Bookmark and Share

$CNPOF $RIV.V Q2 FY20 Financial Results and Corporate Update

TORONTO, Nov. 14, 2019 - Canopy Rivers Inc. (the “Company” or “Canopy Rivers“) (TSX: RIV, OTC: CNPOF), a venture capital firm specializing in cannabis, today released its financial results for the three and six months ended September 30, 2019 (“Q2 2020“). The Company’s unaudited condensed interim consolidated financial statements for Q2 2020, and its management’s discussion and analysis for Q2 2020 (the “Q2 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.

“Headlined by our graduation to the TSX, our business matured during the second quarter as we launched our Strategic Advisory Board and continued to work closely with our portfolio companies as they achieved new milestones,” said Narbé Alexandrian, President & CEO, Canopy Rivers. “There were numerous achievements for our portfolio companies this quarter. Several of these companies received licences and amendments from Health Canada for the sale of cannabis oils, while others made key acquisitions, launched their Canadian business, or brokered agreements with companies both inside and outside of the Canopy Rivers ecosystem. As we move forward, we plan to continue to develop a robust ecosystem of mutually beneficial cannabis companies intended to drive the industry forward and lay down the foundation for long-term success.”

Q2 2020 Financial Results1

Select Summary of Quarterly Results
As at As at
Period ended 30-Sep-19 31-Mar-19
Cash $ 82,779 $ 104,183
Total assets 379,672 419,285
Total liabilities 6,085 11,099
Total shareholders’ equity 373,587 408,186
Three months
ended 
Three months
ended 
30-Sep-19 30-Sep-18
Operating income $ 930 $ 23,273
Operating expenses 6,192 8,959
Net operating income (loss) (5,262) 14,314
Net income (loss) (4,406) 10,949
Other comprehensive income (loss) (net of tax) (28,252) 26,630
Total comprehensive income (loss) (32,658) 37,579
Basic earnings (loss) per share (“EPS”) $ (0.02) $ 0.08
Diluted EPS $ (0.02) $ 0.07
Cash flows used in operating activities (669) (831)
Cash flows used in investing activities (5,371) (13,165)
Cash flows provided by financing activities 69 99,705
Six months
ended 
Six months
ended 
30-Sep-19 30-Sep-18
Operating income $ 3,615 $ 24,017
Operating expenses 11,959 16,306
Net operating income (loss) (8,344) 7,711
Net income (loss) (7,372) 4,321
Other comprehensive income (loss) (net of tax) (34,036) 24,259
Total comprehensive income (loss) (41,408) 28,580
Basic EPS $ (0.04) $ 0.03
Diluted EPS $ (0.04) $ 0.03
Cash flows used in operating activities (3,457) (1,705)
Cash flows used in investing activities (18,102) (39,242)
Cash flows provided by financing activities 155 100,493
1 The financial highlights in this release are presented in CAD$ thousands.

 

“Although the cannabis industry experienced challenging capital markets conditions during the quarter, our view is that the underlying positive momentum across the sector globally will help propel disciplined companies through these headwinds,” said Eddie Lucarelli, Chief Financial Officer, Canopy Rivers. “We believe that a strong balance sheet and a continually maturing market create optimal conditions for investment opportunities for Canopy Rivers. We remain focused on our business model of providing capital to the disruptors of the cannabis industry, while maintaining a thesis-driven approach to investment decisions and keeping long-term value creation for our shareholders front of mind.”

During the quarter ended September 30, 2019, Canopy Rivers generated operating income of $930 thousand, primarily driven by royalty, interest, and lease income of $2.2 million from: royalty and debenture agreements with Agripharm Corp., 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company, James E. Wagner Cultivation Corporation (“JWC“), and Radicle Medical Marijuana Inc. (“Radicle“); a lease agreement with Spot Therapeutics Inc. (“Spot“); and a shareholder loan agreement with PharmHouse, Inc. (“PharmHouse“). This income was partially offset by a $559 thousand net decrease in the fair value of certain financial assets that are reported at fair value through profit or loss. Operating income was further offset by a $682 thousand 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., 10663522 Canada Inc. d/b/a Herbert Works (“Herbert Works“), High Beauty, Inc., 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.

Operating expenses for the quarter were $6.2 million, of which $3.0 million (or approximately 48% of the total) related to share-based compensation. As with previous reporting periods, a significant portion of this non-cash expense is related to options granted to non-employees, which occurred at an early stage in the Company’s growth and requires remeasurement each period. Other operating expenses, which include consulting and professional fees and other general and administrative expenses, were $3.2 million, representing an increase from the comparative quarter last year due to the build-out of the Company’s management team and employee base and enhanced public company compliance, marketing and business development, and regulatory costs. Other operating expenses also increased from the previous quarter due to certain non-recurring costs relating to the Company’s graduation to the Toronto Stock Exchange (“TSX“) and the launch of a formal branding and marketing campaign.

Other comprehensive income, which captures the net changes in fair value of financial assets that are reported at fair value through other comprehensive income, was a loss of $28.3 million, net of tax. The fair values of Canopy Rivers’ investments in Eureka 93 Inc., JWC, YSS Corp. (“YSS“), Les Serres Vert Cannabis Inc. and TerrAscend Corp. (“TerrAscend“) were negatively impacted by downward trends in public market valuations for cannabis companies during the period.

Q2 2020 Corporate and Portfolio Updates

The following represents a brief summary of the milestones achieved by Canopy Rivers and/or its portfolio companies during the quarter ended September 30, 2019:

  • Canopy Rivers graduated from the TSX Venture Exchange and began trading on the TSX under the trading symbol “RIV”.
  • Canopy Rivers launched its Strategic Advisory Board to provide guidance and value to the Company’s executive team as it continues to build and strengthen the Company’s portfolio.
  • TerrAscend acquired Ilera Healthcare, a vertically-integrated cannabis cultivator, processor, and dispensary operator in Pennsylvania; and entered into an agreement to acquire a California cultivator that owns premium cannabis flower brand, State Flower.
  • TerrAscend Canada Inc. (“TerrAscend Canada“), a wholly-owned subsidiary of TerrAscend, entered into a distribution agreement with Syqe Medical, Ltd., an Israel-based pharmaceutical-technology company, to launch the Syqe™ Inhaler in Canada. TerrAscend Canada also commenced sales to Europe through its German distribution partner, becoming the first, and, to management’s knowledge, only cannabis company with sales in Canada, the U.S., and the European Union. Finally, Health Canada granted TerrAscend Canada an amendment to its licence allowing for the sale of cannabis oils, which it intends to facilitate through its online medical sales platform, Solace Health.
  • Herbert Works received a research and development licence from Health Canada to develop cannabis-infused beverages.
  • Headset, Inc. launched Headset Insights in Canada, with Alberta signing on as the first province to access the product. YSS also adopted Headset Insights to gain data and insights related to consumer behavior.
  • YSS received its 12th cannabis retail licence in Alberta, and now has 12 licensed- operating stores located throughout the province.
  • Radicle received approval from Health Canada for its production facility expansion project, effectively doubling its production capacity.
  • PharmHouse received a cultivation licence from Health Canada for 190,000 square feet of licensed nursery infrastructure. Subject to approval from Health Canada, PharmHouse plans to ramp up its entire 1.3 million square foot greenhouse in the coming months.
  • JWC received a licence amendment from Health Canada allowing for the sale of cannabis oils from JWC’s pilot facility in Kitchener, Ontario. Through a collaboration developed alongside Canopy Rivers, JWC also entered into a purchase and sale agreement with TerrAscend Canada, pursuant to which JWC has agreed to supply cannabis flower and oils to TerrAscend Canada that will be sold online through Solace Health.

Subsequent Corporate and Portfolio Updates

Subsequent to the end of the quarter, Canopy Rivers and its portfolio companies reported several achievements:

  • Radicle signed an agreement with Spectrum Therapeutics (“Spectrum“), Canopy Growth Corporation’s medical cannabis distribution platform, to make Radicle’s products available through Spectrum. Radicle also received approval for cannabis oil sales from Health Canada.
  • Canopy Rivers partnered with Kindred Partners Inc. (“Kindred“), a wholly-owned subsidiary of Breakthru Beverage Group, to provide the Company and its portfolio companies with access to Kindred’s brokerage, marketing, and brand-building services. Immediately following this announcement, TerrAscend Canada and Kindred announced the formation of a brokerage partnership pursuant to which Kindred will serve as the exclusive broker for TerrAscend Canada’s adult-use cannabis products in Canada.
  • YSS entered into a definitive agreement to acquire a licensed cannabis retail operator in Swift Current, Saskatchewan, marking the first step in its anticipated expansion outside of Alberta. The retail location in Swift Current will be branded under its “Sweet Tree” banner.
  • Canopy Rivers advanced $13.5 million to Spot 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 Spot, which initiated a long-term cash flow stream that is anticipated to result in a minimum annual payment of approximately $2.85 million over a 25-year term.
  • JWC received a Health Canada licence amendment allowing for cannabis production in four new flowering rooms at its flagship facility, and a Health Canada sales licence for cannabis edibles, extracts, and topicals.
  • Canopy Rivers completed a US$10 million loan to TerrAscend Canada. Following completion of the transaction with TerrAscend Canada and discussions with the TSX, the Company intends to make certain amendments to the terms of the transaction regarding the conversion rights, form of interest payments and guarantee provisions. The net proceeds are expected to be used by TerrAscend Canada for general corporate purposes and will not be used, directly or indirectly, in connection with any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States.
  • TerrAscend Canada received approval from Health Canada for an expansion at its Mississauga, Ontario facility. The approval nearly tripled TerrAscend Canada ‘s licensed space to 51,800 square feet, and the expanded space includes additional cultivation capacity, a commercial kitchen, formulation rooms, and increased primary and secondary packaging capacity. TerrAscend Canada also received a Health Canada sales licence for cannabis edibles, extracts, and topicals.

For more information regarding the Company and its portfolio companies, please refer to the Q2 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 (TSX: WEED, NYSE: CGC) 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 plans, activities  and expected future focus; the anticipated benefits of the Company’s Strategic Advisory Board; the anticipated impact of challenging capital markets volatility and positive momentum across the global cannabis sector; expectations that the Company’s balance sheet and market conditions create an optimal condition for investment opportunities for Canopy Rivers, expectations of return on the Company’s investments; expectations for the Company’s creation of long term value creation for shareholders, management’s expectation that equity method investees will continue to generate net losses during the remainder of the Company’s fiscal year; the ability of the Company’s investees to leverage strengths within the Canopy Rivers ecosystem in order to accelerate individual paths to success and create value for the Company; TerrAscend Canada’s intention to sell cannabis oils through its online medical sales platform, Solace Health; the expected increase in Radicle’s production capacity; the planned sale of Radicle’s products on Canopy Growth Corporation’s medical cannabis distribution platform, Spectrum; PharmHouse’s plans to ramp up its entire 1.3 million square foot greenhouse in the coming months; JWC’s supply of cannabis flower and oils to TerrAscend Canada and the sale of such products on Solace Health; the anticipated annual minimum cash flow stream to the Company from Spot; YSS’s expansion plans outside of Alberta; the anticipated increase in TerrAscend Canada’s licensed facility; the Company’s intention to make certain amendments regarding its loan to TerrAscend Canada; TerrAscend Canada’s anticipated use of net proceeds received from the Company; and expectations for other economic, business, and/or competitive factors.

Investors are cautioned that forward-looking information is not based on historical fact but instead reflects management’s expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although 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 focus, business activities and plans of the Company and its investees and the timing associated therewith as well as the impact and/or benefits thereof; the Company’s actual financial results and 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.

Thursday, November 14th, 2019 Uncategorized