8. Goodwill

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For the purposes of impairment testing, goodwill is allocated to the Company’s reporting units as follows:

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The recoverable amounts for each reporting unit are based on fair value, using an income approach. Where applicable, the Company uses its comparative market multiples to corroborate discounted cash flow results. The fair value measurement was categorized as a Level 3 based on inputs in the valuation technique used. The key assumptions used in the calculation of the fair value of each reporting unit include management’s projections of future cash flows. For 2023 testing a five year period was used, while a ten year period was used for 2022 testing. Other key assumptions include a terminal value, growth rate and discount rate based on the estimated weighted average cost of capital that incorporates the risks specific to the reporting units.

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The Company conducted annual testing of its goodwill as of December 31, 2023 and determined that the carrying value of its Standard Farms PA reporting unit exceeded its fair value.

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Due to missed forecasts for Jupiter, the Company conducted testing of its goodwill related to Jupiter by assessing if the carrying value for the reporting unit exceeded its fair value during the six months ended June 30, 2022.

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During the six months ended December 31, 2022, the Company identified additional impairment triggers for three of its reporting units, including declines in its share price and market capitalization and changes in cannabis market conditions, including increased borrowing rates. As a result, the carrying value of all three reporting units exceeded their respective fair values as of December 31, 2022.

The following tables details the key assumptions used in determining the recoverable amounts as of December 31, 2023 and 2022:

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(1)  Reflects estimated compound annual revenue growth over the next five years.

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Based on the test results for Jupiter and Standard Farms PA as of December 31, 2023, the carrying amount of Standard Farms PA exceeded its fair value by $3,030. Consequently, an impairment loss of $3,030 was booked to Standard Farms PA. The fair value of Jupiter exceeded its carrying value, and no impairment loss was recorded related to this reporting unit.

Based on the test results for Jupiter as of June 30, 2022, the carrying amount of the reporting unit exceeded its fair value by $6,668. Consequently, an impairment loss was recorded for goodwill during the six months ended June 30, 2022. Based on the test results for Jupiter, Standard Farms PA, and Standard Farms OH as of December 31, 2022, the carrying amount of all three reporting units exceeded their respective fair values by $43,126. Consequently, impairment losses of $38,957, $2,789, and $1,380 were booked to Jupiter, Standard Farms PA, and Standard Farms OH, respectively.