RIV Capital Reports Second Quarter Fiscal Year 2022 Financial Results
RIV Capital Inc. (OTC: CNPOF) reported a strategic investment of $150 million from The Hawthorne Collective, enhancing its liquidity to $400 million for U.S. expansion. The Q2 2022 results showed an operating loss of $1.7 million, a significant reduction from $5.8 million in Q2 2021. The net loss was $1.5 million compared to $110.4 million the previous year. The company is focused on potential acquisitions in strategic U.S. markets and is positioned to develop a consumer-focused platform with its substantial cash reserves.
- Strategic investment of $150 million to support U.S. market expansion.
- Cash balance of $400 million strengthens liquidity position.
- Operating loss improved to $1.7 million from $5.8 million in Q2 2021.
- Net loss decreased significantly to $1.5 million from $110.4 million.
- Continued operating losses indicate ongoing challenges.
- Dependence on external acquisitions to achieve growth.
Strategic investment of US
Cash balance of
Discussions continue with shortlist of potential acquisition targets in strategic U.S. markets
TORONTO, Nov. 18, 2021 /PRNewswire/ - RIV Capital Inc. ("RIV Capital" 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 six months ended September 30, 2021 ("Q2 2022").
"Following the close of the convertible note investment from The Hawthorne Collective, we have been solely focused on narrowing our pipeline of potential acquisition targets in strategic U.S. markets," said Narbé Alexandrian, President and CEO, RIV Capital. "We continue to advance discussions with a select number of target companies that we believe embody the qualities we are looking for in our U.S. operating and brand platform, and look forward to making an announcement further to this in the coming months."
Hawthorne Investment and Strategy Update
Earlier this year, RIV Capital launched a strategic shift to the U.S. market. As the Company embarked upon this transition, it determined that to create a true market leader, it was paramount that the platform be differentiated from other U.S.-focused cannabis businesses in a real, tangible manner. To that end, during the quarter, the Company announced a strategic investment from The Hawthorne Collective, Inc. ("The Hawthorne Collective"), a subsidiary of The Scotts Miracle-Gro Company ("ScottsMiracle-Gro"), the global leader of branded consumer products for lawn and garden care as well as indoor and hydroponics growing products with over US
On August 24, 2021, The Hawthorne Collective, a newly-formed cannabis-focused subsidiary of ScottsMiracle-Gro, invested US
- The Convertible Note has a maturity date of August 24, 2027, and bears interest at a rate of approximately
2.0% per annum until August 24, 2023, after which no interest will accrue for the remainder of the term. Accrued interest will be payable on the maturity date or will be included in the conversion value of the Convertible Note at the time of conversion. - The Convertible Note is convertible into common shares of RIV Capital (the "RIV Shares") at a fixed conversion price of
$1.90 per RIV Share. Assuming full conversion of the Convertible Note, including the full amount of the anticipated accrued interest over the life of the Convertible Note, The Hawthorne Collective would be entitled to receive approximately 103.2 million RIV Shares, representing approximately42.0% of the Company's outstanding RIV Shares on a partially diluted basis based on the current number of non-diluted RIV Shares outstanding. - The Convertible Note may be converted into RIV Shares at the election of The Hawthorne Collective on a discretionary basis, or at RIV Capital's discretion upon the later of: (i) August 24, 2023; and (ii) the date on which federal laws in the U.S. are amended to allow for the general cultivation, distribution, and possession of cannabis.
The Hawthorne Investment established RIV Capital as The Hawthorne Collective's preferred vehicle for investments not currently under the purview of The Hawthorne Gardening Company (another subsidiary of ScottsMiracle-Gro and North America's leader in indoor and hydroponic growing suppliers). In connection with the Hawthorne Investment, the Company entered into an investor rights agreement with The Hawthorne Collective that established the key terms of the partnership, including board nomination rights, an investment top-up option, and other rights and restrictions, which are detailed in the Company's press release dated August 10, 2021. Immediately prior to the closing of the Hawthorne Investment, the Company voluntarily delisted the RIV Shares from the Toronto Stock Exchange (the "TSX") and the RIV Shares began trading on the Canadian Securities Exchange ("CSE").
The Hawthorne Investment fundamentally re-shaped the Company's strategic shift. Over the past few months, the Company has approached its U.S. transition through a new lens, as its new strategic partnership has opened up a new range of possibilities for how its U.S. platform can be built. The Company has been continuing to develop its U.S. market intelligence and engaging in discussions with various potential counterparties. Conversations are ongoing with a shortlist of potential acquisition targets in strategic U.S. markets and the Company is planning to announce a transaction in the coming months.
With a strong balance sheet and liquidity, an attractive capital structure, deep domain expertise, and a one-of-a-kind strategic partnership featuring a truly blue-chip company, RIV Capital believes that it is uniquely positioned to create a market-leading, value-driven, quality- and consumer-focused operating and brand platform in the U.S.
Q2 2022 Financial Results1
Select Summary of Quarterly Results | Three months ended | Three months ended | ||
30-Sep-21 | 30-Sep-20 | |||
Operating loss (before equity method investees and fair value changes) | $ | (1,681) | $ | (5,795) |
Operating expenses | 5,127 | 1,555 | ||
Net operating loss (before equity method investees and fair value changes) | (6,808) | (7,350) | ||
Equity method investees and fair value changes | 175 | (36,211) | ||
PharmHouse-related charges (recovery) | - | 70,756 | ||
Net operating loss | (6,633) | (114,317) | ||
Net loss | (1,496) | (110,381) | ||
Other comprehensive income (net of tax) | 434 | 23,417 | ||
Total comprehensive loss | (1,062) | (86,964) | ||
Basic loss per share ("EPS") | $ | (0.01) | $ | (0.58) |
Diluted EPS | $ | (0.01) | $ | (0.58) |
Cash flows used in operating activities | (3,280) | (1,055) | ||
Cash flows provided by (used in) investing activities | 5,502 | (4,927) | ||
Cash flows provided by (used in) financing activities | 187,248 | (2) | ||
Select Summary of Quarterly Results | Six months ended | Six months ended | ||
30-Sep-21 | 30-Sep-20 | |||
Operating loss (before equity method investees and fair value changes) | $ | (1,242) | $ | (3,133) |
Operating expenses | 7,636 | 4,224 | ||
Net operating loss (before equity method investees and fair value changes) | (8,878) | (7,357) | ||
Equity method investees and fair value changes | (36,357) | (38,566) | ||
PharmHouse-related charges (recovery) | (1,935) | 70,756 | ||
Net operating loss | (43,300) | (116,679) | ||
Net loss | (31,915) | (113,807) | ||
Other comprehensive income (loss) (net of tax) | (58) | 34,118 | ||
Total comprehensive loss | (31,973) | (79,689) | ||
Basic loss per share ("EPS") | $ | (0.22) | $ | (0.60) |
Diluted EPS | $ | (0.22) | $ | (0.60) |
Cash flows used in operating activities | (23,527) | (1,862) | ||
Cash flows provided by (used in) investing activities | 110,318 | (6,854) | ||
Cash flows provided by (used in) financing activities | 187,249 | (80) | ||
"With approximately
_____________________ |
1 The financial highlights in this summary are presented in CA$ thousands, unless otherwise noted. |
Operating Income and Expenses
Three months ended | Three months ended | |||
30-Sep-21 | 30-Sep-20 | |||
Royalty, interest, and lease income (before provisions) | $ | 410 | $ | 4,066 |
Provision for credit losses on interest and royalty receivables | ||||
PharmHouse | - | (8,939) | ||
Other | (2,091) | (922) | ||
Operating loss | $ | (1,681) | $ | (5,795) |
General and administrative expenses | $ | 2,962 | $ | 1,287 |
Consulting and professional fees | 1,847 | 350 | ||
Share-based compensation | 272 | (555) | ||
Depreciation and amortization expense | 46 | 45 | ||
Restructuring costs | - | 428 | ||
Operating expenses | $ | 5,127 | $ | 1,555 |
Net operating loss | $ | (6,808) | $ | (7,350) |
Six months ended | Six months ended | |||
30-Sep-21 | 30-Sep-20 | |||
Royalty, interest, and lease income (before provisions) | $ | 976 | $ | 6,733 |
Provision for credit losses on interest and royalty receivables | ||||
PharmHouse | - | (8,939) | ||
Other | (2,218) | (927) | ||
Operating loss | $ | (1,242) | $ | (3,133) |
General and administrative expenses | $ | 4,628 | $ | 2,629 |
Consulting and professional fees | 2,241 | 726 | ||
Share-based compensation | 672 | 354 | ||
Depreciation and amortization expense | 95 | 87 | ||
Restructuring costs | - | 428 | ||
Operating expenses | $ | 7,636 | $ | 4,224 |
Net operating loss | $ | (8,878) | $ | (7,357) |
The Company reported an operating loss (before equity method investees and fair value changes) of
Operating expenses were
Equity Method Investees and Fair Value Changes
Three months ended | Three months ended | |||
30-Sep-21 | 30-Sep-20 | |||
Share of loss from equity method investees | ||||
PharmHouse | $ | - | $ | (32,607) |
Other | (525) | (550) | ||
Net change in fair value of financial assets at FVTPL | 700 | (3,054) | ||
Other PharmHouse-related charges | ||||
Change in provision for credit losses on loans receivable | - | (45,756) | ||
Change in provision for credit losses on financial guarantee liability | - | (25,000) | ||
Equity method investees and fair value changes | $ | 175 | $ | (106,967) |
Six months ended | Six months ended | |||
30-Sep-21 | 30-Sep-20 | |||
Share of loss from equity method investees | ||||
PharmHouse | $ | - | $ | (37,025) |
Other | (872) | (117) | ||
Net change in fair value of financial assets at FVTPL | (35,485) | (1,424) | ||
Other PharmHouse-related charges | ||||
Change in provision for credit losses on loans receivable | - | (45,756) | ||
Change in provision for credit losses on financial guarantee liability | 1,935 | (25,000) | ||
Equity method investees and fair value changes | $ | (34,422) | $ | (109,322) |
The Company's share of loss from equity method investees was
The Company also reported a net increase in the fair value of financial assets that are reported at fair value through profit or loss ("FVTPL") of
Net Change in Fair Value of Financial Assets at FVTOCI
Three months ended | Three months ended | |||
30-Sep-21 | 30-Sep-20 | |||
Nova Cannabis | $ | - | (218) | |
Headset | 100 | (100) | ||
Zeakal | 300 | (300) | ||
Biolumic | 100 | 61 | ||
Dynaleo | - | 835 | ||
Other | - | 27,100 | ||
Gross change in fair value of financial assets at FVTOCI | $ | 500 | $ | 27,378 |
OCI income tax expense | 66 | 3,962 | ||
Net change in fair value of financial assets at FVTOCI(1) | $ | 434 | $ | 23,416 |
Six months ended | Six months ended | |||
30-Sep-21 | 30-Sep-20 | |||
Nova Cannabis | $ | (267) | (218) | |
Headset | - | (300) | ||
Zeakal | 100 | (900) | ||
Biolumic | 100 | 61 | ||
Dynaleo | - | 835 | ||
Other | - | 38,624 | ||
Gross change in fair value of financial assets at FVTOCI | $ | (67) | $ | 38,102 |
OCI income tax expense (recovery) | (9) | 3,962 | ||
Net change in fair value of financial assets at FVTOCI(1) | $ | (58) | $ | 34,140 |
(1) In 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
As at | As at | |||
Period ended | 30-Sep-21 | 31-Mar-21 | ||
Cash | $ | 404,231 | $ | 127,882 |
Equity method investees | 7,494 | 7,366 | ||
Financial assets at FVTPL | 21,693 | 164,030 | ||
Financial assets at FVTOCI | 21,700 | 23,218 | ||
Other assets | 13,478 | 12,866 | ||
Total assets | $ | 468,596 | $ | 335,362 |
Convertible note | $ | 94,435 | $ | - |
Deferred tax liability | 21,205 | - | ||
Financial guarantee liability | - | 3,000 | ||
Other liabilities | 2,693 | 20,902 | ||
Total shareholders' equity | 350,263 | 311,460 | ||
Total liabilities and shareholders' equity | $ | 468,596 | $ | 335,362 |
RIV Capital ended the quarter with
Q2 2022 Portfolio Updates
The following represents a brief summary of other developments in the RIV Capital portfolio during and subsequent to Q2 2022:
- Subsequent to quarter end, RIV Capital entered into an asset purchase agreement with TREC Brands Inc. ("TREC Brands") for the sale of the Company's financial assets in Agripharm. Subject to certain terms and conditions, the Company will sell its royalty interest in Agripharm to TREC Brands in exchange for common shares of TREC Brands representing an approximate
26% non-diluted equity interest in TREC Brands at the time of closing (excluding the impact of any concurrent financing). - Dynaleo Inc. ("Dynaleo") introduced Pocket Fives, its new value brand of edible cannabis products. The new brand will bring Dynaleo's trademark quality to a new price point on the premium spectrum, demonstrating that quality and value are not mutually exclusive. Subsequent to the quarter, Dynaleo partnered with Niagara College to build on prior research for a therapeutic CBD-infused gummy to support muscle recovery for the sports and wellness markets.
- Gage Growth Corp. announced that COOKIES, one of the best-known cannabis brands in the world, will be grown and distributed in Canada by NOYA.
- Greenhouse Juice announced a partnership with Too Good To Go to combat food waste, as well as a retail partnership with BIO RAW to give consumers more options for organic, plant-based meals.
- Headset expanded its competitive intelligence tool, Headset Insights Premium, to Michigan. This is Headset's eleventh retail-derived cannabis market read based on point-of-sale data in the U.S. and Canadian markets.
- High Beauty, Inc. announced that it successfully closed its oversubscribed US
$4.2 million convertible bridge financing round. The round was expanded three times to accommodate additional investments.
This press release should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements and MD&A for Q2 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 dated June 28, 2021 ("AIF"), 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 an operating and brand platform that aims to acquire, invest in, and develop U.S. cannabis companies to build the cannabis industry of tomorrow, today. By bringing together people, capital, and ideas, we aim to provide shareholders with exposure to exceptional cannabis companies in strategically attractive states poised for significant growth. Backed by our in-house expertise and cannabis domain knowledge, we aim to develop operators and brands who can build market share while we expand the geographic and strategic scope of our multistate platform. RIV Capital also has a strategic relationship with The Hawthorne Collective, a subsidiary of The Scotts Miracle-Gro Company, pursuant to which RIV Capital is the Hawthorne Collective's preferred vehicle for investments not under the purview of other ScottsMiracle-Go 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 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 Hawthorne Investment; the Company's expectation that it will be ScottsMiracle-Gro's preferred vehicle for investments not under the purview of The Hawthorne Gardening Company; the timing of a potential transformative transaction; 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 and its 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 and AIF filed with the Canadian securities regulators and available on RIV Capital's profile on SEDAR at www.sedar.com.
The Company intends to 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.
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SOURCE RIV Capital Inc.
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