Stock-Based Compensation |
16. Stock-Based Compensation Stock Options In January 2019, the Company adopted the 2019 Equity Incentive Plan under which the Company may grant incentive stock option, restricted shares, restricted share units, or other awards. Under the terms of the plan, a total of ten percent of the number of shares outstanding assuming conversion of all super voting shares and multiple voting shares to subordinate voting shares are permitted to be issued. The exercise price for incentive stock options issued under the plan will be set by the committee but will not be less 100% of the fair market value of the Company’s shares on the date of grant. Incentive stock options have a maximum term of 10 years from the date of grant. The incentive stock options vest at the discretion of the Board. Options granted under the equity incentive plan were valued using the Black-Scholes option pricing model with the following weighted average assumptions: | | | | | | | | September 30, | | September 30, | | | | 2023 | | 2022 | | Risk-Free Interest Rate | | 3.81 | % | 2.04 | % | Weighted Average Exercise Price | $ | 0.25 | $ | 1.77 | | Expected Life of Options (years) | | 6.12 | | 2.50 | | Expected Annualized Volatility | | 100.00 | % | 55.00 | % | Expected Forfeiture Rate | | N/A | | N/A | | Expected Dividend Yield | | N/A | | N/A | |
Stock option activity for the nine months ended September 30, 2023, and for the year ended December 31, 2022, is presented below: | | | | | | | | | | | | Weighted Average | | Weighted Avg. | | | Number of Options | | Exercise Price | | Remaining Life | Balance, December 31, 2021 | | 23,226,338 | | $ | 0.56 | | 6.02 | Forfeitures | | (7,504,677) | | | 0.59 | | — | Exercised | | (15,002) | | | 0.48 | | — | Granted | | 7,840,899 | | | 0.90 | | — | Balance, December 31, 2022 | | 23,547,558 | | $ | 0.66 | | 7.30 | Forfeitures | | (3,618,186) | | | 1.02 | | — | Granted | | 9,703,845 | | | 0.25 | | 6.31 | Options Outstanding at September 30, 2023 | | 29,633,217 | | $ | 0.50 | | 6.37 | | | | | | | | | Options Exercisable at September 30, 2023 | | 23,029,572 | | $ | 0.40 | | 5.76 |
During the three and nine months ended September 30, 2023, the Company recognized $248,000 and $2,247,635 in stock-based compensation relating to stock options, respectively. During the three and nine months ended September 30, 2022, the Company recognized $600,191 and $1,993,908 in stock-based compensation relating to stock options, respectively. As of September 30, 2023, the total unrecognized compensation costs related to unvested stock options awards granted was $554,218. In addition, the weighted average period over which the unrecognized compensation expense is expected to be recognized is approximately 2.0 years. The total intrinsic value of stock options outstanding and exercisable as of September 30, 2023, was $25,224 and $15,626, respectively. The Company does not estimate forfeiture rates when calculating compensation expense. The Company records forfeitures as they occur. Warrants Subordinate Voting Share (SVS) warrants entitle the holder to purchase one subordinate voting share of the Company. Multiple Voting Share (MVS) warrants entitle the holder to purchase one multiple voting share of the Company. Warrants issued were valued using the Black-Scholes option pricing model with the following assumptions: | | | | | | | September 30, | | September 30, | SVS Warrants | | 2023 | | 2022 | Risk-Free Interest Rate | | 3.51 | % | N/A | Expected Life (years) | | 5.00 | | N/A | Expected Annualized Volatility | | 100.00 | % | N/A | Expected Forfeiture Rate | | N/A | | N/A | Expected Dividend Yield | | N/A | | N/A |
A summary of the warrants outstanding is as follows: | | | | | | | | | | Number of | | Weighted Average | | Weighted Average | SVS Warrants | | Warrants | | Exercise Price | | Remaining Life | Warrants outstanding at December 31, 2021 | | — | | $ | — | | — | Granted | | 150,000 | | | 1.49 | | 2.00 | Warrants outstanding at December 31, 2022 | | 150,000 | | $ | 1.49 | | 2.00 | Granted | | 6,250,000 | | | 0.15 | | 5.00 | Warrants outstanding at September 30, 2023 | | 6,400,000 | | $ | 0.18 | | 4.50 | | | | | | | | | Warrants exercisable at September 30, 2023 | | 6,400,000 | | $ | 0.18 | | 4.50 |
| | | | | | | | | | Number of | | Weighted Average | | Weighted Average | SVS Warrants Denominated in C$ | | Warrants | | Exercise Price | | Remaining Life | Warrants outstanding at December 31, 2021 | | 3,037,649 | | $ | 3.50 | | 4.23 | Granted | | — | | | - | | — | Warrants outstanding at December 31, 2022 | | 3,037,649 | | $ | 3.50 | | 3.23 | Granted | | — | | | — | | — | Warrants outstanding at September 30, 2023 | | 3,037,649 | | $ | 3.50 | | 2.48 | | | | | | | | | Warrants exercisable at September 30, 2023 | | 3,037,649 | | $ | 3.50 | | 2.48 |
| | | | | | | | | | Number of | | Weighted Average | | Weighted Average | MVS Warrants | | Warrants | | Exercise Price | | Remaining Life | Warrants outstanding at December 31, 2021 | | 13,583 | | $ | 194.66 | | 0.64 | Expired | | (13,583) | | | 194.66 | | — | Warrants outstanding at December 31, 2022 and September 30, 2023 | | — | | | — | | — | | | | | | | | | Warrants exercisable at September 30, 2023 | | — | | $ | — | | — |
During the three and nine months ended September 30, 2023, and 2022, $0 in stock-based compensation expense was recorded in connection with the SVS compensation warrants and $0 in stock-based compensation was recorded in connection with the MVS warrants. On May 25, 2023, the Company and Grown Rogue International, Inc. (“Grown Rogue”) entered into a strategic agreement whereby Grown Rogue will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota. As part of this strategic agreement the Company is obligated to issue 10,000,000 warrants to purchase subordinate voting shares of Goodness Growth to Grown Rogue, with a strike price equal to a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the agreement. These warrants have not been granted as of September 30, 2023, but were considered an accrued expense at a valuation $1,244,404 and included within stock-based compensation on the unaudited condensed consolidated statement of loss and comprehensive loss for the three and nine month periods ended September 30, 2023. RSUs The expense associated with RSUs is based on the closing share price of the Company’s subordinate voting shares on the business day immediately preceding the grant date, adjusted for the absence of future dividends and is amortized on a straight-line basis over the periods during which the restrictions lapse. The Company currently has RSUs that vest over a three year period. The awards are generally subject to forfeiture in the event of termination of employment. During the three and nine months ended September 30, 2023, the Company recognized $52,437 and $517,376, respectively, in stock-based compensation expense related to RSUs. During the three and nine months ended September 30, 2022 the Company recognized $295,890 and $642,686, respectively, in stock-based compensation expense related to RSUs. A summary of RSUs is as follows: | | | | | | | | | | Weighted Avg. | | | Number of Shares | | Fair Value | Balance, December 31, 2021 | | — | | $ | — | Granted on March 15, 2022 | | 1,094,200 | | | 1.81 | Granted on December 15, 2022 | | 2,127,477 | | | 0.29 | Balance, December 31, 2022 | | 3,221,677 | | | 0.81 | Forfeitures | | (507,186) | | | 0.63 | Balance, September 30, 2023 | | 2,714,491 | | $ | 0.84 | | | | | | | Vested at September 30, 2023 | | 260,269 | | $ | 1.81 |
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