Note 10 - Goodwill

12 Months Ended

May 31, 2025

10.

Goodwill

The following tables shows the carrying amount of goodwill as of May 31, 2025 and as of May 31, 2024:

	*Reporting Units*												*May 31,*
	*Beverage*			*Cannabis*			*Wellness*			*Distribution*			*2025*
Goodwill	$	120,802		$	2,640,669		$	77,470		$	4,458		$	2,843,399
Accumulated impairment losses		(120,802	)		(1,897,431	)		(68,186	)		(4,235	)		(2,090,654	)
Effect of foreign exchange		—			9,112			(9,284	)		(223	)		(395	)
Total	$	—		$	752,350		$	—		$	—		$	752,350

	*Reporting Units*											*May 31,*
	*Beverage*		*Cannabis*			*Wellness*			*Distribution*			*2024*
Goodwill	$	120,802	$	2,640,669		$	77,470		$	4,458		$	2,843,399
Accumulated impairment losses		—		(827,431	)		(15,000	)		—			(842,431	)
Effect of foreign exchange		—		15,823			(7,847	)		(60	)		7,916
Total	$	120,802	$	1,829,061		$	54,623		$	4,398		$	2,008,884

During the preceding 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 is more likely than not, that the fair value of our reporting units were less than their carrying amounts as of February 28, 2025. 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 nine months ended February 28, 2025. In the Company's cannabis goodwill assessment, 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. In the Company's beverage goodwill assessment, 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. In the Company's wellness goodwill assessment, 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. In the Company's distribution goodwill assessment, the Company recorded $4,235 of impairments which brought the remaining distribution goodwill balance to $nil.

The Company then performed the annual impairment test during the fourth quarter ended May 31, 2025, and determined that through a combination of factors including a further decline in the Company's market capitalization, a change in non-discretionary market inputs in the Company's discount rate, and changes to the aforementioned probabilities resulting from continued delays in legalization of cannabis within the United States and internationally, culminating in an unfavorable impact on the estimated future cash flows, and ultimately concluded that it is more likely than not, that the fair value of our reporting units were less than their carrying amounts as of May 31, 2025. 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 additional non-cash impairment charges of $500,000 of cannabis goodwill, $20,815 of beverage goodwill and $28,173 of wellness goodwill during the quarter ended May 31, 2025.

In the Company's cannabis goodwill assessment, the Company used a discount rate of 14.50%, a terminal growth rate of 5%, and an average revenue growth rate of 34% over 5 years, based on an 65% and 25% 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 $133,800 in impairment, a 1% decrease in the terminal growth rate would result in an additional $93,500 in impairment, a 5% decrease in the average growth rate would result in an additional $23,400 in impairment, a 5% decrease in the probability of EU cannabis legalization would result in an additional $44,000 in impairment and a 5% decrease in the probability of US cannabis legalization would result in an additional $17,100 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, the Company used a discount rate of 10.00%, a terminal growth rate of 2%, and an average revenue growth rate of 2% over 5 years, which brought the remaining beverage goodwill balance to $nil.

In the Company's wellness goodwill assessment, the Company used a discount rate of 12.25%, a terminal growth rate of 2%, and an average revenue growth rate of 7% over 5 years, which brought the remaining beverage goodwill balance to $nil.

For the fiscal year ended May 31, 2024, the Company recognized $nil impairment expense.

For the fiscal year ended May 31, 2023, the Company recognized the non-cash impairment charges of $603,500 of cannabis goodwill and $15,000 of wellness goodwill. This impairment charge was related to the increased borrowing rates and the decline of the company’s market capitalization. The non-cash charge had no impact on the Company’s compliance with debt covenants, its cash flows or available liquidity. In the Company's cannabis goodwill assessment, the Company used a discount rate of 13.50%, a terminal growth rate of 5%, and an average revenue growth rate of 40% over 5 years as a result of anticipated federal legalization in various countries.

- Definition

The entire disclosure for goodwill.

+ References + Details

Tilray Brands, Inc. 10-K