Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
The continuities of the Company’s derivative liabilities are as follows:
Total Derivative Liabilities (1)(3)
Carrying amounts as of January 1, 2022 $ 92,435 
Fair value changes (2)
Derivative Warrants exercises (9,401)
Carrying amounts as of September 30, 2022 $ 19,801 
(1)Refer to Note 13 - Equity for the continuity of the number of these warrants outstanding.
(2)Included in other income (expense), net in the consolidated statements of operations and comprehensive income (loss).
(3)Includes mandatory prepayment option on the Senior Notes, which had a fair value of $218 as of September 30, 2022.
The Company’s derivative liabilities are primarily comprised of derivative warrants. These are warrants to purchase SVS of the Company which were issued in connection with the Senior Notes (the “Derivative Warrants”), and have an expiration date of December 23, 2024 and an exercise price of US$1.25. There were 36,496,355 and 40,124,355 Derivative Warrants outstanding as of September 30, 2022 and December 31, 2021, respectively. The Derivative Warrants may be net share settled.
These warrants are considered derivative financial liabilities measured at fair value with all gains or losses recognized in profit or loss as the settlement amount for the warrants may be adjusted during certain periods for variables that are not inputs to standard pricing models for forward or option equity contracts, i.e., the “fixed for fixed” criteria under ASC 815-40. The estimated fair value of the Derivative Warrants is measured at the end of each reporting period and an adjustment is reflected in fair value changes in derivatives in the consolidated statements of operations and comprehensive income (loss). These are Level 3 recurring fair value measurements. The estimated fair value of the Derivative Warrants was determined using the Black-Scholes model with stock price based on the CSE closing price translated into U.S. dollar as of September 30, 2022, and Monte Carlo simulation model with stock price based on the OTCQX Best Market closing price as of December 31, 2021. The assumptions used in the fair value calculations as of the balance sheet dates presented include the following:
September 30, 2022 (unaudited) December 31, 2021
Stock price $1.23 $3.25
Risk-free annual interest rate 4.23% 0.97%
Range of estimated possible exercise price $1.25
$0.04 - $1.25
Volatility 72% 73%
Remaining life 2.23 years 3 years
Forfeiture rate 0% 0%
Expected annual dividend yield 0% 0%
Volatility was estimated by using a weighting of the Company’s historical volatility and the average historical volatility of comparable companies from a representative peer group of publicly traded cannabis companies. The risk-free interest rate for the expected life of the Derivative Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term. The expected life is based on the contractual term. If any of the assumptions used in the calculation were to increase or decrease, this could result in a material or significant increase or decrease in the estimated fair value of the derivative liability. For example, the following table illustrates an increase or decrease in certain significant assumptions as of the balance sheet dates:
As of September 30, 2022 As of December 31, 2021
Input Effect of 10% Increase Effect of 10% Decrease Input Effect of 10% Increase Effect of 10% Decrease
Stock price $ 1.23 $ 3,281  $ (3,144) $ 3.25 $ 12,781  $ (10,834)
Volatility 72  % $ 1,547  $ (1,591) 73  % $ 4,473  $ (3,210)