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How to lose $500m

Not Tiliting, but Failing
Tilt Holdings valued assets at about half a billion dollars when raising funds last year, then decided value was actually more like $7 million less than four months later. IT has now borrowed another $20m at nearly %20 interest per year. Advice: sell this stock

As Tilt Holdings Inc. completed a $500m four-way reverse merger and began trading on the Canadian Securities Exchange, it was already preparing a slightly different valuation for those same businesses: About $7 million.

Tilt took a goodwill impairment charge of roughly $500 million late Wednesday in its first quarterly earnings report since going public, leading to a massive loss of $554.5 million on sales of just $5.7 million. Chief Executive Alex Coleman told MarketWatch that the charge was because the company used one methodology on Dec. 6, 2018, to value the companies that merged to form Tilt Holdings, and a different set of standards on Dec. 31.

“The goodwill attributable to the merger was more of an intrinsic-value allocation,” Coleman said over the phone. “That’s really the gist of it. The company didn’t proactively write up our assets and we didn’t write them down.”

Coleman’s description differed from the company’s financial statements, which said that the impairment charge was the result of the company’s “outlook on the medical cannabis industry in Canada as a result of the legalized recreational market. The impairment was determined by comparing the [subsidiary’s] value-in-use to its carrying value.”

Goodwill reflects the amount one business pays to acquire another beyond the assets shareholders would theoretically receive if the parts were sold off. Companies review assets with goodwill attached regularly, and if the benefits may never materialize, the company has to write down the value.

In Tilt’s case, the company was combining four different businesses into a single publicly traded entity: cannabis-delivery software, customer-relationship management software, a vertically integrated weed seller in Massachusetts, and a Canadian company that has applied to be a licensed pot producer in that country. At the time, MarketWatch described Tilt as “a Frankenstein’s monster of a corporation,” ( and also pointed out that Tilt was forced by Canadian regulators to retract revenue guidance for 2019 within a day of providing it.

Despite those issues, Tilt raised $120 million in December through a reverse takeover on the CSE, a common means of going public for U.S. cannabis companies, which cannot list domestically because their operations violate federal law. Tilt sold 22.9 million shares for C$5.25 each, which fell 60% the first day of trading and have not traded above C$3.89 since. Tilt stock closed down 18% to C$2.17 on Thursday, giving it a valuation of roughly C$776.9 million, according to CSE data.

Tilt also said Wednesday that it entered into a credit facility with several venture-capital firms for $20 million bearing 18.75% interest. Coleman said that Tilt was “testing the waters” to assess the challenge of raising more cash and that “almost all of our money is going to capital expenditure.”

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