Note 24. Financial risk management and financial instruments

Financial instruments

The Company's classification of its financial instruments is described in Note 3 (Significant accounting policies) in the Notes to our Annual Financial Statements.

The carrying values of marketable securities, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.

On  August 31, 2026 and  May 31, 2026, the Company had long-term debt of $1,613 and $1,822, respectively, and the principal portion of convertible debentures payable of $64,000 and $88,000, respectively, subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for the securities issued by U.S. Department of the Treasury with similar duration. In each period thereafter, the incremental premium is held constant while the U.S. Department of the Treasury security is based on the then current market value to derive the discount rate.

The following tables present information about the Company’s assets and liabilities as of August 31, 2026 and  May 31, 2026, that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

The Company’s financial assets and liabilities required to be measured on a recurring basis are its equity investments measured at fair value, digital assets, acquisition-related contingent consideration, and warrant liability.

During the three months ended August 31, 2026, the Company did not purchase any units of Bitcoin or other cryptocurrency. Digital assets recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1. The following table presents the Company’s digital asset holdings as of August 31, 2026:

Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1. The Company classified securities with observable inputs as Level 2 and without a quoted market price as Level 3.

As of August 31, 2026 and May 31, 2026, included within Equity investment under measurement alternative (Level 3) is an option to acquire a 68% membership interest in SH Acquisition for $1.00 upon U.S. federal cannabis legalization, which was valued at $4,364 and $4,364, respectively. The valuation continues to assume a 70% probability of U.S. federal cannabis legalization, which is required for the option to become exercisable, as further described below. 

A portion of the total consideration to be paid in connection with the Company’s acquisition of Montauk Brewing Company (“Montauk”) was contingent upon the achievement by Montauk of certain financial measures as of December 31, 2025. In the event that Montauk achieved either the pre-determined sales volume target or EBITDA target, then $15,000 of contingent consideration would be deemed earned and payable. If both the sales volume target and the EBITDA target were achieved, an additional $3,000 would be deemed earned and payable for a total contingent consideration payment of $18,000.

During the three months ended August 31, 2026, there was no change in the fair value of contingent consideration, as the applicable measurement period concluded during the prior fiscal year and as a result no contingent consideration obligation was payable.

The fair value measurement was based on significant unobservable inputs related to projected operating performance and expected cash outflows and was therefore classified as a Level 3 fair value measurement.

The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy, including equity investments accounted for under the measurement alternative, are reconciled as follows for the period ended  August 31, 2026:

During the three months ended August 31, 2025, the Company reassessed the estimated fair value of the contingent consideration liability as $nil, based on subsequent information regarding Montauk’s operating results and revised expectations for the remainder of the earn‑out period. As a result of lower‑than‑anticipated sales volumes during the peak selling periods of June, July and August 2025, and the loss of certain national retail programs, management concluded that Montauk no longer had a viable path to achieving the sales volume target or the EBITDA target within the earn‑out period. Accordingly, the Company applied a probability of achievement of 0% to the sales volume target and 0% to the remaining criteria. The resulting $15,000 change in fair value of the contingent consideration liability was recorded within the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) and contributed to the Company’s net income generated during the period ended August 31, 2025, despite historically reporting a loss.

The earn-out period concluded in fiscal 2026, and neither financial measure was achieved. Accordingly, no further changes to the fair value of the contingent consideration liability were recognized during the three-months ended August 31, 2026 or during the year ended May 31, 2026, as no contingent consideration obligation was payable.

The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy, including equity investments accounted for under the measurement alternative, are reconciled as follows for the period ended  August 31, 2025:

The unrealized gain (loss) on assets and liabilities categorized within Level 3 of the fair value hierarchy are recognized in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) using the following inputs:

Items measured at fair value on a non-recurring basis

The Company’s prepaids and other current assets, long lived assets, including property and equipment, assets held for sale, goodwill and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

Capital and liquidity management

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the period. The Company considers its cash and cash equivalents and marketable securities as capital.

As part of its capital and liquidity management strategy, the Company  may, when appropriate, engage with its lenders to amend the terms of its debt arrangements, obtain waivers, or otherwise modify financing terms. Separately, the Company continues to evaluate alternatives to address the maturity of its TLRY 27 Notes on June 15, 2027, including pursuing opportunistic exchanges prior to maturity.