TORONTO, Feb. 14, 2020 /PRNewswire/ - Canopy Rivers Inc. (the "Company" or "Canopy Rivers") RIVCNPOF, a venture capital firm specializing in cannabis, today released its financial results for the three and nine months ended December 31, 2019 ("Q3 2020"). The Company's unaudited condensed interim consolidated financial statements for Q3 2020, and its management's discussion and analysis for Q3 2020 (the "Q3 2020 MD&A"), are available under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com and on the Company's website at www.canopyrivers.com/investors/financials-and-public-filings. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
"In the third quarter, we continued pursuing our goal to become the leading venture capital firm building the cannabis industry of tomorrow," said Narbé Alexandrian, President & CEO, Canopy Rivers. "We focused primarily on follow-on investments in our existing portfolio of innovative companies, further developing the Canopy Rivers ecosystem through collaborative partnerships, and evaluating where we think the next wave of disruption will come from as the global cannabis market continues to evolve and mature. Our aim is to build on this momentum as we look to have a successful 2020."
Q3 2020 Financial Results1
Select Summary of Quarterly Results | Three months | Three months | ||
31-Dec-19 | 31-Dec-18 | |||
Operating income | $ | 1,813 | $ | 8,378 |
Operating expenses | 3,860 | 6,632 | ||
Net operating income (loss) | (2,047) | 1,746 | ||
Net income (loss) | (2,679) | 1,423 | ||
Other comprehensive income (loss) (net of tax) | (37,244) | (80,948) | ||
Total comprehensive income (loss) | (39,923) | (79,525) | ||
Basic earnings (loss) per share ("EPS") | $ | (0.01) | $ | 0.01 |
Diluted EPS | $ | (0.01) | $ | 0.01 |
Cash flows used in operating activities | (3,523) | (1,628) | ||
Cash flows used in investing activities | (30,435) | (57,325) | ||
Cash flows provided by financing activities | 857 | 37 | ||
Nine months | Nine months | |||
31-Dec-19 | 31-Dec-18 | |||
Operating income | $ | 5,428 | $ | 32,395 |
Operating expenses | 15,819 | 22,938 | ||
Net operating income (loss) | (10,391) | 9,457 | ||
Net income (loss) | (10,051) | 5,744 | ||
Other comprehensive income (loss) (net of tax) | (71,280) | (56,689) | ||
Total comprehensive income (loss) | (81,331) | (50,945) | ||
Basic EPS | $ | (0.05) | $ | 0.04 |
Diluted EPS | $ | (0.05) | $ | 0.04 |
Cash flows used in operating activities | (6,980) | (3,333) | ||
Cash flows used in investing activities | (48,537) | (96,567) | ||
Cash flows provided by financing activities | 1,012 | 100,530 | ||
_________________________ |
1 The financial highlights in this summary are presented in CA$ thousands. |
"It was a challenging end to 2019 for the valuations of publicly-traded cannabis companies, which naturally impacted our results for the quarter," said Eddie Lucarelli, CFO, Canopy Rivers. "However, we continue to believe that these headwinds for the cannabis sector are temporary, and that the strength of our balance sheet positions us well to weather the storm. A strong pipeline of global investment opportunities, positive trends in supply chain and retail developments in Canada, and impending milestones at our portfolio companies truly excite us for what's to come in 2020."
Three months | Three months | |||
31-Dec-19 | 31-Dec-18 | |||
Royalty, interest, and lease income | $ | 5,021 | $ | 1,284 |
Share of loss from equity method investees | (1,307) | (1,271) | ||
Net change in fair value of financial assets at FVTPL(2) | (1,901) | 8,365 | ||
Operating income | $ | 1,813 | $ | 8,378 |
Nine months | Nine months | |||
31-Dec-19 | 31-Dec-18 | |||
Royalty, interest, and lease income | $ | 9,333 | $ | 2,309 |
Share of loss from equity method investees | (2,957) | (2,619) | ||
Net change in fair value of financial assets at FVTPL(2) | (948) | 32,705 | ||
Operating income | $ | 5,428 | $ | 32,395 |
(2) Net change in fair value of off-market commitment is included in the net change in fair value of financial assets at FVTPL |
During Q3 2020, Canopy Rivers generated operating income of $1.8 million, primarily driven by royalty, interest, and lease income of $5.0 million from: royalty and debenture agreements with Agripharm Corp., 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company, James E. Wagner Cultivation Corporation ("JWC"), Radicle Medical Marijuana Inc. ("Radicle"), and The Tweed Tree Lot Inc. ("Tweed Tree Lot"); a loan agreement with TerrAscend Canada Inc. ("TerrAscend Canada"); a shareholder loan agreement with PharmHouse, Inc. ("PharmHouse"); and a lease agreement with Tweed Tree Lot. This income was partially offset by a $1.9 million net decrease in the fair value of certain financial assets that are reported at fair value through profit or loss ("FVTPL"). Operating income was further offset by a $1.3 million share of loss from the Company's equity method investees. This share of loss was recorded one quarter in arrears, which includes the Company's common equity positions in Canapar Corp. ("Canapar"), 10663522 Canada Inc. d/b/a/ Herbert, High Beauty, Inc. ("High Beauty"), LeafLink Services International ULC, PharmHouse and Radicle. Management expects these equity method investees to continue to generate net losses during the remainder of the Company's fiscal year as they continue to ramp up operationally.
Three months | Three months | |||
31-Dec-19 | 31-Dec-18 | |||
Consulting and professional fees | $ | 929 | $ | 788 |
General and administrative expenses | 1,755 | 651 | ||
Share-based compensation | 1,133 | 5,193 | ||
Depreciation and amortization expense | 43 | - | ||
Operating expenses | $ | 3,860 | $ | 6,632 |
Nine months | Nine months | |||
31-Dec-19 | 31-Dec-18 | |||
Consulting and professional fees | $ | 2,604 | $ | 1,787 |
General and administrative expenses | 5,300 | 1,232 | ||
Share-based compensation | 7,787 | 19,919 | ||
Depreciation and amortization expense | 128 | - | ||
Operating expenses | $ | 15,819 | $ | 22,938 |
Operating expenses for the quarter were $3.9 million, of which $1.1 million (or approximately 29% of the total) related to share-based compensation, a non-cash expense. Other operating expenses, which include consulting and professional fees and other general and administrative expenses, were $2.7 million, representing an increase from the comparative quarter last year due to the build-out of the Company's employee base, legal and advisory fees related to the general growth of the business, enhanced public company compliance and other regulatory costs, and the launch of a formal branding and marketing campaign.
Three months | Three months | |||
31-Dec-19 | 31-Dec-18 | |||
JWC | $ | (3,118) | $ | (4,254) |
TerrAscend | (21,000) | (69,168) | ||
Vert Mirabel | (15,642) | (4,971) | ||
Eureka | - | (2,698) | ||
YSS | (1,252) | (12,229) | ||
Headset | (82) | 8 | ||
Zeakal | (255) | - | ||
Gross change in fair value of financial assets at FVTOCI | $ | (41,349) | $ | (93,312) |
OCI income tax recovery | 4,154 | 12,364 | ||
Net change in fair value of financial assets at FVTOCI(3) | $ | (37,195) | $ | (80,948) |
Nine months | Nine months | |||
31-Dec-19 | 31-Dec-18 | |||
JWC | $ | (10,089) | $ | (3,953) |
TerrAscend | (51,000) | (52,240) | ||
Vert Mirabel | (14,498) | (4,784) | ||
Eureka | (1,872) | 1,814 | ||
YSS | (2,449) | (6,192) | ||
Headset | (118) | 8 | ||
Zeakal | (501) | - | ||
Gross change in fair value of financial assets at FVTOCI | (80,527) | (65,347) | ||
OCI income tax recovery | 9,350 | 8,658 | ||
Net change in fair value of financial assets at FVTOCI(3) | $ | (71,177) | $ | (56,689) |
(3) In addition to the fair value change noted above, net change in fair value of financial assets at FVTOCI also includes FX |
Other comprehensive income, which captures the net changes in fair value of financial assets that are reported at fair value through other comprehensive income ("FVTOCI"), was a loss of $37.2 million, net of tax. The fair values of Canopy Rivers' investments in Eureka 93 Inc., JWC, YSS Corp. ("YSS"), and TerrAscend Corp. ("TerrAscend") were negatively impacted by downward trends in public market valuations for cannabis companies during the period, while the fair value of the Company's investment in Les Serres Vert Cannabis Inc. ("Vert Mirabel") was negatively impacted by downward trends in wholesale cannabis prices.
As at | As at | |||
Period ended | 31-Dec-19 | 31-Mar-19 | ||
Cash | $ | 49,678 | $ | 104,183 |
Loan Receivable | 41,470 | 40,000 | ||
Equity method investees | 64,699 | 64,891 | ||
Financial assets at FVTPL | 95,481 | 54,705 | ||
Financial assets at FVTOCI | 71,192 | 137,298 | ||
Other assets | 14,715 | 18,208 | ||
Total assets | $ | 337,235 | $ | 419,285 |
Total liabilities | 2,157 | 11,099 | ||
Total shareholders' equity | 335,078 | 408,186 | ||
Total liabilities and shareholders' equity | $ | 337,235 | $ | 419,285 |
Outlook
The Company previously provided calendar year ("CY") 2020 attributable earnings before interest, tax, depreciation and amortization ("EBITDA") guidance relating to PharmHouse and Vert Mirabel in the range of $85.0 million to $100.0 million, representing the Company's estimated proportionate EBITDA based on its ownership percentages in each of these entities, as well as interest income on its shareholder loan to PharmHouse and dividend yield on its preferred share investment in Vert Mirabel. Since the time that this guidance was provided, multiple factors have emerged that may impede the Company's ability to achieve this target, including unanticipated delays in licensing, reformed views on the operational ramp-up period required for large-scale cannabis greenhouses and a general decline in wholesale cannabis prices.
After consideration of these factors, and due to the uncertainty inherent in forecasting operating results given the current status of the Canadian cannabis industry, the Company has made the decision to withdraw its estimated CY2020 attributable EBITDA guidance.
In the near term, the Company expects that its net income (or loss) and comprehensive income (or loss) will continue to be largely driven by net changes in the fair value of financial assets at FVTPL or financial assets at FVTOCI. In turn, the Company expects that these net changes will continue to be largely dependent on the regulatory, business, and capital markets environment in the cannabis industry, which environments will in turn continue to inform the Company's investment strategy. Given the inherent volatility of valuations of investments in the global cannabis sector, the Company anticipates continued volatility in its financial results. Furthermore, while the Company anticipates that in the long term, its share of income (or loss) from equity method investees will have a more significant impact on its financial results, it does not anticipate this to happen over the next few fiscal quarters.
Q3 2020 Corporate and Portfolio Updates
The following represents a brief summary of the milestones achieved by Canopy Rivers and/or its portfolio companies during Q3 2020:
Canopy Rivers
- Canopy Rivers completed a US$10.0 million loan (the "Loan") to TerrAscend Canada, a wholly-owned subsidiary of TerrAscend. The terms of the Loan were amended subsequent to the end of the quarter, as described below.
- Canopy Rivers partnered with Kindred Partners Inc. ("Kindred"), a wholly-owned subsidiary of Breakthru Beverage Group, to provide the Company's current and future portfolio companies with access to Kindred's brokerage, sales and marketing, and brand-building services. Both TerrAscend Canada and JWC have announced brokerage partnerships with Kindred pursuant to which Kindred will serve as the exclusive broker for the companies' adult-use cannabis products in Canada.
- Canopy Rivers added Thirty Five Ventures, the business owned by NBA star Kevin Durant and sports business executive Rich Kleiman, as a Strategic Advisor.
- Canopy Rivers invested an additional $1.5 million in PharmHouse in Q3 2020.
TerrAscend Canada
- TerrAscend Canada received approval from Health Canada for an expansion at its Mississauga, Ontario facility, including a commercial kitchen, formulation rooms, testing lab, space for breeding and research and development, and increased primary and secondary packaging capacity. TerrAscend also received an amendment to its licence from Health Canada allowing it to process and sell cannabis edibles, extracts, and topicals.
JWC
- JWC received Health Canada licence amendments allowing for cannabis production in four new flowering rooms and the processing and sale of cannabis edibles, extracts, and topicals at its second facility. JWC also expanded its compassionate care program, launched four new strains, and announced its intention to open a farmgate store.
YSS
- YSS entered into a definitive agreement to acquire a licensed cannabis retail operator in Swift Current, Saskatchewan, marking the company's first expansion outside of Alberta. On December 6, 2019, YSS opened its retail location in Okotoks, Alberta, operating under the Sweet Tree brand.
Radicle
- Radicle signed an agreement with Spectrum Therapeutics, Canopy Growth Corporation's medical cannabis distribution platform. Radicle also received approval for oil sales from Health Canada. The additional licence allows for the development and sale of new cannabis products, including cannabis oil and concentrates.
Tweed Tree Lot
- Canopy Rivers advanced $13.5 million to Tweed Tree Lot pursuant to the terms of a repayable debenture. This amount was immediately set-off against the purchase price of a royalty interest pursuant to the terms of a royalty agreement between Canopy Rivers and Tweed Tree Lot, which initiated a long-term cash flow stream that is anticipated to result in a minimum annual payment of approximately $2.9 million over a 25-year term.
Headset
- Headset, Inc. ("Headset") launched Retail Market Benchmark for Headset Retailer, its retail data intelligence tool. Retail Market Benchmark enables cannabis retailers to keep track of their sales metrics and enable Vendor Managed Inventory with vendors, and retailers can use the tool to compare their metrics to the overall marketplace. Headset also launched the Demand Planning add-on to help retailers understand the "when" of the retail cannabis industry.
High Beauty
- High Beauty announced that the company's 2019 sales growth was driven by its growing list of retailers in the U.S., Canada, and Europe. In the U.S., High Beauty was the first cannabis brand in Macy's, and also sells in Sephora, Urban Outfitters, and Anthropologie, among others. In Canada, High Beauty has signed contracts with Indigo, Hudson's Bay, and Shoppers Drug Mart, while its European distributors include Douglas and Amazon.
- Canopy Rivers invested an additional $1.0 million in High Beauty in Q3 2020.
Subsequent Corporate and Portfolio Updates
Subsequent to the end of Q3 2020, Canopy Rivers and its portfolio companies reported several achievements:
Canopy Rivers
- Canopy Rivers, TerrAscend Canada and TerrAscend amended the terms of the Loan and Canopy Rivers and TerrAscend Canada entered into a new $13.2 million loan agreement. TerrAscend also issued Canopy Rivers additional common share purchase warrants of TerrAscend.
- Canopy Rivers subscribed for 2,380,952 units of JWC's non-brokered private placement for total consideration of approximately $0.5 million.
Canapar
- Canapar successfully installed its extraction machinery and started the commissioning of its full site. Canapar also received the 100 National Ambassadors Award, an award presented by Italy's Senate of the Republic to entities that are enhancing their community's socio-economic development.
PharmHouse
- PharmHouse completed the construction and commissioning of its greenhouse. Its licence amendment application is in active review with Health Canada. PharmHouse plans to ramp up its entire 1.3 million square foot greenhouse in the coming months, subject to receipt of regulatory approval.
Vert Mirabel
- Vert Mirabel's greenhouse is fully utilized and the company has begun weekly harvesting of its cannabis for distribution in Québec and across the country.
BioLumic
- BioLumic Ltd. ("BioLumic") received approval from the New Zealand Ministry of Health to apply its proprietary ultraviolet light technology to medical cannabis. To bring this research program to life, BioLumic is partnering with JWC as well as Auckland-based medical cannabis company Helius Therapeutics. With the support of these partnerships, BioLumic plans to begin conducting medical cannabis commercial trials in New Zealand and Canada by July 2020.
High Beauty
- High Beauty's founder, Melissa Jochim, was awarded the Rising Star Award in the Beauty Entrepreneur category by Fashion Group International. Ms. Jochim was recognized for her leadership and use of cannabis sativa seed oil in High Beauty's products. High Beauty also officially launched its retail presence in Canada on January 30, 2020.
YSS
- YSS opened two flagship stores, one of each under the Sweet Tree and YSS brands, in Calgary, Alberta. The company also announced the opening of its 17th store, YSS Grand Prairie, on February 8, 2020. YSS also applied for its Retail Operator Licence with the Alcohol and Gaming Commission of Ontario as it advances expansion plans for Ontario.
TerrAscend
- TerrAscend announced that its majority owned subsidiary TerrAscend NJ, LLC was issued a permit to cultivate medical cannabis by the New Jersey Department of Health. Later in January, TerrAscend Utah, LLC, a majority-owned subsidiary of TerrAscend, was awarded approval for a Medical Cannabis Processor Licence by the Utah Department of Agriculture and Food. Finally, TerrAscend announced that Jason Ackerman, the company's Executive Chairman, has been named interim CEO, replacing Michael Nashat, who will continue to serve as a member of TerrAscend's board of directors and act as a strategic advisor to the company. Mr. Ackerman is the founder and former CEO of online grocer FreshDirect. Mr. Ackerman is a senior advisor for the Boston Consulting Group and serves on the advisory board of The Naked Market and Hart Dairy.
Radicle
- Canopy Rivers advanced $1.0 million to Radicle pursuant to a convertible debenture agreement and received common share purchase warrants of Radicle.
For more information regarding the Company and its portfolio companies, please refer to the Q3 2020 MD&A and the Company's annual information form dated July 15, 2019 ("AIF"), filed with the Canadian securities regulators and available on Canopy Rivers' profile on SEDAR at www.sedar.com.
About Canopy Rivers Inc.
Canopy Rivers is a venture capital firm specializing in cannabis. Its unique investment and operating platform is structured to pursue investment opportunities in the emerging global cannabis sector. Canopy Rivers identifies strategic counterparties seeking financial and/or operating support. Canopy Rivers has developed an investment ecosystem of complementary cannabis operating companies that represent various segments of the value chain across the emerging cannabis sector. As the portfolio continues to develop, constituents will be provided with opportunities to work with Canopy Growth Corporation WEEDCGC and collaborate among themselves, which Canopy Rivers believes will maximize value for its shareholders and foster an environment of innovation, synergy and value creation for the entire ecosystem.
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. 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 goals, plans and future activities; expectations regarding industry trends, investment opportunities and portfolio company milestones; expectations regarding the Company's and the equity method investees' future financial results; management's belief in the strength of the Company's balance sheet; the intention of JWC to open a farmgate store; PharmHouse's plans to ramp up its entire 1.3 million square foot greenhouse in the coming months; the anticipated annual minimum cash flow stream to the Company from Tweed Tree Lot; BioLumic's plans to begin conducting medical cannabis commercial trials and the locations and timing thereof; YSS' expansion plans for Ontario; 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. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: regulatory and licensing risks; competition; changes in cannabis industry growth and trends; changes in the business activities and plans of the Company and its investees and the timing associated therewith; the Company's and the equity method investees' actual financial results and the Company's ability to create long-term value for shareholders; the ability of Canopy Rivers' investees to collaborate; changes in general economic, business and political conditions, including changes in the financial markets; 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 Corporation and its portfolio companies; 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; 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.
SOURCE Canopy Rivers Inc.
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