declines in actual or forecasted financial results, the risk of goodwill impairment would increase.
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