Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS

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FAIR VALUE OF FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

 

The carrying amounts for certain of our financial instruments, including cash, accounts receivable, accounts payable and certain accrued expenses and other assets and liabilities, approximate fair value due to the short-term nature of these instruments.

 

As of December 31, 2023, we had contingent consideration that is required to be measured at fair value on a recurring basis.

 

Our financial instruments measured at fair value on a recurring basis were as follows at the dates indicated:

 

(in thousands)       Level 1     Level 2     Level 3     Total  
    Condensed Consolidated
Balance Sheet Caption		   Fair Value at
December 31, 2023		  
(in thousands)       Level 1     Level 2     Level 3     Total  
Liabilities:                                    
Contingent consideration - current   Accrued expenses and other current liabilities   $ —     $ —       1,500       1,500  
Total Liabilities       $ —     $ —     $ 1,500     $ 1,500  

 

There were no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy during the three and nine months ended September 30, 2024 and 2023, respectively.

 

 

Contingent Consideration

 

Each period we revalue our contingent consideration obligations associated with business acquisitions to their fair value. We estimate the fair value of the Product Launch Contingent Payments using a form of the scenario-based method, which includes significant unobservable inputs such as management’s identification of probability-weighted outcomes and a risk-adjusted discount rate over the earn-out period. Significant increases or decreases in these inputs could result in a significantly lower or higher fair value measurement of the contingent consideration liability. Changes in the fair value of contingent consideration are included within “Other income (expense), net” in our condensed consolidated statements of operations and comprehensive loss.

 

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:

 

(in thousands)   Nine Months Ended
September 30, 2024		  
Balance at December 31, 2023   $ 1,000  
Cash payments for earned contingent consideration     —  
Transfer to notes payable     —  
Gain from fair value adjustments included in results of operations     (1,000 )
Balance September 30, 2024   $ —  

 

(in thousands)   Nine Months Ended
September 30, 2023		  
Balance at December 31, 2022   $ 2,738  
Cash payments for earned contingent consideration     (350 )
Transfer to notes payable     (1,150 )
Loss (gain) from fair value adjustments included in results of operations     262  
Balance at September 30, 2023   $ 1,500  

 

Equity Securities Without a Readily Determinable Fair Value

 

Our investment in equity securities without readily determinable fair value consist of ownership interests in Airgraft Inc., Sun Grown Packaging, LLC (“Sun Grown”) and Vapor Dosing Technologies, Inc. (“VIVA”). We determined that our ownership interests do not provide us with significant influence over the operations of these investments. Accordingly, we account for our investments in these entities as equity securities.

 

 

Airgraft Inc., Sun Grown, and VIVA are private entities and their equity securities do not have a readily determinable fair value. We elected to measure these securities under the measurement alternative election at cost minus impairment, if any, with adjustments through earnings for observable price changes in orderly transactions for the identical or similar investment of the same issuer. We acquired our investments in Sun Grown and VIVA as part of our merger with KushCo, which we completed in August 2021. We did not identify any fair value adjustments related to these equity securities during the three and nine months ended September 30, 2024 and 2023, respectively.

 

As of September 30, 2024 and December 31, 2023, the carrying value of our investment in equity securities without a readily determinable fair value was approximately $1.9 million, respectively, included within “Other assets” in our condensed consolidated balance sheets.