RIV Capital Reports Financial Results for the Three Months Ended June 30th, 2023

News provided by

Aug 28, 2023, 18:59 ET

Well capitalized to execute on the significant New York market opportunity and enter new geographies with $90.7 million in cash at period end

Chestertown facility expansion ramping up with products anticipated to reach the New York wholesale market in the fourth quarter of calendar year 2023

Construction of flagship Buffalo facility continues, with cultivation and production operations expected to commence mid 2024

TORONTO, Aug. 28, 2023 /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 three months ended June 30, 2023 ("CQ2 2023"). Due to a change in the Company's fiscal year end from March 31st to December 31st, the Company's current fiscal year will be comprised of three quarters for a total of nine months, beginning on April 1, 2023, and ending on December 31, 2023. All financial information in this press release is reported in U.S. dollars unless otherwise indicated.

Management Commentary

"With our continued progress on the development of our flagship Buffalo facility, as well as the operational enhancements we have completed in Chestertown, we have rapidly advanced our core strategy of deepening our operations within New York ahead of our anticipated entry into the adult-use market," said Mike Totzke, COO and interim CEO of RIV Capital. "We continue to optimize our wholesale channels, and we expect products cultivated and produced in the expansion facility to hit the market by the end of the year. In Buffalo, we received regulatory approval for the facility and expect to complete construction in the third quarter of 2024."

"Our innovation pipeline is growing as we look to introduce several new form factors to patients and consumers in the coming quarters. It is our intention to remain competitive in the burgeoning New York market through continued differentiation of our product suite together with exceptional quality, broad offerings, and favorable price points."

"While the market rollout in New York has not been as smooth as we had hoped, we are encouraged by recent developments, including enhanced enforcement actions to combat the illicit market and continued movement towards the proposed opening of the state's adult-use market. It is still our firm belief that New York is well on its way to being one of the most exciting and significant adult-use markets in the country, and we look forward to making a notable mark there when it opens."

Eddie Lucarelli, CFO of RIV Capital, added, "A core focus of the business continues to be the thoughtful deployment of capital in New York, where we expect to benefit from a first-mover advantage in the wholesale market and aim to establish our position as a leading operator in the state. Our liquidity position remains strong, and we anticipate executing on additional opportunities to further expand our geographical footprint with the core goal of driving sustained shareholder value."

New York Regulatory Update

In recent months, New York regulators have begun actively working to reduce the breadth and scope of illicit operations in the state. The Company commends state officials for this necessary step toward displacing the illicit New York market, which has resulted in unsafe conditions for patients and consumers and unfavorable market pressure on legal cannabis operators.

The Company continues its cooperation and active dialogue with other stakeholder groups as well as the New York Cannabis Control Board and Office of Cannabis Management (the "OCM") and looks forward to working collaboratively with these parties as the market rollout continues. The Company still anticipates that it is on track to enter the adult-use ("AU") wholesale market in the fourth quarter of calendar year 2023 ("CQ4 2023"), with a first retail dispensary expected to open by January 1, 2024, followed by two additional retail dispensaries expected to open on or around July 1, 2024.

Progress is gradually being made in New York, and while certain legal hurdles have emerged regarding the revised proposed draft regulations, RIV Capital remains dedicated to fostering the development of a successful, safe, and equitable cannabis market that will best serve patients and consumers.

Strategic and Operational Update

Chestertown Facility
The Chestertown, New York facility expansion is now operational, and the Company is ramping up usage of the new greenhouse bays. With the completion of this project, the Company is well on pace to begin introducing products cultivated and manufactured in Chestertown to medical patients over the next 3 months, ahead of the Company's planned entry into the AU wholesale market in CQ4 2023.

Flagship Buffalo Facility
Construction continues at the Company's indoor flagship facility following receipt of OCM regulatory approval for the site. The new cultivation and manufacturing facility in Buffalo will focus on the production of premium flower and will significantly expand the Company's cultivation and manufacturing capabilities in the state. Completion of the construction and commissioning of the facility is expected to occur by CQ3 2024. The Company will require additional OCM approval prior to the commencement of commercial operations.

Strategic Growth Committee
As previously disclosed, the Strategic Growth Committee ("SGC") has commenced an expansive due diligence process to identify a small subset of counterparties that are ideally situated for a potential M&A transaction. The SGC continues its work and has advanced discussions with a small list of counterparties it believes will best enhance the Company's strategic goals of expanding its geographic footprint and unlocking the value of its New York assets.

Marketing and Product Development
As of June 30, 2023, Etain products were in 34 of 38, or nearly 90%, of medical dispensaries across the state. Etain continues to optimize its wholesale channel for anticipated entry into the AU market later this year.

The Company is currently making operational enhancements and deploying new technologies to diversify its offering in anticipation of launching a number of new, innovative products across various form factors. Most recently, Etain debuted a new flower size offering, 7g Smalls, available in a variety of strains.

CQ2 2023 Financial Results

The following is a summary of the Company's financial results for the three months ended June 30, 2023 and 2022. 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⁽¹⁾
	Three months ended June 30, 2023	Three months ended June 30, 2022
Revenue	$ 1,901	$ 1,428
Excise taxes	(115)	(87)
Total revenue, net	1,786	1,341
Cost of goods sold	1,591	783
Gross profit excluding fair value items	195	558
Fair value items included in gross profit	198	(36)
Gross profit	393	522
Selling, general, and administrative expenses	5,306	5,529
Operating loss	(4,913)	(5,007)
Other income (loss)	(4,289)	2,157
Loss before taxes	(9,202)	(2,850)
Income tax expense (recovery)	(60)	624
Net loss	$ (9,142)	$ (3,474)
Other comprehensive loss	(598)	(4,549)
Total comprehensive loss	$ (9,740)	$ (8,023)

Loss per share – basic	$ (0.07)	$ (0.02)
Loss per share – diluted	$ (0.07)	$ (0.02)

(1)	The Company changed its presentation currency from the Canadian dollar to the U.S. dollar, effective April 1, 2022. Comparative period results have been restated to reflect current period presentation.

Summary Cash Flows and Financial Position Data
	Three months ended June 30, 2023	Three months ended June 30, 2022
Net cash flows from operating activities	$ (5,714)	$ (4,734)
Net cash flows from investing activities	19,066	(166,079)
Net cash flows from financing activities	(579)	24,550
Net increase (decrease) in cash	$ 12,773	$ (146,263)
Effect of foreign exchange rate movements on cash held	479	(906)
Cash, beginning of fiscal period⁽¹⁾	77,468	318,706
Cash, end of fiscal period	$ 90,720	$ 171,537

	As at June 30, 2023	As at March 31, 2023
Current assets	$ 104,336	$ 111,906
Non-current assets	154,020	149,912
Total assets	$ 258,356	$ 261,818

Current liabilities	$ 5,830	$ 6,828
Non-current liabilities	153,503	146,143
Total liabilities	$ 159,333	$ 152,971

Total shareholders' equity	$ 99,023	$ 108,847

(1)

At the beginning of the fiscal period for the three months ended June 30, 2023, the Company had $20.4 million of surplus cash invested in instruments with a maturity of greater than three months, which was classified separate from cash on the Company's consolidated statements of financial position as at March 31, 2023. During the three months ended June 30, 2023, these investments matured and were reclassified to cash upon reinvestment in term deposits with a maturity of less than three months.

The Company reported revenue, net of excise taxes, of $1.8 million for CQ2 2023, compared to $1.3 million for the three months ended June 30, 2022 ("CQ2 2022"). Retail revenue of $1.7 million was generated from Etain's medical dispensaries in Manhattan, Kingston, Syracuse, and Yonkers, and wholesale revenue of $0.2 million was generated from sales of Etain-branded medical cannabis products to other registered organizations in New York. The year-over-year increase in revenue was primarily attributable to the recognition of a full quarter of revenue contribution from Etain in the current period, while the same period in the prior year only reflected revenue contribution from April 22^nd onwards. Revenue continues to be in line with comparable periods as a result of the slowdown in progression toward the wider launch of the AU market, as well as competition from the rampant illicit market.

The Company reported cost of goods sold (which excludes unrealized fair value changes included in biological assets and realized fair value changes included in inventory sold) of $1.6 million for CQ2 2023, compared to $0.8 million for CQ2 2022. The increase in cost of goods sold for CQ2 2023 can be attributed to the ramp-up of Etain's operations ahead of its anticipated entry into the AU market, which is expected in CQ4 2023.

CQ2 2023 gross profit was $0.4 million compared to a gross profit of $0.5 million for CQ2 2022.

The Company reported selling, general, and administrative expenses of $5.3 million for CQ2 2023, compared to $5.5 million for CQ2 2022. While the overall scope of the Company's operations has increased since CQ2 2022, it is focused on maintaining effective operating expense controls to prudently manage the scaling up of the business.

The Company reported other loss of $4.3 million for CQ2 2023, compared with other income of $2.2 million for CQ2 2022. Non-cash accretion and interest expense comprised $3.5 million of this amount in CQ2 2023.

The Company reported an income tax recovery of $0.1 million for CQ2 2023, compared with an income tax expense of $0.6 million for CQ2 2022.

The Company reported a net loss of $9.1 million, and a basic and diluted loss per share of $0.07, for CQ2 2023, compared with a net loss of $3.5 million, and a basic and diluted loss per share of $0.02, for CQ2 2022.

The Company reported other comprehensive loss of $0.6 million for CQ2 2023, compared with $4.5 million for CQ2 2022.

CQ2 2023 total comprehensive loss was $9.7 million compared with $8.0 million for CQ2 2022.

An audio-only recording of RIV Capital's conference call will be available on the Company's website at www.rivcapital.com/investors.

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 June 30, 2023, which are available under the Company's profile on SEDAR+ at www.sedarplus.ca and on the Company's website at www.rivcapital.com/investors.

For more information regarding the Company and its portfolio companies, please refer to the MD&A and the Company's annual information form ("AIF") dated June 14, 2023, also available under the Company's profile on SEDAR+ at www.sedarplus.ca 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 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 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 in respect of Etain and its product portfolio; the Company's expectations regarding the proposed regulations for the New York adult-use cannabis market; the Company's liquidity position, including its ability to finance its growth objectives in New York and long-term expansion plans; the Company's strategy to invest in and/or acquire US-based cannabis companies; the Company's expectations with respect to the establishment of the Strategic Growth Committee; expectations regarding M&A opportunities; plans with respect to searching for a new CEO; the Company's expectations for creation of multiple avenues to realize shareholder value; the true value of the Company; the Company's ability to appropriately scale Etain's existing infrastructure, processes and systems and the development of a robust wholesale program; the Company's expectations regarding the U.S. cannabis market; expectations regarding legal cannabis market opportunities in New York and the benefits of the New York cannabis market; the ability of the Company to capitalize on its assets, including its balance sheet, strategic partner and vertical licenses in New York; expectations regarding adult-use sales in the state of New York; expectations regarding the expansion of Etain's Chestertown facility, and the impact of the expansion on the existing cultivation and production footprint; expectations regarding the timing of the Company's entry into the AU wholesale market; plans to update Etain's existing retail locations and the potential to build new locations; the Company's expectations regarding Etain's position in the New York cannabis market; the Company's expectations and plans regarding Etain's business, including its market share, sales, brand, products and locations; the Company's expectations regarding growth opportunities; challenges faced by the existing U.S. medical cannabis market; the Company's expectations with respect to the development of the Buffalo flagship facility and expectations related thereto, including timing for completion thereof; the Company's expectations regarding its capital allocation strategy; 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 and AIF filed with the Canadian securities regulators and available on RIV Capital's profile on SEDAR+ at www.sedarplus.ca.

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.

SOURCE RIV Capital Inc.