Canopy Rivers Reports Third Quarter Fiscal Year 2021 Financial Results
Canopy Rivers reported a comprehensive income of $82.2 million for Q3 2021, driven by significant gains in its investment in TerrAscend. The company announced a transformative transaction with Canopy Growth to sell interests valued at $115 million, expected to close by the end of February 2021. This transaction is projected to enhance liquidity and strategic positioning for entry into the U.S. cannabis market. Despite a net operating loss of $9.6 million, the company's prior challenges seem to be resolving as it anticipates profitable growth following the deal.
- Comprehensive income of $82.2 million driven by TerrAscend investment gains.
- Transformative transaction with Canopy Growth valued at $115 million enhances liquidity.
- Expectations for entry into the $310 million U.S. cannabis market post-transaction.
- Net operating loss of $9.6 million in Q3 2021.
- Provision for credit losses on PharmHouse loans totaling $6.2 million.
- PharmHouse restructuring proceedings continuing, adding uncertainty.
Comprehensive income of
Announced transformative and accretive transaction with Canopy Growth, expected to close by the end of February
Anticipates being in strong financial and strategic position to pivot to the U.S. market following the closing of CGC Transaction
TORONTO, Feb. 10, 2021 /PRNewswire/ - Canopy Rivers Inc. ("Canopy Rivers" or the "Company") (TSX: RIV) (OTC: CNPOF) today released its unaudited condensed interim consolidated financial statements and management's discussion and analysis ("MD&A") for the three and nine months ended December 31, 2020 ("Q3 2021").
"Our quarter was highlighted by the announcement of our milestone transaction with Canopy Growth, which we believe will provide substantial value to our shareholders," said Narbé Alexandrian, President and CEO, Canopy Rivers. "Our portfolio companies continue to gain momentum, and we are further encouraged by the potential for regulatory reform in the U.S. given recent progress at the state level and the new administration's position on cannabis reform. We believe that we will have the opportunity to enter the U.S. market at an ideal point in time, and that our balance sheet, simplified share structure, strategic flexibility, and deep domain expertise will enable us to deliver value to shareholders as we consider potential material investments or acquisitions in the U.S."
Q3 2021 Financial Results1
Select Summary of Quarterly Results | Three months ended 31-Dec-20 | Three months ended 31-Dec-19 | ||
Operating income (before equity method investees and fair value changes) | $ | 3,003 | $ | 5,021 |
Operating expenses | 3,390 | 3,860 | ||
Net operating income (loss) (before equity method investees and fair value changes) | (387) | 1,161 | ||
Equity method investees and fair value changes | 4,524 | (3,208) | ||
Other PharmHouse-related charges(1) | (13,700) | - | ||
Net operating loss | (9,563) | (2,047) | ||
Net income (loss) | 1,406 | (2,679) | ||
Other comprehensive income (loss) (net of tax) | 80,759 | (37,244) | ||
Total comprehensive income (loss) | 82,165 | (39,923) | ||
Basic earnings (loss) per share ("EPS") | $ | 0.01 | $ | (0.01) |
Diluted EPS | $ | 0.01 | $ | (0.01) |
Cash flows used in operating activities | (953) | (3,523) | ||
Cash flows provided by (used in) investing activities | 944 | (30,391) | ||
Cash flows provided by financing activities | 76 | 813 | ||
Nine months ended 31-Dec-20 | Nine months ended 31-Dec-19 | |||
Operating income (loss) (before equity method investees and fair value changes) | $ | (130) | $ | 9,333 |
Operating expenses | 7,615 | 15,819 | ||
Net operating loss (before equity method investees and fair value changes) | (7,745) | (6,486) | ||
Equity method investees and fair value changes | (34,042) | (3,905) | ||
Other PharmHouse-related charges(1) | (84,456) | - | ||
Net operating loss | (126,243) | (10,391) | ||
Net loss | (112,402) | (10,051) | ||
Other comprehensive income (loss) (net of tax) | 114,877 | (71,280) | ||
Total comprehensive income (loss) | 2,475 | (81,331) | ||
Basic EPS | $ | (0.59) | $ | (0.05) |
Diluted EPS | $ | (0.59) | $ | (0.05) |
Cash flows used in operating activities | (2,815) | (6,980) | ||
Cash flows used in investing activities | (5,910) | (48,420) | ||
Cash flows provided by (used in) financing activities | (4) | 895 |
(1) Excludes the Company's share of loss from its investment in PharmHouse common shares, which is captured in "Equity method investees and fair value changes" |
"After a challenging September quarter during which we recognized material charges on our investment in PharmHouse, we ended the calendar year with significant positive momentum, as evidenced by our financial results," said Eddie Lucarelli, CFO, Canopy Rivers. "We expect to sustain this momentum during the current quarter as we work towards closing our transformative transaction with Canopy Growth. By redeeming shares at a discount to net asset value and successfully monetizing assets that carried significant liquidity restrictions, the financial merits of the transaction are clear. Fundamentally, we believe that the accretive nature and strategic value of this transaction will unlock substantial value for our shareholders and optimally position the Company to execute on new opportunities in the U.S., the world's largest cannabis market."
Three months ended 31-Dec-20 | Three months ended 31-Dec-19 | |||
Royalty, interest, and lease income (before provisions) | $ | 5,853 | $ | 5,021 |
Provision for credit losses on interest and royalty receivables | ||||
PharmHouse | - | - | ||
Other | (2,850) | - | ||
Operating income | $ | 3,003 | $ | 5,021 |
General and administrative expenses | $ | 981 | $ | 1,755 |
Consulting and professional fees | 441 | 929 | ||
Share-based compensation | 80 | 1,133 | ||
Depreciation and amortization expense | 50 | 43 | ||
Restructuring costs | 1,838 | - | ||
Operating expenses | $ | 3,390 | $ | 3,860 |
Net operating income (loss) | $ | (387) | $ | 1,161 |
Nine months ended 31-Dec-20 | Nine months ended 31-Dec-19 | |||
Royalty, interest, and lease income (before provisions) | $ | 12,586 | $ | 9,333 |
Provision for credit losses on interest and royalty receivables | ||||
PharmHouse | (8,939) | - | ||
Other | (3,777) | - | ||
Operating income (loss) | $ | (130) | $ | 9,333 |
General and administrative expenses | $ | 3,610 | $ | 5,300 |
Consulting and professional fees | 1,168 | 2,604 | ||
Share-based compensation | 434 | 7,787 | ||
Depreciation and amortization expense | 137 | 128 | ||
Restructuring costs | 2,266 | - | ||
Operating expenses | $ | 7,615 | $ | 15,819 |
Net operating loss | $ | (7,745) | $ | (6,486) |
Canopy Rivers reported operating income (before equity method investees and fair value changes) of
Operating expenses were
Three months ended 31-Dec-20 | Three months ended 31-Dec-19 | |||
Share of loss from equity method investees | ||||
PharmHouse | $ | - | $ | (543) |
Other | (728) | (764) | ||
Net change in fair value of financial assets at FVTPL | 4,790 | (1,901) | ||
Other PharmHouse-related charges | ||||
Provision for credit losses on loans receivable | (6,200) | - | ||
Provision for credit losses on financial guarantee liability | (7,500) | - | ||
Gain on disposition of equity method investee | 462 | - | ||
Equity method investees and fair value changes | $ | (9,176) | $ | (3,208) |
Nine months ended 31-Dec-20 | Nine months ended 31-Dec-19 | |||
Share of loss from equity method investees | ||||
PharmHouse | $ | (37,025) | $ | (1,238) |
Other | (845) | (1,719) | ||
Net change in fair value of financial assets at FVTPL | 3,366 | (948) | ||
Other PharmHouse-related charges | ||||
Provision for credit losses on loans receivable | (51,956) | - | ||
Provision for credit losses on financial guarantee liability | (32,500) | - | ||
Gain on disposition of equity method investee | 462 | - | ||
Equity method investees and fair value changes | $ | (118,498) | $ | (3,905) |
The Company's share of loss from equity method investees was
Canopy Rivers also reported a net increase in the fair value of financial assets that are reported at fair value through profit or loss ("FVTPL") of
The Copany also updated its recoverability assessment relating to PharmHouse Inc. ("PharmHouse") to determine the quantum of any charges to be recognized in respect of its various PharmHouse-related financial assets, as well as any charges related to PharmHouse's
After consideration of operating income, operating expenses, equity method investees, FVTPL fair value changes, PharmHouse charges, and expected tax recoveries, among other items, Canopy Rivers reported net income of
Three months ended 31-Dec-20 | Three months ended 31-Dec-19 | |||
TerrAscend | $ | 105,000 | $ | (21,000) |
Vert Mirabel | (9,500) | (15,642) | ||
YSS | (55) | (1,252) | ||
Headset | (200) | (82) | ||
Zeakal | (600) | (255) | ||
BioLumic | (100) | - | ||
Dynaleo | - | - | ||
Other | - | (3,118) | ||
Gross change in fair value of financial assets at FVTOCI | $ | 94,545 | $ | (41,349) |
OCI income tax expense (recovery) | 13,786 | (4,154) | ||
Net change in fair value of financial assets at FVTOCI(1) | $ | 80,759 | $ | (37,195) |
Nine months ended 31-Dec-20 | Nine months ended 31-Dec-19 | |||
TerrAscend | $ | 138,500 | $ | (51,000) |
Vert Mirabel | (3,400) | (14,498) | ||
YSS | (273) | (2,449) | ||
Headset | (500) | (118) | ||
Zeakal | (1,500) | (501) | ||
BioLumic | (39) | - | ||
Dynaleo | 835 | - | ||
Other | (976) | (11,961) | ||
Gross change in fair value of financial assets at FVTOCI | $ | 132,647 | $ | (80,527) |
OCI income tax expense (recovery) | 17,748 | (9,350) | ||
Net change in fair value of financial assets at FVTOCI(1) | $ | 114,899 | $ | (71,177) |
(1) In addition to the fair value change noted above, net change in fair value of financial assets at FVTOCI also includes FX gains/losses related to equity method investees denominated in USD currency |
Other comprehensive income was
Period ended | As at 31-Dec-20 | As at 31-Mar-20 | ||
Cash | $ | 37,995 | $ | 46,724 |
Loans receivable | - | 42,450 | ||
Equity method investees | 6,413 | 50,543 | ||
Financial assets at FVTPL | 82,780 | 80,170 | ||
Financial assets at FVTOCI | 201,450 | 64,599 | ||
Other assets | 10,661 | 15,899 | ||
Total assets | $ | 339,299 | $ | 300,385 |
Financial guarantee liability | $ | 32,500 | $ | - |
Other liabilities | 4,321 | 2,107 | ||
Total shareholders' equity | 302,478 | 298,278 | ||
Total liabilities and shareholders' equity | $ | 339,299 | $ | 300,385 |
CGC Transaction Update
On December 21, 2020, Canopy Rivers entered into a definitive agreement with Canopy Growth Corporation ("Canopy Growth") (TSX: WEED) (NASDAQ: CGC) pursuant to which Canopy Rivers agreed to sell its interests in TerrAscend and TerrAscend Canada, Vert Mirabel, and Tweed Tree Lot to Canopy Growth for
The Company believes the CGC Transaction will propel it to its next phase of growth. Among the numerous benefits it provides to shareholders, the CGC Transaction unlocks value and provides significant liquidity for the Company, eliminates the Company's dual-class share structure, and enables the Company to access previously unavailable investment and acquisition opportunities in the U.S. In the weeks following the announcement of the CGC Transaction, the market reacted favourably, with a significant increase in the Company's share price. As the Company reviews its corporate strategy and considers potential material investments in, or acquisitions of, established operating businesses in the U.S. cannabis market, its priority remains delivering value for its shareholders.
There will be a special meeting of shareholders on February 16, 2021 to approve the CGC Transaction. The Company is encouraged by early voting results, which signal strong support for the CGC Transaction, and expects that the CGC Transaction will close shortly after receiving shareholder approval. Following approval, the Company's corporate name will change to RIV Capital Inc., and further updates on the CGC Transaction and other corporate events will be communicated under this name. The Company is also initiating the process to delist its shares from the TSX following the completion of the CGC Transaction and list its securities on an alternate stock exchange that does not prohibit listed Canadian companies to invest in or acquire legal U.S.-based cannabis businesses.
The Company's operating results and financial position for the quarter include estimates of fair value for the assets being sold or transferred to Canopy Growth in connection with the CGC Transaction. Given that the CGC Transaction has not yet closed, the Company's fair value estimates as at December 31, 2020, are based upon valuation methodologies, inputs, and assumptions that reflect current circumstances and are consistent with prior reporting periods, and may result in fair value estimates that are different than the actual values ascribed to these individual assets pursuant to the plan of arrangement in respect of the CGC Transaction. The Company anticipates that the full impact of the CGC Transaction on the Company's financial position and future outlook will be reflected in its financial results for the quarter ending March 31, 2021.
_______________________ | |
1 | The financial highlights in this summary are presented in CA$ thousands. |
2 | The actual number of Canopy Growth common shares issued pursuant to the Transaction are subject to a downward adjustment in the event that certain rights of first refusal in respect of the Vert Mirabel common shares are exercised. |
3 | Based on estimated net cash proceeds from the CGC Transaction, the Company's current adjusted cash balance, and the implied value of 3.75 million Canopy Growth common shares based on the closing price of |
PharmHouse Update
Resolving PharmHouse's restructuring proceedings under the Companies' Creditors Arrangement Act ("CCAA") in a manner that maximizes value preservation for the Company's shareholders continues to be a top priority.
As previously disclosed, the Sale and Investment Solicitation Process ("SISP") to identify interest in, and opportunities for, a sale of, or investment in, all or part of PharmHouse's assets or business remains underway. Phase one of the SISP concluded on November 30, 2020, and a number of parties were selected by PharmHouse (with the assistance of the monitor and the SISP advisor) to continue into phase two. Binding offers for phase two of the SISP are due on or about February 16, 2021, and the Company expects to provide an update on the SISP shortly thereafter.
Day-to-day operations at PharmHouse have continued throughout its restructuring, and the Company believes that PharmHouse has taken significant steps forward in its operations over the past few months. PharmHouse continues to source new opportunities in the Canadian cannabis sector and ramp up its cannabis growing operations, and the Company continues to support PharmHouse with a debtor-in-possession interim, non-revolving credit facility (the "DIP Financing"). During the quarter, the maximum amount available to be drawn pursuant to the DIP Financing was increased by approximately
The Company continues to work collaboratively with the syndicate of lenders under the PharmHouse Credit Facility during the CCAA proceedings. No repayments of principal have occurred and the current outstanding balance remains
Subsequent to the quarter, on February 10, 2021, the Company received a statement of claim (the "Claim") filed by the PharmHouse majority shareholder concerning certain disputes relating to PharmHouse. The Claim is substantially similar to a claim previously filed in September 2020, which was subsequently discontinued. The Claim makes a number of allegations against Canopy Rivers, Canopy Growth, TerrAscend, and TerrAscend Canada. As with the previously filed statement of claim, Canopy Rivers views the Claim as it relates to its actions to be completely without merit and intends to vigorously defend its position at the appropriate time and in the appropriate forum.
Q3 2021 Portfolio Updates
The following represents a summary of other key developments within the Canopy Rivers portfolio during Q3 2021:
- Agripharm, pursuant to its exclusive licence to distribute SLANG products in Canada, shipped the first O.pen line of vape products to British Columbia in October, followed by Ontario in December. Agripharm also distributed SLANG's Firefly Mini products for sale in Ontario.
- Canopy Rivers sold its
49% interest in Italy-based Canapar to RAMM Pharma Corp. for consideration of up to$9.0 million , including a cash payment of$7.0 million and contingent consideration of$2.0 million . - Dynaleo Inc. received its sale licence from Health Canada, enabling it to supply and sell cannabis edibles to provincial, territorial, and private wholesalers across Canada.
- Greenhouse Juice Company ("Greenhouse Juice") announced that its products are available at IGA and Fresh St. Market locations in the Vancouver area. Greenhouse Juice also expanded its home delivery service, including extended shelf-life guarantees and carbon offsetting all deliveries.
- Headset Inc. launched Headset Insights in Saskatchewan. In Canada, Headset Insights is also available in Alberta, British Columbia, and Ontario.
- High Beauty, Inc. entered into a co-development and commercial partnership with Lygos, Inc., a vertically integrated provider of safe and sustainable specialty ingredients.
- TerrAscend announced its third quarter results, reporting sales of approximately
$51.0 million and adjusted EBITDA of approximately$17.8 million , and announced the close of a US$120.0 million debt financing. - YSS Corp. ("YSS") announced its third quarter results, reporting a
24% revenue increase quarter-over-quarter. YSS also announced the opening of several new stores during the quarter, bringing its total to 19 in Alberta and Saskatchewan. Subsequent to the quarter, YSS entered into an agreement with Alcanna Inc. to combine cannabis retail businesses to form Nova Cannabis Inc., which will target the value-conscious consumer, an under-served segment of the market that is estimated to account for approximately70% of the total recreational cannabis market in Canada (both legal and illicit).
This press release should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements and MD&A for the three and nine months ended December 31, 2020, which are available under the Company's profile on SEDAR at www.sedar.com and on the Company's website at www.canopyrivers.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 dated June 2, 2020 ("AIF"), also available under the Company's profile on SEDAR at www.sedar.com and on the Company's website at www.canopyrivers.com/investors.
About Canopy Rivers Inc.
Canopy Rivers is an investment and acquisition company specializing in cannabis with a portfolio of 17 companies across various segments of the cannabis value chain. We believe that bringing together people, capital, and ideas raises the potential of the entire cannabis industry. By leveraging our industry insights, in-house expertise, and thesis-driven approach to investing, we aim to provide shareholders with exposure to specialized and disruptive cannabis companies.
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 the Company with respect to future business activities and operating performance. To the extent any forward-looking information in this news release constitutes "financial outlooks" within the meaning of applicable Canadian securities laws, the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such financial outlooks. 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 expectations regarding legislation, regulations, and licensing related to the Canadian and global cannabis markets and product offerings in Canada and internationally; the evolution of cannabis markets globally and the potential for global investment opportunities to arise; the potential outcomes for the cannabis sector as a result of the U.S. election; expectations regarding the Company's ability to capitalize on the opportunity in the United States once it is federally permissible to do so; the estimated recoverable amount of PharmHouse's assets en bloc; the expected amount of the Company's liability in respect of the PharmHouse Guarantee; expectations with respect to the SISP; the expectation that PharmHouse will require additional capital beyond that available pursuant to the DIP Financing prior to the conclusion of the CCAA Proceedings; expectations with respect to the Claim, including the merits thereof; the supply of Dynaleo's products to the Canadian adult-use market by the end of the calendar year; the closing of the transactions contemplated by the CGC Transaction; the Company's financial position following the completion of the transactions contemplated by the CGC Transaction; the anticipated timing and occurrence of the shareholder meeting to approve the arrangement contemplated under the CGC Transaction; the anticipated benefits, costs and risks associated with the CGC Transaction, including the implied value of, or anticipated proceeds from, the CGC Transaction; the anticipated benefits of the collapse of the Company's dual-class share structure in connection with the CGC Transaction; the attractiveness of the Company's shares as acquisition currency following the CGC Transaction; the anticipated de-listing of the Company's securities on the TSX and the subsequent listing of its securities on a stock exchange that does not prohibit investments or acquisitions of companies with business activities related to marijuana operations in the U.S.; the Company's ability and position to pivot to the U.S. market following the completion of the CGC Transaction; the benefits associated with an entry into the U.S. cannabis market; the Company's expected focus and priorities for the coming quarters; the Company's ability to sustain its current momentum; the Company's belief that it is well-positioned for U.S. market development through its investment in TerrAscend as well as its expectations regarding the conversion and implied value of its TerrAscend exchangeable shares; 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 the Company 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 the Company. Financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to various risks as set out herein. Our actual financial position and results of operations may differ materially from management's current expectations. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: the possibility that the CGC Transaction will not be completed on the terms and conditions, or on the timing, currently contemplated, and that it may not be completed at all, due to a failure to obtain or satisfy, in a timely manner or otherwise, the required shareholder approval or approval of the court, or other approvals and other conditions of closing necessary to complete the CGC Transaction, or for other reasons; the occurrence of any event, change or other circumstances that could give rise to the termination of the CGC Transaction; the delay of implementation of the CGC Transaction or failure to complete the CGC Transaction for any reason; the Company's ability to alter its capital structure on the anticipated terms; the entry into the U.S. market by the Company, including by way of investment or acquisition; the profitability of engaging in investments or operations in the U.S.; the potential for the company's board of directors and shareholders to be prosecuted for aiding and abetting violations of U.S. federal law; enhanced scrutiny of the Company's investments and operations if the Company invests in or operates U.S. cannabis businesses; the effect of operating or investing in the U.S. on the Company's existing contractual arrangements and business relationships; the risks associated with U.S. banking and anti-money laundering laws and regulations; the classification of the Company's income as proceeds of crime and the ability of the Company to declare or pay dividends or effect other distributions or the repatriation of funds back to Canada; risks associated with the termination, renegotiation and enforcement of material contracts; credit, liquidity and additional financing risks for the Company and its investees; litigation risks; stock market volatility; regulatory and licensing risks; cannabis pricing risks; changes in cannabis industry growth and trends; changes in the business activities, focus and plans of the Company and its investees and the timing associated therewith; the Company's actual financial results and ability to manage its cash resources; changes in general economic, business and political conditions, including challenging global financial conditions and the impact of the novel coronavirus pandemic; competition risks; potential conflicts of interest; the regulatory landscape and enforcement related to cannabis, including political risks and risks relating to regulatory change; changes in the Company's relationship with Canopy Growth and its investees; changes in applicable laws; compliance with extensive government regulation, including the Company's interpretation of such regulation; changes in the global sentiment towards, and public opinion of, the cannabis industry; reliance on material contracts; risk of default by investees; divestiture risks; and the risk factors set out in the Company's AIF, filed with the Canadian securities regulators and available on the Company's profile on SEDAR at www.sedar.com.
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 the Company 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. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
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SOURCE Canopy Rivers Inc.
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