How a freshly grown cannabis company managed to lose $500 million in less than a month

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Tilt Holdings went from a claimed valuation of $500 million to $7 million in a matter of weeks.

As Tilt Holdings Inc. completed a four-way reverse merger and began trading on the Canadian Securities Exchange late last year, the U.S.-based cannabis producer claimed the value of its disparate parts was roughly $500 million.

Tilt SVVTF, -16.74% 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.

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. The average impairment charge in 2017 was about $120 million, according to Duff & Phelps, a consulting company — and the 293 examples in that study come with much larger revenue totals and longer operating histories than Tilt has.

 

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