RIV Capital Reports Second Quarter Fiscal Year 2022 Financial Results
Strategic investment of US$150 million by The Hawthorne Collective highlights quarter
Cash balance of $400 million available to launch U.S. platform
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$4.9 billion in annual sales.
On August 24, 2021, The Hawthorne Collective, a newly-formed cannabis-focused subsidiary of ScottsMiracle-Gro, invested US$150.0 million in RIV Capital pursuant to an unsecured convertible note (the "Convertible Note") issued by the Company (the "Hawthorne Investment") to be used for general corporate and lawful purposes. The key terms of the Convertible Note include the following:
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
"With approximately $400 million in cash on our balance sheet, and potential access to further capital through our strategic partnership, RIV Capital is well-positioned to accelerate the operating and expansion plans of existing U.S. cannabis businesses," said Eddie Lucarelli, Chief Financial Officer, RIV Capital. "We believe that our substantial liquidity is a core differentiator of our platform and positions us well to build a market leader in the U.S."
Operating Income and Expenses
The Company reported an operating loss (before equity method investees and fair value changes) of $1.7 million for the quarter, net of a provision for expected credit losses of $2.1 million. This primarily consisted of royalty and interest income (before provisions for expected credit losses) generated from the Company's royalty and debenture agreements with Agripharm Corp. ("Agripharm"), 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company ("Greenhouse Juice"), and NOYA Cannabis Inc. ("NOYA", formerly known as Radicle Medical Marijuana Inc.), offset by a provision for expected credit losses on the Company's royalty receivables.
Operating expenses were $5.1 million for the quarter. General and administrative expenses were $3.0 million for the quarter, primarily attributable to employee compensation (including the recognition and payment of certain non-recurring variable compensation expenses) and other public company costs. Consulting and professional fees were $1.8 million for the quarter, primarily attributable to legal and consulting fees related to transaction advisory expenses and other public company and regulatory advisory costs.
Equity Method Investees and Fair Value Changes
The Company's share of loss from equity method investees was $0.5 million for the quarter. Greenhouse Juice, LeafLink Services International ULC ("LeafLink International"), and NOYA 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 increase in the fair value of financial assets that are reported at fair value through profit or loss ("FVTPL") of $0.7 million for the quarter.
Net Change in Fair Value of Financial Assets at FVTOCI
The Company reported a total comprehensive loss of $1.1 million for the quarter. During the same period last year, the Company reported a total comprehensive loss of $87.0 million, primarily attributable to several charges related to the Company's former investment in PharmHouse Inc. ("PharmHouse"). 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 $0.5 million for the quarter (before tax).
RIV Capital ended the quarter with $404.2 million of cash on hand compared with $127.9 million as at the end of its most recently completed fiscal year, with the increase primarily attributable to the monetization of its previously-held Canopy Growth common shares and the proceeds from the Convertible Note. During the quarter, the Company also received a $6.5 million distribution upon the termination of PharmHouse's proceedings under the Companies' Creditors Arrangement Act (Canada).
Q2 2022 Portfolio Updates
The following represents a brief summary of other developments in the RIV Capital portfolio during and subsequent to Q2 2022:
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.
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.
Company Codes: CNSX:RIV, OTC-PINK:CNPOF, Toronto:RIV
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