RIV Capital reports third quarter fiscal year 2022 financial results

RIV Capital Inc. (“RIV Capital” or the “Company”) (CSE: RIV) (OTC: CNPOF) today released its unaudited condensed interim consolidated financial statements and management’s discussion and analysis (“MD&A”) for the three and nine months ended December 31, 2021 (“Q3 2022”).

“We have narrowed our pipeline of potential U.S. cannabis acquisition targets and are more excited than ever by the immense opportunity ahead of us in the U.S.,” said Narbé Alexandrian, President and CEO of RIV Capital. “We are working toward announcing the next step of our U.S. acquisition and investment strategy prior to the end of this fiscal year and believe the plan we have in place will contribute to the long-term value for our shareholders.”

In early 2021, RIV Capital embarked upon a strategic shift to the U.S. cannabis market. As the Company explored various avenues, it determined that in order to create a market leader, the platform needed to be differentiated in a real, tangible manner. To that end, in August 2021, the Company announced a strategic partnership with The Scotts Miracle-Gro Company, a global leader of branded consumer products for lawn and garden care, via their newly-formed cannabis subsidiary, The Hawthorne Collective. This strategic partnership significantly bolstered RIV Capital’s approach to its U.S. transition, both strategically and financially. After continuing to develop its market intelligence and evaluating several opportunities, the Company has advanced discussions relating to key strategic U.S. markets and anticipates announcing further developments on its U.S. acquisition and investment strategy prior to the end of its fiscal year. No definitive agreement has been reached with respect to any potential investment or other transaction to date and there can be no assurance that any of the Company’s discussions will necessarily lead to an investment or other transaction.

Q3 2022 Financial Results2

Select Summary of Quarterly ResultsThree months ended
31-Dec-21
Three months ended
31-Dec-20
Operating income (before equity method investees and fair value changes)$  87$  3,003
Operating expenses2,4743,390
Net operating loss (before equity method investees and fair value changes)(2,387)(387)
Equity method investees and fair value changes(4,387)4,524
PharmHouse-related charges(13,700)
Net operating loss(6,774)(9,563)
Other expenses (income)(2,190)442
Income tax recovery1,07511,411
Net income (loss)(3,509)1,406
Other comprehensive income (net of tax)43480,759
Total comprehensive income (loss)(3,075)82,165
Basic earnings (loss) per share (“EPS”)$  (0.02)$  0.01
Diluted EPS$  (0.02)$  0.01
Cash flows used in operating activities(3,629)(953)
Cash flows provided by investing activities944
Cash flows provided by (used in) financing activities(44)76
Select Summary of Quarterly ResultsNine months ended
31-Dec-21
Nine months ended
31-Dec-20
Operating loss (before equity method investees and fair value changes)$  (1,155)$  (130)
Operating expenses10,1097,615
Net operating loss (before equity method investees and fair value changes)(11,264)(7,745)
Equity method investees and fair value changes(40,744)(34,042)
PharmHouse-related recovery (charges)1,935(84,456)
Net operating loss(50,073)(126,243)
Other expenses (income)(5,024)2,034
Income tax recovery9,62415,875
Net loss(35,425)(112,402)
Other comprehensive income (net of tax)376114,877
Total comprehensive income (loss)(35,049)2,475
Basic EPS$  (0.25)$  (0.59)
Diluted EPS$  (0.25)$  (0.59)
Cash flows used in operating activities(27,156)(2,815)
Cash flows provided by (used in) investing activities110,318(5,910)
Cash flows provided by (used in) financing activities187,205(4)

1Based on December 31, 2021 reported cash of CA$405.6 million and a USD:CAD exchange rate of 1.2698 as of February 28, 2022.

2The financial highlights in this summary are presented in CA$ thousands, unless otherwise noted.

Eddie Lucarelli, Chief Financial Officer of RIV Capital, commented, “We believe we are in a favourable environment for consolidation activity in the U.S cannabis market, and are confident that our financial strength and strategic partnership optimally position us to successfully identify, evaluate, and execute upon accretive transaction opportunities in attractive markets.”

Operating Income and Expenses

Three months ended
31-Dec-21
Three months ended
31-Dec-20
Royalty, interest, and lease income (before provisions)$  755$  5,853
Provision for credit losses on interest and royalty receivables(668)(2,850)
Operating income (before equity method investees and fair value changes)$  87$  3,003
General and administrative expenses$  1,587$  981
Consulting and professional fees577441
Share-based compensation26080
Depreciation and amortization expense5050
Restructuring costs1,838
Operating expenses$  2.474$  3,390
Net operating loss (before equity method investees and fair value changes)$  (2,387)$  (387)
Nine months ended
31-Dec-21
Nine months ended
31-Dec-20
Royalty, interest, and lease income (before provisions)$  1,731$  12,586
Provision for credit losses on interest and royalty receivables
  PharmHouse(8,939)
  Other(2,886)(3,777)
Operating loss (before equity method investees and fair value changes)$  (1,155)$  (130)
General and administrative expenses$  6,215$  3,610
Consulting and professional fees2,8181,168
Share-based compensation932434
Depreciation and amortization expense144137
Restructuring costs2,266
Operating expenses$  10,109$  7,615
Net operating loss (before equity method investees and fair value changes)$  (11,264)$  (7,745)

Operating income (before equity method investees and fair value changes) in Q3 2022 was $0.1 million and primarily consisted of royalty and interest income (before provisions for expected credit losses) of $0.8 million generated from the Company’s debenture and royalty agreements with 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company (“Greenhouse Juice”) and NOYA Cannabis Inc. (“NOYA”, formerly known as Radicle Medical Marijuana Inc.), respectively; offset by an increase in provision for expected credit losses on interest and royalty receivables of $0.7 million.

Operating expenses in Q3 2022 were $2.5 million. General and administrative expenses were $1.6 million, primarily attributable to employee compensation and other general and administrative activities, including insurance, business development, and general public company costs. Consulting and professional fees were $0.6 million, primarily attributable to legal fees and audit, tax, accounting, and other regulatory compliance advisory fees.

Equity Method Investees and Fair Value Changes

Three months ended
31-Dec-21
Three months ended
31-Dec-20
Share of loss from equity method investees$  (595)$  (728)
Net change in fair value of financial assets at FVPTL(3,792)4,790
Other PharmHouse-related charges
  Change in provision for credit losses on loans receivable(6,200)
  Change in provision for credit losses on financial guarantee liability(7,500)
Gain on disposition of equity method investee462
Equity method investees and fair value changes$  (4,387)$  (9,176)
Nine months ended
31-Dec-21
Nine months ended
31-Dec-20
Share of loss from equity method investees
  PharmHouse$  –$  (37,025)
  Other(1,467)(845)
Net change in fair value of financial assets at FVPTL(39,277)3,366
Other PharmHouse-related recovery (charges)
  Change in provision for credit losses on loans receivable(51,956)
  Change in provision for credit losses on financial guarantee liability1,935(32,500)
Gain on disposition of equity method investee462
Equity method investees and fair value changes$  (38,809)$  (118,498)

The Company’s share of loss from equity method investees in Q3 2022 was $0.6 million. 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 decrease in the fair value of financial assets that are reported at fair value through profit or loss (“FVTPL”) in Q3 2022 of $3.8 million, which included a $2.6 million decrease in the estimated fair value of the Company’s royalty investment in Agripharm Corp. (“Agripharm”).

Other Income and Expenses

Three months ended
31-Dec-21
Three months ended
31-Dec-20
Unrealized foreign exchange gain$  (5,038)$  –
Accretion and interest expense3,0007
Other expenses (income), net(152)435
Other expenses (income)(2,190)442
Nine months ended
31-Dec-21
Nine months ended
31-Dec-20
Unrealized foreign exchange gain$  (7,349)$  –
Accretion and interest expense4,19022
Gain on disposition of finance lease receivable(1,103)
Other expenses (income), net(762)2,012
Other expenses (income)(5,024)2,034

The Company reported other income (net) in Q3 2022 of $2.2 million. During the quarter, the Company exchanged CA$200.0 million of its cash reserves to U.S. dollars, which, when combined with the U.S. dollar proceeds received by the Company in its previous fiscal quarter from the US$150.0 million unsecured convertible note issued to The Hawthorne Collective (the “Convertible Note”), led to an unrealized foreign exchange gain of $5.0 million for the quarter. This was partially offset by a $3.0 million non-cash accretion expense that the Company systematically recognizes on a quarterly basis in respect of the Convertible Note.

Net Change in Fair Value of Financial Assets at FVTOCI

Three months ended
31-Dec-21
Three months ended
31-Dec-20
Nova Cannabis$  –$  (55)
Headset500(200)
ZeaKal(600)
Biolumic(100)
Other95,500
Gross change in fair value of financial assets at FVTOCI$  500$  94,545
OCI income tax expense (recovery)6613,786
Net change in fair value of financial assets at FVTOCI3$  434$  80,759
Nine months ended
31-Dec-21
Nine months ended
31-Dec-20
Nova Cannabis$  (267)$  (273)
Headset500(500)
ZeaKal100(1,500)
Biolumic100(39)
Dynaleo835
Other134,124
Gross change in fair value of financial assets at FVTOCI$  433$  132,647
OCI income tax expense5717,748
Net change in fair value of financial assets at FVTOCI3$  376$  114,899

3In addition to the fair value change noted above, the historical net change in fair value of financial assets at FVTOCI also includes FX gains/losses related to certain equity method investees denominated in USD currency.

Total comprehensive loss in Q3 2022 was $3.1 million, which included an increase of $0.5 million (before tax) in the estimated fair value of financial assets that are reported at fair value through other comprehensive income (“FVTOCI”). 

Period endedAs at
31-Dec-21
As at
31-Mar-21
Cash$  405,598$  127,882
Equity method investees6,8997,366
Financial assets at FVTPL16,301164,030
Financial assets at FVTOCI23,80023,218
Other assets16,74112,866
Total assets$  469,339$  335,362
Convertible note97,431
Convertible note22,164
Financial guarantee liability3,000
Other liabilities2,29620,902
Total shareholders’ equity347,448311,460
Total liabilities and shareholders’ equity$  469,339$  335,362

At December 31, 2021, RIV Capital had $405.6 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 due to the monetization of its previously-held Canopy Growth common shares and the proceeds from the Convertible Note.

Q3 2022 Portfolio Updates

The following represents a brief summary of other developments in the RIV Capital portfolio during and subsequent to Q3 2022:

  • Dynaleo Inc. (“Dynaleo”) partnered with Niagara College to build on prior research for a therapeutic CBD-infused gummy to support muscle recovery for the sports and wellness markets. Additionally, Dynaleo’s Executive Chairman Michael Krestell was appointed to the Cannabis Council of Canada’s Board of Directors.
  • Greenhouse Juice introduced zero sugar oat milk to market and began distributing its organic boosters nationally in Canada. Subsequent to the quarter, Greenhouse Juice was named to Canadian Business’ New Innovators List for 2022.
  • Headset Inc. (“Headset”) completed a US$8.6 million financing round led by private equity firm Althea. Headset also expanded its competitive intelligence tool, Headset Insights Premium, to Arizona, Illinois, and Maryland.

This press release should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements and MD&A for Q3 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

Support us by becoming a Patreon supporter! Become a Patron!

Leave a Reply

Your email address will not be published. Required fields are marked *