Ownership percentage subject to floating exchange ratio



|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |
| PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |

modifications to be effective were granted. Accordingly, we recognized a $1,176.0 million unrealized gain from unconsolidated investments within our consolidated results of operations for the second quarter of Fiscal 2020 from the June 2019 Warrant Modification. These changes were the result of Canopy’s intention to acquire Acreage upon U.S. federal cannabis legalization, subject to certain conditions. The inputs used to estimate the fair value of the November 2018 Canopy Warrants as of the June 27, 2019 modification date, were as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|  | Tranche A Warrants (1) |  | Tranche B Warrants (1) |
| Exercise price | $ | 50.40  |  |  | $ | 76.68  |  |
| Valuation date stock price | $ | 53.36  |  |  | $ | 53.36  |  |
| Remaining contractual term | 4.3 years |  | 7.3 years |
| Expected volatility | 66.7  | % |  | 66.7  | % |
| Risk-free interest rate | 1.4  | % |  | 1.4  | % |
| Expected dividend yield | 0.0  | % |  | 0.0  | % |

(1)Refer to Note 7 for input descriptions.  
In May 2020, we exercised the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share for C$245.0 million, or $173.9 million. We entered into foreign currency forward contracts to fix the U.S. dollar cost of the May 2020 Canopy Investment. For the year ended February 28, 2021, we recognized net losses on the foreign currency forward contracts of $7.5 million, in selling, general, and administrative expenses within our consolidated results of operations. The payment at maturity of the derivative instruments is reported as cash flows from investing activities in investments in equity method investees and securities for the year ended February 28, 2021.  
Canopy has various equity and convertible debt securities outstanding, including primarily equity awards granted to its employees, and options and warrants issued to various third parties, including our November 2018 Canopy Warrants, Canopy Debt Securities, and the Acreage Financial Instrument (a call option for Canopy to acquire 70% of the shares of Acreage, at a fixed exchange ratio and 30% at a floating exchange ratio). As of February 28, 2022, the exercise and/or conversion of certain of these outstanding securities could have a significant effect on our share of Canopy’s reported earnings or losses and our ownership interest in Canopy.  
We have evaluated the Canopy Equity Method Investment as of February 28, 2022, and determined that there was not an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) the period of time for which the fair value has been less than the carrying value, (ii) an expectation that Canopy’s results will improve, (iii) an expectation that the Canopy stock price will recover in the near-term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review the Canopy Equity Method Investment for an other-than-temporary impairment. If Canopy’s stock price does not recover above our carrying value in the near-term, it may result in an impairment of our Canopy Equity Method Investment. There may also be a future impairment of our Canopy Equity Method Investment if our expectations about Canopy’s prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions or if Canopy records a significant impairment of goodwill or intangible or other long-lived assets, makes significant asset sales, or has changes in senior management.  
The following tables present summarized financial information for Canopy prepared in accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s earnings (losses) for the periods (i) January through December 2021 in our year ended February 28, 2022 results, (ii) January through December 2020 in our year ended February 28, 2021 results, and (iii) January through December 2019 in our year ended February 29, 2020 results. The amounts shown represent 100% of Canopy’s financial position and results of operations, for the respective periods, however, the results of operations for the year ended February 29, 2020, exclude the impact of the June 2019 Warrant Modification Loss because it was recorded by Canopy within equity. The year ended February 28, 2021, includes substantial costs designed to improve Canopy’s organizational focus, streamline operations, and align production capability with projected demand.

|  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |
| Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR    I    89 |


