RIV Capital Reports Financial Results for the First Quarter Ended March 31, 2024

Rhea-AI Summary

RIV Capital reported its financial results for Q1 2024, highlighting a pivotal quarter with the launch of its first adult-use dispensary in White Plains, NY. The company ended the quarter with $65.9 million in cash, supporting its growth strategy and proposed business combination with Cansortium. Net revenue increased to $2.1 million from $1.7 million in Q1 2023, driven by entry into the adult-use market. However, the company reported a net loss of $5.0 million, an improvement from the $23.6 million loss in Q1 2023. The comprehensive loss was $4.6 million compared to $24.7 million in the previous year. Key challenges included increased SG&A expenses and ongoing market competition. Positive regulatory changes in NY and potential federal cannabis rescheduling were noted as future growth catalysts.

Positive

• Successfully opened the first adult-use dispensary in White Plains, NY.
• Ended Q1 2024 with $65.9 million in cash, supporting growth strategies.
• Net revenue increased to $2.1 million from $1.7 million in Q1 2023.
• Reported a lower net loss of $5.0 million compared to $23.6 million in Q1 2023.
• Gross profit improved to $0.6 million from $0.2 million in Q1 2023.
• Positive regulatory changes in NY, including reduced cannabis taxes and stricter enforcement against illicit market activities.
• Potential federal rescheduling of cannabis, which could remove 280E taxes and promote institutional investment.

Negative

• Operating loss increased to $5.6 million from $5.1 million in Q1 2023.
• SG&A expenses rose to $6.2 million from $5.3 million in Q1 2023 due to higher headcount and legal fees.
• Net cash outflows from operating activities were $4.5 million compared to $20.7 million in Q1 2023.
• Other losses of $1.9 million impacted financial results.

Successfully opened first adult-use dispensary in White Plains, New York

Ended the quarter with $65.9 million of cash to support growth strategy in New York and other initiatives in connection with proposed business combination with Cansortium Inc.

TORONTO, May 30, 2024 /PRNewswire/ - RIV Capital Inc. ("RIV Capital" or the "Company") (CSE: RIV) (OTC: CNPOF), an acquisition and investment firm with a focus on building a leading multistate platform with one of the strongest portfolios of brands in key strategic U.S. markets, today released its financial results for the first quarter ended March 31, 2024 ("Q1 2024"). All financial information in this press release is reported in U.S. dollars unless otherwise indicated.

Management Commentary

"The first quarter of 2024 was pivotal with the official launch of our adult-use operations in New York," said Mike Totzke, COO and interim CEO of RIV Capital. "Following years of hard work, we are incredibly proud of our entire team for their dedication, which enabled us to take this transformative step forward. The growth we have seen at our newly launched White Plains dispensary is well in line with our expectations and customer feedback has been fantastic."  

Mr. Totzke added, "Furthermore, we believe that our proposed business combination with Cansortium, a sophisticated and experienced operator with a coveted geographical footprint, is a game-changer for us that opens up unprecedented opportunities. Combined with the anticipated opening of two additional adult-use retail locations in New York later this year and continuing to grow our wholesale business, we are extremely excited about what 2024 has in store for our Company."

Regulatory Update

The Company is also pleased to note that several positive changes have been made to the existing tax structure for cannabis operators in New York state. This has reduced the tax collection obligations and burden for cultivators, processors, and distributors by repealing the wholesale THC potency tax and replacing it with a wholesale distribution tax of 9%. The excise tax on medical cannabis has also been reduced from 7% to 3.15%.

The state has accelerated its efforts to combat the ongoing illicit market activities as well. This increased commitment includes authorizing the Office of Cannabis Management ("OCM") and authorities from counties and cities, including New York City, to padlock businesses immediately following an inspection if they are selling illicit cannabis and pose an imminent threat to health and safety. Illicit operators will also face a broader swathe of potential penalties, including the potential loss of alcohol, tobacco, and lottery licenses, and landlords who knowingly aid or permit illicit market activity will face stricter fines and penalties than in the past.

Plans have also been announced for an overhaul of the OCM's organizational structure, processes, and systems, and the Company will continue to work closely with the agency and maintain its strong relationship with all New York stakeholders.

On a federal level, the U.S. Drug Enforcement Agency has accepted the Department of Health and Human Services' recommendation to reschedule cannabis from a Schedule I to a Schedule III substance under the Controlled Substances Act (the "CSA"). The rescheduling of cannabis under the CSA is anticipated to lead to the removal of 280E taxes and provide support for further potential federal reform. Additionally, this change has the potential to expand institutional access to invest in the cannabis sector and accelerate opportunities for research into the medical benefits of cannabis.

Financial Results for the First Quarter Ended March 31, 2024

The following is a summary of the Company's unaudited financial results for Q1 2024 and the three-month period ended March 31, 2023 (first calendar quarter of 2023 or "CQ1 2023"). As previously announced, the Company has changed its fiscal year end from March 31 to December 31. Accordingly, the comparative period presented for the three months ended March 31, 2023, has not previously been reported in historical unaudited condensed interim consolidated financial statements published by the Company. Further details regarding the change in fiscal year end, including the length and ending dates of the Company's financial reporting periods, are available in the Company's Notice of Change in Year End prepared in accordance with Section 4.8 of National Instrument 48-102 and filed on the Company's SEDAR+ profile at www.sedarplus.com.

Unless otherwise indicated, all financial highlights summarized in tables in this press release are presented in thousands of dollars, except share and per share amounts. All references to "$" are to United States dollars.

Summary Operating Results
	Three months ended Mar. 31, 2024 (unaudited)	Three months ended Mar. 31, 2023 (unaudited)
Revenue, net	$ 2,138	$ 1,728
Cost of goods sold	1,889	1,596
Gross profit excluding fair value items	249	132
Unrealized gain on changes in fair value of biological assets	353	82
Realized fair value amounts included in inventory sold	11	(2)
Gross profit	613	212
Selling, general, and administrative expenses	6,199	5,332
Operating loss	(5,586)	(5,120)
Other loss	(1,936)	(19,437)
Loss before taxes	(7,522)	(24,557)
Income tax recovery	(2,530)	(987)
Net loss	$ (4,992)	$ (23,570)
Other comprehensive loss not subsequently reclassified to net loss Net change in fair value of financial assets at FVTOCI, net of tax expense or recovery	(471)	(1,160)
Other comprehensive income subsequently reclassified to net loss Foreign currency translation adjustment	835	32
Total comprehensive loss	$ (4,628)	$ (24,698)
Net loss per share – basic	$ (0.04)	$ (0.15)
Net loss per share – diluted	$ (0.04)	$ (0.15)

 

Summary Cash Flows and Financial Position Data
	Three months ended Mar. 31, 2024 (unaudited)	Three months ended Mar. 31, 2023 (unaudited)
Net cash flows from operating activities	$ (4,496)	$ (20,733)
Net cash flows from investing activities	(10,691)	(22,582)
Net cash flows from financing activities	(679)	(4,544)
Net decrease in cash(1)	$ (15,866)	$ (47,859)
Effect of foreign exchange rate movements on cash held	(160)	(274)
Cash, beginning of fiscal period	81,887	125,601
Cash, end of fiscal period(1)	$ 65,861	$ 77,468
	As at Mar. 31, 2024	As at Dec. 31, 2023
Current assets	$ 83,754	$ 98,246
Non-current assets	121,468	120,831
Total assets	$ 205,222	$ 219,077
Current liabilities	$ 11,981	$ 19,603
Non-current liabilities	155,715	157,353
Total liabilities	$ 167,696	$ 176,956
Total shareholders' equity	$ 37,526	$ 42,121

(1) During the three months ended March 31, 2023, the Company invested $20,392 of surplus cash in instruments with a maturity of greater than three months, which was classified separate from "Cash and cash equivalents" in the Company's consolidated statements of financial position as at March 31, 2023. During the nine months ended December 31, 2023, these investments matured and were reclassified to "Cash and cash equivalents" upon reinvestment in term deposits with a maturity of less than three months.

• Net revenue was $2.1 million for Q1 2024, compared to $1.7 million for CQ1 2023. Retail revenue of $2.1 million was generated from Etain LLC's co-located adult-use and medical retail dispensary in White Plains and its medical retail dispensaries in Manhattan, Kingston, and Syracuse, compared with $1.5 million in CQ1 2023 from medical dispensaries only. Wholesale revenue of $0.1 million was generated from sales of Etain-branded adult-use and medical products to other adult-use wholesale customers and medical dispensaries in New York, compared to $0.2 million in CQ1 2023. The increase in net revenue was primarily the result of the Company's entry into the adult-use market in the first quarter of 2024. 
• Cost of goods sold (which excludes unrealized fair value changes included in biological assets and realized fair value changes included in inventory sold) was $1.9 million for Q1 2024, compared to $1.6 million for CQ1 2023. The increase in cost of goods sold was primarily related to the increase in the Company's revenue base, the impact of the greater scale of operations at the Chestertown Facility, and an increase in the Company's inventory reserve.
• The Company reported an unrealized gain on changes in fair value of biological assets of $0.4 million for Q1 2024, compared to $0.1 million for CQ1 2023. The increase in unrealized gain on changes in fair value of biological assets was primarily attributable to an increase in average plant yields and, correspondingly, lower cultivation costs on a per gram basis, partially offset by a reduction in the estimated selling price for bulk flower.
• The Company reported a gross profit of $0.6 million for Q1 2024, compared to a gross profit of $0.2 million for CQ1 2023.
• Selling, general, and administrative ("SG&A") expenses were $6.2 million for Q1 2024, compared to $5.3 million in CQ1 2023. The increase in SG&A expenses was primarily attributable to increased headcount to scale Etain's operations for growth in the New York adult-use cannabis market, and an increase in legal and tax advisory fees related to the Company's ongoing M&A strategy.
• Other loss was $1.9 million for Q1 2024, compared to $19.4 million in CQ1 2023. The expenses included in other loss for Q1 2024 are largely non-cash in nature.
• The Company reported a net loss of $5.0 million, and a basic and diluted net loss per share of $0.04, for Q1 2024, compared to a net loss of $23.6 million, and a basic and diluted net loss per share of $0.15, for CQ1 2023.   
• Other comprehensive income was $0.4 million for Q1 2024, compared to other comprehensive loss of $1.1 million for CQ1 2023.
• Total comprehensive loss was $4.6 million for Q1 2024, compared to $24.7 million for CQ1 2023.

This press release should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements and management's discussion and analysis ("MD&A") for the three months ended March 31, 2024 and 2023, which are available under the Company's profile on SEDAR+ at www.sedarplus.com and on the Company's website at www.rivcapital.com/investors .

About RIV Capital

RIV Capital is an acquisition and investment firm with a focus on building a leading multistate platform with one of the strongest portfolios of cannabis 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 its previously announced acquisition of Etain. Through its strategic relationship with The Hawthorne Collective, Inc. ("The Hawthorne Collective"), a subsidiary of The ScottsMiracle-Gro Company ("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 strategies, objectives, goals, opportunities and plans, including with respect to the timing and outcome of the Company's proposed business combination with Cansortium Inc. and the anticipated benefits to be derived therefrom; the Company's expectations regarding the U.S. cannabis market; the Company's plans to open two additional adult-use medical dispensaries in New York; the Company's expectations regarding the growth of Etain's wholesale business; the potential rescheduling of cannabis under the CSA; the potential effects of the rescheduling, including the removal of 280E taxes, increased federal legalization momentum, and expanded institutional access to invest in the cannabis sector; the potential transformation of the cannabis industry as a result of the reclassification of cannabis; expectations regarding the impact of regulatory tax changes to the Company's operating cash flows; expectations regarding the increased enforcement efforts and penalties in New York for illicit cannabis operations; the benefits of the strategic partnership with The Hawthorne Collective and Scotts Miracle-Gro; 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 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; 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 filed with the Canadian securities regulators and available on RIV Capital's profile on SEDAR+ at www.sedarplus.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 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.

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SOURCE RIV Capital Inc.

FAQ

What were RIV Capital's Q1 2024 financial results?

RIV Capital reported a net loss of $5.0 million for Q1 2024, with a net revenue increase to $2.1 million from $1.7 million in Q1 2023.

How much cash did RIV Capital have at the end of Q1 2024?

RIV Capital ended Q1 2024 with $65.9 million in cash.

What impact did the launch of the White Plains dispensary have on RIV Capital's revenue?

The launch of the White Plains dispensary contributed to the net revenue increase to $2.1 million in Q1 2024, up from $1.7 million in Q1 2023.

How did RIV Capital's SG&A expenses change in Q1 2024?

SG&A expenses increased to $6.2 million in Q1 2024 from $5.3 million in Q1 2023, mainly due to higher headcount and legal fees.

What were the regulatory changes in New York noted by RIV Capital?

New York reduced cannabis tax obligations, replacing the wholesale THC tax with a 9% wholesale distribution tax and reducing the medical cannabis excise tax from 7% to 3.15%.

What was RIV Capital's operating loss for Q1 2024?

RIV Capital reported an operating loss of $5.6 million for Q1 2024, compared to $5.1 million in Q1 2023.

What potential impact could federal rescheduling of cannabis have on RIV Capital?

Federal rescheduling of cannabis could remove 280E taxes, promote institutional investment, and accelerate research opportunities, potentially benefiting RIV Capital's growth.