RIV Capital Reports Fourth Quarter and Fiscal Year 2021 Financial Results

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Jun 03, 2021, 07:00 ET

Comprehensive income of $67.3 million for fiscal year

Strong balance sheet following successful monetization of three portfolio assets

Closing of milestone transaction with Canopy Growth positions Company to execute strategic pivot to U.S. cannabis market

Company fully settles obligations pursuant to PharmHouse Credit Facility

TORONTO, June 3, 2021 /PRNewswire/ - RIV Capital Inc. ("RIV Capital" or the "Company") (TSX: RIV) (OTC: CNPOF) today released its financial results for the fourth quarter ("Q4 2021") and fiscal year ended March 31, 2021 ("FY 2021").

"Our quarter and fiscal year were highlighted by the closing of our milestone transaction with Canopy Growth, paving the way for RIV Capital to launch into the U.S. market," said Narbé Alexandrian, President and CEO, RIV Capital. "This transaction returned several multiples on invested capital and provided us with the strategic flexibility needed to pivot our business model. With a revitalized balance sheet and our new strategy in place, we have been actively sourcing opportunities in the world's largest and most exciting cannabis market, and continue to believe that this next chapter will create significant value for our shareholders in the quarters to come."

CGC Transaction

On February 23, 2021, the Company closed its previously-announced milestone transaction with Canopy Growth Corporation ("Canopy Growth"), in which the Company disposed of certain financial assets held in TerrAscend Corp. ("TerrAscend"), TerrAscend Canada Inc. ("TerrAscend Canada"), The Tweed Tree Lot Inc. ("Tweed Tree Lot"), and Les Serres Vert Cannabis Inc. ("Vert Mirabel") in exchange for $118.4 million in cash, approximately 3.65 million common shares of Canopy Growth, and the cancellation of the multiple voting shares and subordinated voting shares of the Company held by Canopy Growth (collectively, the "CGC Transaction"). As a result of the completion of the CGC Transaction, the Company's dual class share structure was eliminated.

The proceeds received from the CGC Transaction represented a substantial return on invested capital for the Company. The total fair value of the consideration received was measured at $335.9 million upon closing of the CGC Transaction. The Company's financial results for Q4 2021 reflect the impact of fair valuing the disposed assets based on the fair value of the consideration received for each asset, as well as the derecognition of the disposed assets and the corresponding recognition of the consideration received.

As previously communicated, upon completion of the CGC Transaction, RIV Capital formally shifted its strategic focus to pursue potential material investments in, or acquisitions of, operating businesses in the U.S. cannabis market. The Company believes that as a result of the relative size of the addressable market and favourable industry trends, as well as unique current regulatory and capital markets conditions, deploying capital in the U.S. cannabis sector represents the greatest value creation opportunity for its shareholders. As the Company's potential future investments in, or acquisitions of, U.S. cannabis businesses may be inconsistent with the policies of the Toronto Stock Exchange (the "TSX"), the Company anticipates that it will de-list its securities from the TSX and list its securities on a stock exchange that does not prohibit such investments or acquisitions. The Company expects to provide an update on the de-listing in due course.

Since the announcement of the CGC Transaction in December 2020, the Company has aimed to maximize its available cash on hand in order to enhance its relative advantage in pursuing potential opportunities in the U.S. cannabis market, where access to capital continues to be constrained relative to more mature sectors with fewer regulatory obstacles. Accordingly, during Q4 2021, the Company commenced the process of divesting the Canopy Growth shares received as consideration in the CGC Transaction. As of the date of this press release, the Company has sold all 3.65 million Canopy Growth shares for net proceeds of approximately $110.0 million.

Q4 2021 Financial Results^{^[1]}

¹ The financial highlights in this summary are presented in CA$ thousands, unless otherwise noted.


Select Summary of Quarterly Results	Three months ended	Three months ended
	31-Mar-21	31-Mar-20
Operating income (before equity method investees and fair value changes)	$ 748	$ 2,589
Operating expenses	7,890	3,484
Net operating loss (before equity method investees and fair value changes)	(7,142)	(895)
Equity method investees and fair value changes⁽¹⁾	(19,857)	(29,656)
Other PharmHouse-related charges	2,800	(1,015)
Net operating loss	(24,199)	(31,566)
Net loss	(21,478)	(30,515)
Other comprehensive income (loss) (net of tax)	86,324	(6,280)
Total comprehensive income (loss)	64,846	(36,795)

Basic earnings (loss) per share ("EPS")	$ (0.13)	$ (0.16)
Diluted EPS	$ (0.13)	$ (0.16)

Cash flows used in operating activities	(5,278)	(686)
Cash flows provided by (used in) investing activities	94,142	(2,335)
Cash flows provided by financing activities	1,023	67

	Twelve months ended	Twelve months ended
	31-Mar-21	31-Mar-20
Operating income (before equity method investees and fair value changes)	$ 618	$ 11,922
Operating expenses	15,505	19,303
Net operating loss (before equity method investees and fair value changes)	(14,887)	(7,381)
Equity method investees and fair value changes⁽¹⁾	(16,874)	(32,323)
Other PharmHouse-related charges	(118,681)	(2,253)
Net operating loss	(150,442)	(41,957)
Net loss	(133,880)	(40,566)
Other comprehensive income (loss) (net of tax)	201,201	(77,560)
Total comprehensive income (loss)	67,321	(118,126)

Basic EPS	$ (0.72)	$ (0.22)
Diluted EPS	$ (0.72)	$ (0.22)

Cash flows used in operating activities	(8,093)	(7,666)
Cash flows provided by (used in) investing activities	88,232	(50,755)
Cash flows provided by financing activities	1,019	962

(1) Excludes the Company's share of loss on its investment in PharmHouse common shares, which is reflected in "PharmHouse-related charges"

"Throughout the fourth quarter, we maintained a dual focus on successfully closing our milestone transaction with Canopy Growth, while managing our liability exposure on PharmHouse," said Eddie Lucarelli, Chief Financial Officer, RIV Capital. "With the CGC Transaction complete and the PharmHouse Credit Facility fully settled, our rejuvenated balance sheet puts us in an advantageous position to capitalize on the growing momentum in the U.S. cannabis market."

Operating Income and Expenses


	Three months ended	Three months ended
	31-Mar-21	31-Mar-20
Royalty, interest, and lease income (before provisions)	$ 844	$ 2,858
Provision for credit losses on interest and royalty receivables
PharmHouse	-	-
Other	(96)	(269)
Operating income (before equity method investees and fair value changes)	$ 748	$ 2,589

General and administrative expenses	$ 1,972	$ 1,330
Consulting and professional fees	685	866
Share-based compensation	500	1,246
Depreciation and amortization expense	46	42
Restructuring costs	4,687	-
Operating expenses	$ 7,890	$ 3,484

Net operating loss (before equity method investees and fair value changes)	$ (7,142)	$ (895)

	Twelve months ended	Twelve months ended
	31-Mar-21	31-Mar-20
Royalty, interest, and lease income (before provisions)	$ 13,430	$ 12,191
Provision for credit losses on interest and royalty receivables
PharmHouse	(8,939)	-
Other	(3,873)	(269)
Operating income (before equity method investees and fair value changes)	$ 618	$ 11,922

General and administrative expenses	$ 5,582	$ 6,630
Consulting and professional fees	1,853	3,470
Share-based compensation	934	9,033
Depreciation and amortization expense	183	170
Restructuring costs	6,953	-
Operating expenses	$ 15,505	$ 19,303

Net operating loss (before equity method investees and fair value changes)	$ (14,887)	$ (7,381)

The Company reported operating income (before equity method investees and fair value changes) of $0.7 million for the quarter. Operating income primarily consisted of royalty and interest income (before provisions for expected credit losses) of $0.7 million generated from the Company's royalty and debenture agreements with Agripharm Corp. ("Agripharm"), 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company ("Greenhouse Juice"), Radicle Medical Marijuana Inc. ("Radicle"), and Tweed Tree Lot, as well as lease income generated from the Company's lease agreement with Tweed Tree Lot.

Operating expenses were $7.9 million for the quarter. General and administrative expenses were $2.0 million for the quarter, primarily attributable to employee compensation (including a variable component that was recognized in Q4 2021) and other general and administrative activities. Consulting and professional fees were $0.7 million for the quarter, primarily attributable to legal fees for general corporate and securities matters and litigation, as well as audit, tax, and other professional services. The Company also reported $4.7 million in restructuring costs during the quarter. These costs primarily related to financial and legal advisory and other professional fees incurred in connection with the CGC Transaction.

Equity Method Investees and Fair Value Changes


	Three months ended	Three months ended
	31-Mar-21	31-Mar-20
Share of loss from equity method investees
PharmHouse	$ -	$ (1,015)
Other	(47)	(2,183)
Impairment of equity method investees	-	(11,162)
Net change in fair value of financial assets at FVTPL	(19,810)	(16,311)
Other PharmHouse-related charges
Provision for credit losses on loans receivable	(1,700)	-
Provision for credit losses on financial guarantee liability	4,500	-
Equity method investees and fair value changes	$ (17,057)	$ (30,671)


	Twelve months ended	Twelve months ended
	31-Mar-21	31-Mar-20
Share of loss from equity method investees
PharmHouse	$ (37,025)	$ (2,253)
Other	(892)	(3,902)
Impairment of equity method investees	-	(11,162)
Net change in fair value of financial assets at FVTPL	(16,444)	(17,259)
Other PharmHouse-related charges
Provision for credit losses on loans receivable	(53,656)	-
Provision for credit losses on financial guarantee liability	(28,000)	-
Gain on disposition of equity method investee	462	-
Equity method investees and fair value changes	$ (135,555)	$ (34,576)

The Company's share of loss from equity method investees was nominal for the quarter, compared to $3.2 million for the same period last year. Greenhouse Juice, High Beauty, Inc. ("High Beauty"), LeafLink Services International ULC ("LeafLink International"), and Radicle represented the Company's equity method investees for which a share of income or loss was recognized for the quarter.

The Company also reported a net decrease in the fair value of financial assets that are reported at fair value through profit or loss ("FVTPL") of $19.8 million for the quarter. This decrease was primarily driven by the negative changes in the fair value of the Canopy Growth shares received as consideration in the CGC Transaction, and the TerrAscend term loan and warrants.

Net Change in Fair Value of Financial Assets at FVTOCI


	Three months ended	Three months ended
	31-Mar-21	31-Mar-20
TerrAscend	$ 109,412	$ (5,500)
Vert Mirabel	(7,629)	(88)
Nova Cannabis	468	(272)
Headset	-	415
Zeakal	(100)	1,214
BioLumic	(100)	-
Other	-	(2,862)
Gross change in fair value of financial assets at FVTOCI	$ 102,051	$ (7,093)
OCI income tax expense (recovery)	15,727	(609)
Net change in fair value of financial assets at FVTOCI⁽¹⁾	$ 86,324	$ (6,484)

	Twelve months ended	Twelve months ended
	31-Mar-21	31-Mar-20
TerrAscend	$ 247,912	$ (56,500)
Vert Mirabel	(11,029)	(14,586)
Nova Cannabis	195	(2,721)
Headset	(500)	297
Zeakal	(1,600)	713
BioLumic	(139)	-
Dynaleo	835	-
Other	(976)	(14,823)
Gross change in fair value of financial assets at FVTOCI	$ 234,698	$ (87,620)
OCI income tax expense (recovery)	33,475	(9,959)
Net change in fair value of financial assets at FVTOCI⁽¹⁾	$ 201,223	$ (77,661)

(1) In addition to the fair value change noted above, net change in fair value of financial assets at FVTOCI also includes FX gains/losses related to equity method investees denominated in USD currency

The Company reported total comprehensive income of $64.8 million for the quarter, compared with a total comprehensive loss of $36.8 million for the same period last year. The net change in the fair value of financial assets that are reported at fair value through other comprehensive income ("FVTOCI") was an increase of $86.3 million, primarily driven by the positive change of $109.4 million in the fair value of the Company's exchangeable shares in TerrAscend. This was partially offset by a negative change of $7.6 million in the fair value of the Company's investment in Vert Mirabel common shares, among other items.

Financial Position


	As at	As at
Period ended	31-Mar-21	31-Mar-20
Cash	$ 127,882	$ 46,724
Loans receivable	-	42,450
Equity method investees	7,366	50,543
Financial assets at FVTPL	164,030	80,170
Financial assets at FVTOCI	23,218	64,599
Other assets	12,866	15,899
Total assets	$ 335,362	$ 300,385

Financial guarantee liability	$ 3,000	$ -
Other liabilities	20,902	2,107
Total shareholders' equity	311,460	298,278
Total liabilities and shareholders' equity	$ 335,362	$ 300,385

PharmHouse Update

On March 3, 2021, the Company announced that PharmHouse had entered into an asset purchase agreement to sell its greenhouse facility and certain equipment located at the facility (the "PharmHouse Sale"). Upon approval of the PharmHouse Sale by the Ontario Superior Court of Justice, the Company made a payment of $25.0 million to the lenders (the "Lenders") of PharmHouse's $90.0 million non-revolving syndicated credit facility (the "PharmHouse Credit Facility") relating to the Company's estimated liability in respect of its guarantee of the PharmHouse Credit Facility (the "PharmHouse Guarantee"). As a result of this payment, the Company's liability in respect of the PharmHouse Guarantee, which had been estimated to be $32.5 million as at December 31, 2020, was reduced by $25.0 million.

As at March 31, 2021, the Company revised its estimated liability in respect of the PharmHouse Guarantee. The Company considered the total of: i) the net proceeds expected to be received pursuant to the PharmHouse Sale; and ii) the projected cash available for distribution upon termination of PharmHouse's proceedings under the Companies' Creditors Arrangement Act ("CCAA"), and compared this total to the principal amount then-outstanding on the PharmHouse Credit Facility of $65.0 million. Based on the foregoing, the Company estimated its remaining financial liability in respect of the PharmHouse Guarantee to be $3.0 million as at March 31, 2021.

Subsequent to the quarter, the PharmHouse Sale closed, and PharmHouse used the net proceeds received from the PharmHouse Sale to reduce the amount owing under the PharmHouse Credit Facility. Concurrently, the Company made a $7.5 million cash payment to the Lenders. This payment, when combined with the net proceeds received from the PharmHouse Sale and the $25.0 million payment made by RIV Capital in March 2021, among other items, satisfied all obligations outstanding pursuant to the PharmHouse Credit Facility. The PharmHouse Credit Facility has now been terminated and cancelled. The Company is entitled to any cash available for distribution upon termination of the CCAA proceedings.

As previously disclosed, the Company received a new statement of claim (the "Revised Claim") on February 10, 2021, filed by the PharmHouse majority shareholder concerning certain disputes relating to PharmHouse. The Revised Claim is substantially similar to a claim previously filed in September 2020, which was subsequently discontinued. As with the previously filed statement of claim, the Company views the Revised Claim as it relates to its actions to be completely without merit and intends to vigorously defend its position at the appropriate time and in the appropriate forum.

Q4 2021 Portfolio Updates

The following represents a brief summary of other developments in the RIV Capital portfolio during and subsequent to Q4 2021:

Subsequent to the quarter, Headset Inc. ("Headset") launched its Insights Premium platform in Pennsylvania, marking the first time a full market read of consumer insights has been available for the state. As part of this launch, Headset noted that Pennsylvania's medical-only market brought in approximately $909.0 million between April 2020 and March 2021. Headset also released several reports highlighting trends and growth in the broader U.S. market. In April, it projected that cannabis sales in the U.S. will reach approximately $23.0 billion in 2022.
YSS Corp. announced that it entered into a business combination agreement with Alcanna Inc. to form Nova Cannabis Inc (TSXV: NOVC) ("Nova"). This transaction also closed during the quarter. Subsequent to the quarter, the Company sold all of its common shares in Nova for net proceeds of approximately $1.4 million.
Subsequent to the quarter, the Company closed an agreement with Tweed Tree Lot to sell a property located in Fredericton, New Brunswick in exchange for a cash payment of $4.0 million. The Company had previously leased the property to Tweed Tree Lot.
High Beauty launched the High & Bye CBG Collection, a collaboration with Lygos, Inc. High Beauty also announced that its products are now available in Cult Beauty in the United Kingdom and GlossWire. High Beauty's products are now available at 42 retailers worldwide, accounting for 2,340 stores in the U.S., Canada, Hong Kong, United Arab Emirates, and the European Union.
Subsequent to the quarter, ZeaKal announced that its PhotoSeed™ technology is the first plant trait proven to enhance the oil profile of hemp. According to ZeaKal's analytical chemistry data, PhotoSeed increased oil composition in hemp biomass by up to 50% relative to controls, comprising up to 8% of the plant's dry weight.
Greenhouse Juice announced that it is now a Certified B Corporation, reflecting its consideration for all stakeholders and the environment in its business practices. Greenhouse Juice also began distributing its products to Health Planet in Ontario, and Thrifty Foods and Costco in British Columbia.
Dynaleo launched two brands: Sunshower and DYNATHRIVE CBD. Both brands are available in British Columbia, Saskatchewan, Alberta, and Ontario. Subsequent to the quarter, Dynaleo completed a $9.7 million oversubscribed equity financing.

This press release should be read in conjunction with the Company's audited consolidated financial statements and management's discussion & analysis ("MD&A") for the three and twelve months ended March 31, 2021, 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 2, 2020 ("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 investment and acquisition company specializing in cannabis with a portfolio of 12 companies across various segments of the cannabis value chain. We believe that bringing together people, capital, and ideas raises the potential of the entire cannabis industry. By leveraging our industry insights, in-house expertise, and thesis-driven approach to investing, we aim to provide shareholders with exposure to specialized and disruptive cannabis companies.

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 plans, strategies, and objectives of the Company regarding investment and acquisition opportunities in the U.S, and the Company's ability to enter and participate in such opportunities, the impact of U.S. legislative changes related to cannabis on the ability of the Company to invest in the U.S., and the potential de-listing of the Company's securities from the TSX and the subsequent listing of its securities on a stock exchange that does not prohibit investments or acquisitions of companies with business activities related to cannabis operations in the U.S.

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: compliance with laws; risks related to the U.S. cannabis industry; 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 annual information form for the year ended March 31, 2020 and in RIV Capital's management information circular dated January 15, 2021 in connection with the CGC Transaction, each of which has been filed with the Canadian securities regulators and are available on RIV Capital'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 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.