Note 6. Goodwill

The following table shows the carrying amount of goodwill by reporting units:

During the fiscal quarter ended February 28, 2026, the Company assessed for indicators of impairment and concluded that there were no indicators and accordingly, no further impairment testing was required and no impairment charges were recognized during the period.

In the prior year, during the fiscal quarter ended  February 28, 2025, based upon a combination of factors including a sustained decline in the Company’s market capitalization stemming from the uncertainty resulting from certain changes in U.S. global economic policy, including slower than anticipated progress in global cannabis legalization and overall declines in the craft beer industry sector, the Company concluded that it was more likely than not, that the fair value of our reporting units were less than their carrying amounts. Accordingly, the Company utilized the income approach, which uses future discounted cash flows, to determine the fair value of each reporting unit. As a result, the Company recorded non-cash impairment charges of $570,000 of cannabis goodwill, $100,000 of beverage goodwill, $25,000 of wellness goodwill and $4,235 of distribution goodwill for the three and nine months ended  February 28, 2025. The non-cash charge had no impact on the Company’s compliance with debt covenants at  February 28, 2025, its cash flows or available liquidity.

In the Company’s cannabis goodwill assessment performed during the three and nine months ended  February 28, 2025, the Company used a discount rate of 12.00%, a terminal growth rate of 5%, and an average revenue growth rate of 34% over 5 years, based on an 88% and 40% average probability of anticipated EU and U.S. cannabis legalization, respectively and/or changes in drug policy in various countries within the next 5 years. A 1% increase in the discount rate would result in an additional $285,000 in impairment, a 1% decrease in the terminal growth rate would result in an additional $210,000 in impairment, a 5% decrease in the average growth rate would result in an additional $170,000 in impairment, a 5% decrease in the probability of EU cannabis legalization would result in an additional $80,000 in impairment and a 5% decrease in the probability of US cannabis legalization would result in an additional $7,000 in impairment. Changes to those probabilities resulting in continued delays in or cessation of legalization of cannabis within the United States and internationally, or adverse regulatory changes to existing legislation, could have an unfavorable impact on the estimated future cash flows, and ultimately, the fair value of the cannabis reporting unit, which  may result in a material impairment expense recognized in future reporting periods.

In the Company’s beverage goodwill assessment performed during the three and nine months ended  February 28, 2025, the Company used a discount rate of 9.25%, a terminal growth rate of 2%, and an average revenue growth rate of 12% over 5 years. A 1% increase in the discount rate would result in an additional $70,000 in impairment, a 1% decrease in the terminal growth rate would result in an additional $50,000 in impairment and a 1% decrease in the average growth rate would result in an additional $40,000 in impairment.

In the Company’s wellness goodwill assessment performed during the three and nine months ended  February 28, 2025, the Company used a discount rate of 10.50%, a terminal growth rate of 2%, and an average revenue growth rate of 7% over 5 years. A 1% increase in the discount rate would result in an additional $5,000 in impairment, a 1% decrease in the terminal growth rate would result in an additional $3,000 in impairment and a 1% decrease in the average growth rate would result in an additional $2,000 in impairment.

In the Company’s distribution goodwill assessment performed during the three and nine months ended  February 28, 2025, the Company recorded $4,235 of impairments which brought the remaining distribution goodwill balance to $nil.