RIV Capital reports fourth quarter and fiscal year 2022 financial results
Previously Announced Acquisition of Etain Represents Initial Step to Becoming Licensed, Vertically-Integrated U.S. Cannabis Operator
Previously Announced Acquisition of Etain Represents Initial Step to Becoming Licensed, Vertically-Integrated U.S. Cannabis Operator
Strong Liquidity, Robust Balance Sheet, and Appointment of Mike Totzke as Chief Operating Officer Competitively Position RIV Capital for Operationalizing Strategy in U.S. Market
TORONTO - RIV Capital Inc. (“RIV Capital” or the “Company”) (CSE: RIV) (OTC: CNPOF) today released its financial results for the fourth quarter (“Q4 2022”) and fiscal year ended March 31, 2022 (“FY 2022”).
“We spent the second half of the 2022 fiscal year preparing for our entry into the U.S. cannabis market, ending the year with a transformative agreement to acquire ownership and control of New York-based Etain,” said Mark Sims, President and CEO of RIV Capital. “We are excited to launch our U.S. strategy in the Empire State, which represents one of the largest legal cannabis market opportunities in the U.S. as it approaches the implementation of adult-use sales. A cultural epicenter, New York is very attractive due to its attractive regulatory framework, strong tourism industry and extremely high population density. With the potential to become the second-largest cannabis market in the U.S., second only to California, we believe the state will be vital to the success of our U.S. platform in the long term.”
“We are so confident in the potential of this market that we intend to further strengthen and expand our presence in New York ahead of adult-use sales. RIV plans to invest in four additional dispensaries and a new state-of-the-art flagship indoor cultivation facility, specifically tailored to support the premium New York market, as soon we are permitted to do so. We are thrilled to be working with Etain as a top-tier brand partner and are looking forward to completing the license transfer as soon as possible.”
Etain Acquisition
In March 2022, RIV Capital announced a definitive agreement to acquire ownership and control of Etain, LLC and Etain IP LLC (“Etain”) (the “Etain Acquisition”), owners and operators of legally licensed cannabis cultivation facilities and retail dispensaries in the state of New York. The acquisition includes one of only 10 vertically integrated licenses in New York, and four active dispensaries.
The Company’s near-term plans include completing the expansion of Etain’s current cultivation capacity by tripling the existing canopy size at its Chestertown facility to support the adult-use market at its outset, and preparing its existing retail locations for the expected increase in sales. RIV Capital is also in advanced discussions to construct a new, state-of-the-art flagship indoor cultivation facility that will house premier cultivation and production infrastructure specifically tailored to support the premium New York market. Additionally, the Company has plans to build out four new dispensaries as soon as the Company is permitted to do so under the state’s regulations, bringing the total New York footprint to eight retail locations, three of which will be co-located for adult-use.
Once adult-use sales are in effect, the Company anticipates a significant ramp in business to occur through the second half of calendar year 2023, with its expanded operations coming fully online during the first half of calendar year 2024.
The acquisition is structured to close in two stages, the first of which was completed in April 2022, where RIV Capital acquired the non-regulated portion of the Etain companies. Subject to receipt of the relevant approvals by the New York state regulators, the second closing and license transfer is expected to occur in the second half of 2022.
Appointment of Mike Totzke as Chief Operating Officer
Effective as of June 20, 2022, Mike Totzke has been appointed Chief Operating Officer of RIV Capital. Mr. Totzke brings extensive operational experience to RIV Capital’s management team, having held a variety of operations- and sales-focused roles across The Scotts Miracle-Gro Company (“ScottsMiracle-Gro") since 2006.
Before joining RIV Capital, Totzke served in various roles at ScottsMiracle-Gro, most recently as Vice President at The Hawthorne Collective, where he led a team of highly recognized performers across legal, finance, and strategy to implement innovative investment structures within the cannabis industry. Previously, he was Vice President of Sales for the National Accounts division of ScottsMiracle-Gro, where he grew annual sales by $200 million over three years by activating new retail channels and driving incremental distribution points.
Q4 and Full Year 2022 Financial Results1
| Select Summary of Financial Results | Three months ended 31-Mar-22 |
Three months ended 31-Mar-21 |
| Operating income (loss) (before equity method investees and fair value changes) | $ (2,014) | $ 748 |
| Operating expenses | 4,767 | 7,890 |
| Net operating loss (before equity method investees and fair value changes) | (6,781) | (7,142) |
| Equity method investees and fair value changes (excluding PharmHouse) | (4,111) | (19,857) |
| PharmHouse-related charges | - | 2,800 |
| Net operating loss | (10,892) | (24,199) |
| Other expenses (income) | 9,263 | (122) |
| Income tax recovery | 2,849 | 2,599 |
| Net loss | (17,306) | (21,478) |
| Other comprehensive income (net of tax) | 121 | 86,324 |
| Total comprehensive income (loss) | (17,185) | 64,846 |
| Basic loss per share (“EPS”) | $ (0.12) | $ (0.13) |
| Diluted EPS | $ (0.12) | $ (0.13) |
| Cash flows used in operating activities | (1,238) | (5,278) |
| Cash flows provided by investing activities | - | 94,142 |
| Cash flows provided by (used in) financing activities | (43) | 1,023 |
| Select Summary of Financial Results | Year ended 31-Mar-22 |
Year ended 31-Mar-21 |
| Operating income (loss) (before equity method investees and fair value changes) | $ (3,169) | $ 618 |
| Operating expenses | 14,876 | 15,505 |
| Net operating loss (before equity method investees and fair value changes) | (18,045) | (14,887) |
| Equity method investees and fair value changes (excluding PharmHouse) | (44,855) | (16,874) |
| PharmHouse-related recovery (charges) | 1,935 | (118,681) |
| Net operating loss | (60,965) | (150,422) |
| Other expenses | 4,239 | 1,912 |
| Income tax recovery | 12,473 | 18,474 |
| Net loss | (52,731) | (133,880) |
| Other comprehensive income (net of tax) | 497 | 201,201 |
| Total comprehensive income (loss) | (52,234) | 67,321 |
| Basic EPS | $ (0.37) | $ (0.72) |
| Diluted EPS | $ (0.37) | $ (0.72) |
| Cash flows used in operating activities | (28,394) | (8,093) |
| Cash flows provided by investing activities | 110,318 | 88,232 |
| Cash flows provided by financing activities | 187,162 | 1,019 |
1The financial highlights in this summary are presented in CA$ thousands, unless otherwise noted.
“We have entered this next fiscal year in an enviable liquidity position, with sufficient funding to complete the Etain Acquisition and finance our expansion plans in the state of New York,” said Eddie Lucarelli, Chief Financial Officer of RIV Capital. “We believe that in light of the ongoing challenging backdrop in capital markets, the strength of our balance sheet is a key differentiator that will enable us to build a market-leading U.S. platform.”
Operating Income and Expenses
| Three months ended 31-Mar-22 |
Three months ended 31-Mar-21 |
|
| Royalty, interest, and lease income (before provisions) | $ 165 | $ 844 |
| Provision for credit losses on interest and royalty receivables | (2,179) | (96) |
| Operating income (loss) (before equity method investees and fair value changes) | $ 2,014 | $ 748 |
| General and administrative expenses2 | $ 2,230 | $ 1,972 |
| Consulting and professional fees2 | 131 | 685 |
| Share-based compensation | 520 | 500 |
| Depreciation and amortization expense | 77 | 46 |
| Transaction costs2 | 1,809 | - |
| Restructuring costs | - | 4,687 |
| Operating expenses | $ 4,767 | $ 7,890 |
| Net operating loss (before equity method investees and fair value changes) | $ (6,781) | $ (7,142) |
| Year ended 31-Mar-22 |
Year ended 31-Mar-21 |
|
| Royalty, interest, and lease income (before provisions) | $ 1,896 | $ 13,430 |
| Change in provision for credit losses on interest and royalty receivables | ||
| PharmHouse | - | (8,939) |
| Other | (5,065) | (3,873) |
| Operating income (loss) (before equity method investees and fair value changes) | $ (3,169) | $ 618 |
| General and administrative expenses2 | $ 7,013 | $ 5,582 |
| Consulting and professional fees2 | 1,229 | 1,853 |
| Share-based compensation | 1,452 | 934 |
| Depreciation and amortization expense | 221 | 183 |
| Transaction costs2 | 4,961 | - |
| Restructuring costs | - | 6,953 |
| Operating expenses | $ 14,876 | $ 15,505 |
| Net operating loss (before equity method investees and fair value changes) | $ (18,045) | $ (14,887) |
2During Q4 2022, the Company separated the presentation of transaction costs, which had been presented in "General and administrative expenses" and "Consulting and professional fees" for previous reporting periods in FY 2022.
The Company reported an operating loss (before equity method investees and fair value changes) of $2.0 million for Q4 2022, compared with operating income (before equity method investees and fair value changes) of $0.7 million for the same period last year. The operating loss for Q4 2022 was primarily driven by an increase in the provision for expected credit losses on interest and royalty receivables.
The Company reported total operating expenses of $4.8 million for Q4 2022, compared with $7.9 million for the same period last year. General and administrative expenses were $2.2 million for Q4 2022, compared with $2.0 million for the same period last year, and were primarily attributable to employee compensation and other general and administrative activities (including insurance, business development, and general public company costs). Consulting and professional fees were $0.1 million for Q4 2022, compared with $0.7 million for the same period last year. Transaction costs were $1.8 million for Q4 2022 and were primarily attributable to legal fees and other advisory costs incurred in respect of the Etain Acquisition.
Equity Method Investees and Fair Value Changes
| Three months ended 31-Mar-22 |
Three months ended 31-Mar-21 |
|
| Share of loss from equity method investees | $ (137) | $ (47) |
| Impairment of equity method investees | $ (187) | $ - |
| Net change in fair value of financial assets at FVPTL | (3,787) | (19,810) |
| Other PharmHouse-related recovery (charges) | ||
| Change in provision for credit losses on loans receivable | - | (1,700) |
| Change in provision for credit losses on financial guarantee liability | - | 4,500 |
| Equity method investees and fair value changes | $ (4,111) | $ (17,057) |
| Year ended 31-Mar-22 |
Year ended 31-Mar-21 |
|
| Share of loss from equity method investees | ||
| PharmHouse | $ - | $ (37,025) |
| Other | (1,604) | (892) |
| Impairment of equity method investees | (187) | - |
| Net change in fair value of financial assets at FVPTL | (43,064) | (16,444) |
| Other PharmHouse-related recovery (charges) | ||
| Change in provision for credit losses on loans receivable | - | (53,656) |
| Change in provision for credit losses on financial guarantee liability | 1,935 | (28,000) |
| Gain on disposition of equity method investee | - | 462 |
| Equity method investees and fair value changes | $ (42,920) | $ (135,555) |
The Company’s share of loss from equity method investees for Q4 2022 was $0.1 million, compared with a share of loss of $47 thousand for the same period last year. 10831425 Canada Ltd. d/b/a Greenhouse Juice Company (“Greenhouse Juice”), LeafLink Services International ULC, and NOYA Cannabis Inc. (“NOYA”) represented the Company’s equity method investees for which a share of income or loss was recognized for the quarter. The Company also recognized impairment charges of $0.2 million for Q4 2022, compared with no impairment charges for the same period last year.
The Company also reported a net decrease in the fair value of financial assets that are reported at fair value through profit or loss (“FVTPL”) of $3.8 million for Q4 2022, compared with a net decrease of $19.8 million for the same period last year. The net decrease was primarily driven by the negative changes in the estimated fair value of the Company’s investments in the Greenhouse Juice secured convertible debenture of $2.1 million and Agripharm royalty interest of $1.0 million.
Other Income and Expenses
| Three months ended 31-Mar-22 |
Three months ended 31-Mar-21 |
|
| Unrealized foreign exchange loss | $ 6,062 | $ - |
| Accretion and interest expense | 3,027 | 6 |
| Other expenses (income), net | 174 | (128) |
| Other expenses (income) | 9,263 | (122) |
| Year ended 31-Mar-22 |
Year ended 31-Mar-21 |
|
| Unrealized foreign exchange gain | $ (1,287) | $ - |
| Accretion and interest expense | 7,127 | 28 |
| Gain on disposition of finance lease receivable | (1,103) | - |
| Other expenses (income), net | (588) | 1,884 |
| Other expenses | 4,239 | 1,912 |
The Company reported other expenses in Q4 2022 of $9.3 million, compared with other income of $0.1 million for the same period last year. This was primarily attributable to an unrealized foreign exchange loss of $6.1 million on the conversion of the Company’s U.S. dollar cash reserves to its presentation currency of Canadian dollars, as well as the non-cash accretion expense on the initial convertible note issued to The Hawthorne Collective of $3.0 million.
Net Change in Fair Value of Financial Assets at FVTOCI
| Three months ended 31-Mar-22 |
Three months ended 31-Mar-21 |
|
| Nova Cannabis | $ - | $ 468 |
| Headset | (100) | - |
| ZeaKal | (200) | (100) |
| Biolumic | 1,530 | (100) |
| Dynaleo | (1,090) | - |
| Other | - | 101,783 |
| Gross change in fair value of financial assets at FVTOCI | $ 140 | $ 102,051 |
| OCI income tax expense | 19 | 15,727 |
| Net change in fair value of financial assets at FVTOCI3 | $ 121 | $ 86,324 |
| Year ended 31-Mar-22 |
Year ended 31-Mar-21 |
|
| Nova Cannabis | $ (267) | $ 195 |
| Headset | 400 | (500) |
| ZeaKal | (100) | (1,600) |
| Biolumic | 1,630 | (139) |
| Dynaleo | (1,090) | 835 |
| Other | - | 235,907 |
| Gross change in fair value of financial assets at FVTOCI | $ 573 | $ 234,698 |
| OCI income tax expense | 76 | 33,475 |
| Net change in fair value of financial assets at FVTOCI3 | $ 497 | $ 201,223 |
3In addition to the fair value change noted above, the historical net change in fair value of financial assets at FVTOCI also includes FX gains/losses related to certain equity method investees denominated in USD currency.
The Company reported a total comprehensive loss of $17.2 million for Q4 2022, compared with total comprehensive income of $64.8 million for the same period last year.
| Period ended | As at 31-Mar-22 |
As at 31-Mar-21 |
| Cash | $ 398,255 | $ 127,882 |
| Income tax receivable | 11,433 | - |
| Equity method investees | 6,575 | 7,366 |
| Financial assets at FVTPL | 11,644 | 164,030 |
| Financial assets at FVTOCI | 24,810 | 23,218 |
| Other assets | 4,898 | 12,866 |
| Total assets | $ 457,615 | $ 335,362 |
| Convertible note | 100,453 | - |
| Deferred tax liability | 21,347 | - |
| Financial guarantee liability | - | 3,000 |
| Other liabilities | 5,031 | 20,902 |
| Total shareholders' equity | 330,784 | 311,460 |
| Total liabilities and shareholders' equity | $ 457,615 | $ 335,362 |
As of June 10, 2022, RIV Capital had approximately U.S.$169 million of cash on hand based on the closing daily exchange rate as reported by the Bank of Canada. The Company anticipates that the cash required for the final closing of the Etain Acquisition will be approximately U.S.$42.4 million.
Q4 2022 Portfolio Updates
The following represents a brief summary of other developments in the RIV Capital portfolio during and subsequent to Q4 2022:
- BioLumic Inc. (“BioLumic”) announced the launch of an operational hub in Boston, Massachusetts, as part of its expansion focused on commercial growth. In addition, BioLumic was selected as a top 50 nominee for the 2022 Food Planet Prize, recognizing innovative food sustainability solutions.
- Greenhouse Juice was named winner of Circular Opportunity Innovation Launchpad’s Circulate CoLAB 2022, receiving $100,000 in demonstration project funding for the next year. Greenhouse Juice was also included in the Canadian Business New Innovators list for 2022.
- NOYA joined an exclusive collective production partnership with Gage Growth Corp. for the cultivation and production of one of the best-known cannabis brands in the world, Cookies, for its first store in Canada, which opened in January 2022.
- ZeaKal, Inc. (“ZeaKal”) announced a significant collaboration with Perdue AgriBusiness. ZeaKal was also named in Forward Fooding’s 2021 FoodTech 500 list, for raising the quality of agriculture’s most important crops by improving overall photosynthesis.
This press release should be read in conjunction with the Company’s audited consolidated financial statements and MD&A for Q4 2022 and FY 2022, which are available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.rivcapital.com/investors. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
For more information regarding the Company and its portfolio companies, please refer to the MD&A and the Company’s annual information form (“AIF”) dated June 10, 2022, also available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.rivcapital.com/investors.
About RIV Capital
RIV Capital is building a leading cannabis packaged goods company, with a focus on establishing one of the strongest portfolios of brands in key strategic U.S. markets. Backed by in-house expertise and cannabis domain knowledge, RIV Capital aims to grow its own brands and partner with established U.S. cannabis operators and brands to bring them to new markets and build market share. RIV Capital established the foundational building blocks of its active U.S. strategy with the announced acquisition of ownership and control of Etain, LLC and Etain IP LLC, owners and operators of legally licensed cannabis cultivation and retail dispensaries in the state of New York. Through its strategic relationship with The Hawthorne Collective, a subsidiary of ScottsMiracle-Gro, RIV Capital is The Hawthorne Collective’s preferred vehicle for cannabis-related investments not under the purview of other ScottsMiracle-Gro subsidiaries.
Forward Looking Statements
This news release contains statements which constitute “forward-looking information” within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of RIV Capital and its portfolio companies with respect to future business activities and operating performance. Forward-looking information is often identified by the words “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or similar expressions and includes information regarding the Company’s investment in Etain, including the timing and cash required for completion of the final closing of the Etain Acquisition; the Company’s expectations of the anticipated benefits of the Etain Acquisition and strategic rationales for acquiring Etain, including expectations regarding legal cannabis market opportunities in the New York; expectations regarding expansion and timing thereof; the size of the cannabis market in the state of New York; the Company’s plan to invest in, launch and/or develop U.S. assets to build a multistate cannabis operating and brand platform and the value to be derived therefrom; the anticipated benefits of the investments from The Hawthorne Collective; the receipt of additional financing from The Hawthorne Collective; the Company’s expectation that it will be ScottsMiracle-Gro’s preferred vehicle for investments not under the purview of The Hawthorne Gardening Company; and expectations for other economic, business, and/or competitive factors.
Investors are cautioned that forward-looking information is not based on historical fact but instead reflects management’s expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although RIV Capital believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of RIV Capital or its portfolio companies.
Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: the timing and likelihood for receipt of all required regulatory approvals, and satisfaction of other conditions to closing, in respect of the Etain Acquisition; the Company’s ability to execute its go-forward strategy; stock market volatility; changes in the business activities, focus and plans of the Company, Etain and the Company’s investees and the timing associated therewith; the timing of any changes to federal laws in the U.S. to allow for the general cultivation, distribution, and possession of cannabis; regulatory and licensing risks; changes in cannabis industry growth and trends; changes in general economic, business and political conditions, including changes in the financial markets; litigation risks; the global regulatory landscape and enforcement related to cannabis, including political risks and risks relating to regulatory change; risks relating to anti-money laundering laws; compliance with extensive government regulation, including RIV Capital’s interpretation of such regulation; public opinion and perception of the cannabis industry; divestiture risks; and the risk factors set out in RIV Capital’s MD&A and AIF filed with the Canadian securities regulators and available on RIV Capital’s profile on SEDAR at www.sedar.com.
The Company has invested in and acquired, and intends to in the future invest in and/or acquire, companies that are involved in the manufacture, possession, use, sale, and distribution of cannabis in the recreational and medicinal cannabis marketplace in the United States. Local state laws where such operations occur permit such activities, however, investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the U.S. Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money laundering legislation.
While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with recreational and medicinal cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve the Company of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against the Company. The enforcement of federal laws in the United States is a significant risk to the business of the Company and any proceedings brought against the Company thereunder may adversely affect the Company's operations and financial performance.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although RIV Capital has attempted to identify important risks, uncertainties and factors that could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. RIV Capital does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
SOURCE RIV Capital Inc.
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