Formed Special Committee to oversee investment
in PharmHouse
Enhanced strategic exposure to cannabis 2.0
through investment in Dynaleo
Achieved significant progress toward operating
expense reduction targets
Well-positioned for U.S. market development
through key successes at TerrAscend
TORONTO, Aug. 14, 2020 /CNW/ - Canopy Rivers Inc.
(the "Company" or "Canopy Rivers") (TSX: RIV) (OTC:
CNPOF) today released its unaudited condensed interim consolidated
financial statements and management's discussion and analysis
("MD&A") for the three months ended June 30, 2020 ("Q1 2021").
"This quarter, we made a strategic investment in Dynaleo, a
cannabis gummies manufacturer that we believe is well-positioned to
help Canada's licensed producers
and brands catch up to consumer demand for the gummy product
format," said Narbé Alexandrian, President and CEO, Canopy Rivers.
"We also continued to work closely with our portfolio companies to
help resolve some of the unique macroeconomic challenges that
emerged inside and outside of the cannabis sector. While PharmHouse
faces some immediate challenges, we continue to believe that it has
the potential to become a key component of the Canadian supply
chain for low-cost, high-quality cannabis, especially as the value
segment of dry flower becomes more prominent."
Q1 2021 Financial
Results1
Table
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Summary of
Quarterly Results
|
|
Three months
ended
|
|
Three months
ended
|
|
|
30-Jun-20
|
|
30-Jun-19
|
Operating income
(before equity method investees and fair value changes)
|
$
|
2,662
|
$
|
2,141
|
Operating
expenses
|
|
2,669
|
|
5,767
|
Net operating loss
(before equity method investees and fair value changes)
|
|
(7)
|
|
(3,626)
|
Equity method
investees and fair value changes
|
|
(2,355)
|
|
544
|
Net operating
loss
|
|
(2,362)
|
|
(3,082)
|
Net loss
|
|
(3,426)
|
|
(2,966)
|
Other comprehensive
income (loss) (net of tax)
|
|
10,701
|
|
(5,784)
|
Total comprehensive
income (loss)
|
|
7,275
|
|
(8,750)
|
|
|
|
|
|
Basic earnings (loss)
per share ("EPS")
|
$
|
(0,02)
|
$
|
(0,02)
|
Diluted
EPS
|
$
|
(0,02)
|
$
|
(0,02)
|
|
|
|
|
|
Cash flows used in
operating activities
|
|
(807)
|
|
(2,788)
|
Cash flows used in
investing activities
|
|
(1,927)
|
|
(12,702)
|
Cash flows provided
by (used in) financing activities
|
|
(78)
|
|
57
|
"We began our fiscal year with a sharp focus on prudent
financial discipline, highlighted by a significant decrease in our
operating cash outflows in the first quarter," said Eddie Lucarelli, CFO, Canopy Rivers. "With an
optimized operating expense profile established, our focus in the
coming quarters remains on our other core priorities – the
successful operational ramp-up of our larger assets and key
monetization events within our portfolio – while continuing to
execute on strategic investments in companies that we believe are
positioned for success in the global cannabis sector."
Table
2
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Three months
ended
|
|
|
30-Jun-20
|
|
30-Jun-19
|
Royalty, interest,
and lease income
|
$
|
2,667
|
$
|
2,141
|
Provision for credit
losses
|
|
(5)
|
|
-
|
Operating
income
(before equity method investees and fair value
changes)
|
$
|
2,662
|
$
|
2,141
|
|
|
|
|
|
Consulting and
professional fees
|
$
|
376
|
$
|
492
|
General and
administrative expenses
|
|
1,342
|
|
1,547
|
Share-based
compensation
|
|
909
|
|
3,686
|
Depreciation and
amortization expense
|
|
42
|
|
42
|
Operating
expenses
|
$
|
2,669
|
$
|
5,767
|
|
|
|
|
|
Net operating
loss
(before equity method investees and fair value
changes)
|
$
|
(7)
|
$
|
(3,626)
|
Canopy Rivers reported a nominal net operating loss (before
equity method investees and fair value changes) for the
quarter.
Royalty, interest, and lease income was $2.7 million. This includes income 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 The Tweed Tree Lot Inc., as well as
interest income recognized on the Company's $40.0 million shareholder loan agreement with
PharmHouse Inc. ("PharmHouse"), among other items.
Operating expenses were $2.7
million for the quarter, of which $0.9 million (or approximately 33% of the total)
related to share-based compensation, a non-cash expense. Excluding
non-cash items, operating expenses decreased by approximately 16%
from the comparative period last year. Operating expenses included
$1.3 million of general and
administrative expenses relating to employee and director
compensation, marketing and business development, and other public
company costs, as well as $0.4
million of professional fees relating to legal, audit, tax,
accounting, and other regulatory advisory fees.
Table
3
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Three months
ended
|
|
|
30-Jun-20
|
|
30-Jun-19
|
Share of loss from
equity method investees
|
$
|
(3,985)
|
$
|
(968)
|
Net change in fair
value of financial assets at FVTPL
|
|
1,630
|
|
1,512
|
Equity method
investees and fair value changes
|
$
|
(2,355)
|
$
|
544
|
The Company's share of loss from equity method investees was
$4.0 million for the quarter. This
includes the Company's equity interests in Canapar Corp.
("Canapar"), 10663522 Canada Inc. d/b/a/ Herbert
("Herbert"), High Beauty, Inc. ("High Beauty"),
LeafLink Services International ULC ("Leaflink"),
PharmHouse, and Radicle. The Company expects these equity method
investees to continue to generate net losses in the near term due
to the early-stage nature of these businesses as they continue to
ramp-up operationally.
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 $1.6 million
for the quarter. The net increase was primarily driven by the
positive change in the fair value of the Company's investments in
TerrAscend Canada Inc., Les Serres Vert Cannabis Inc. ("Vert
Mirabel"), and Dynaleo Inc.
("Dynaleo").
After consideration of operating income, operating expenses,
equity method investees, and FVTPL fair value changes, Canopy
Rivers reported a net operating loss of $2.4
million for the quarter.
Table
4
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
30-Jun-20
|
|
Three months
ended
30-Jun-19
|
JWC
|
$
|
(976)
|
$
|
(3,629)
|
TerrAscend
|
|
3,000
|
|
(10,000)
|
Vert
Mirabel
|
|
9,500
|
|
9,381
|
Eureka
|
|
-
|
|
(1,085)
|
YSS
|
|
-
|
|
(762)
|
Headset
|
|
(200)
|
|
(83)
|
Zeakal
|
|
(600)
|
|
(400)
|
Gross change in
fair value of financial assets at FVTOCI
|
$
|
10,724
|
$
|
(6,578)
|
OCI income tax
expense (recovery)
|
|
-
|
|
(883)
|
Net change in fair
value of financial assets at FVTOCI(1)
|
$
|
10,724
|
$
|
(5,695)
|
(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
|
Other comprehensive income was $10.7
million, net of tax, for the quarter, which includes a
$10.7 million, net of tax, increase
in the fair value of financial assets that are reported at fair
value through other comprehensive income ("FVTOCI"). The net
increase was primarily attributable to the positive change in the
fair value of the Company's investments in Vert Mirabel and
TerrAscend Corp. ("TerrAscend").
Table
5
|
|
|
|
|
|
|
|
|
|
|
|
As
at
|
|
As
at
|
Period
ended
|
|
30-Jun-20
|
|
31-Mar-20
|
Cash
|
$
|
43,912
|
$
|
46,724
|
Loan
Receivable
|
|
42,450
|
|
42,450
|
Equity method
investees
|
|
46,535
|
|
50,543
|
Financial assets at
FVTPL
|
|
83,800
|
|
80,170
|
Financial assets at
FVTOCI
|
|
75,323
|
|
64,599
|
Other
assets
|
|
15,930
|
|
15,899
|
Total
assets
|
$
|
307,950
|
$
|
300,385
|
|
|
|
|
|
Total
liabilities
|
|
1,533
|
|
2,107
|
Total shareholders'
equity
|
|
306,417
|
|
298,278
|
Total liabilities
and shareholders' equity
|
$
|
307,950
|
$
|
300,385
|
PharmHouse Update
During the previous quarter, the Company announced that its
joint venture, PharmHouse, received a key licence amendment from
Health Canada allowing for cultivation across its entire greenhouse
space in Leamington, Ontario. This
enabled PharmHouse to begin planting pursuant to its previously
announced offtake agreements with Canopy Growth Corporation
("Canopy Growth") and TerrAscend. For a variety of
reasons, the previously anticipated timeline for PharmHouse to
generate cash flows from these offtake agreements was not met, and
the ultimate timing and receipt of cash inflows is currently
uncertain. Taking into account these factors, as well as broader
sector-wide challenges impacting the Canadian cannabis industry,
including a slower-than-expected build-up of the market and a
general imbalance of supply and demand, the Company believes that
PharmHouse may have insufficient liquidity and capital resources to
achieve its business objectives and, as a result, that there exists
material uncertainty regarding PharmHouse's ability to meet its
financial obligations as they become due.
Recognizing the potential conflicts of interest that may arise
given the relationship between the Company and PharmHouse's
counterparties to these offtake agreements, the Company's Board of
Directors formed a special committee comprised of independent
directors (the "Special Committee") to oversee and provide
guidance relating to the Company's investment in PharmHouse,
including the offtake agreements with Canopy Growth and TerrAscend
and the Company's guarantee of any obligations of PharmHouse, as
well as to consider strategic alternatives for the Company
regarding its investment in PharmHouse, which may include, but are
not limited to, any of the following:
- Provision of additional capital to PharmHouse in the form of
any existing or new class of debt or equity;
- Renegotiation of any of PharmHouse's existing offtake
agreements or other material contracts;
- The establishment of new partnerships or the attainment of
additional third-party financing for PharmHouse; or
- Reorganizing or selling the Company's interests in
PharmHouse.
In furtherance of its mandate, the Special Committee retained a
financial advisor to assist it in assessing such strategic
alternatives. In addition, based on the determination of the
Special Committee, the Company has contributed, and expects that it
will continue to contribute, additional capital to finance
PharmHouse's ongoing operations while the Special Committee
assesses these strategic alternatives. While the Company is working
towards a solution for its investment in PharmHouse that will be
acceptable to the PharmHouse joint venture partner, there is no
guarantee that a consensus will be reached amongst the parties.
Q1 2021 Corporate and Portfolio Updates
The following represents a summary of key developments at Canopy
Rivers and its other portfolio companies during Q1 2021:
Canopy Rivers
- Canopy Rivers welcomed Mike Lee,
Canopy Growth's CFO, to its Board of Directors.
- The Company announced a series of operational changes designed
to optimize its organizational structure, streamline operations,
and preserve and maximize cash-on-hand. This included a targeted
reduction in operating cash outflows and a focus on generating
positive cash flow from operations for fiscal year 2021 and on
maximizing returns on existing assets.
- Canopy Rivers invested in Dynaleo, an Alberta-based cannabis gummies manufacturer.
Shortly after, Dynaleo received its processing licence from Health
Canada and signed its first letter of intent with Pantry, a
California-based edibles brand
that plans to expand to Canada.
Portfolio
- TerrAscend had several notable developments during the quarter.
The company appointed Jason Ackerman
as its CEO. Mr. Ackerman joined the TerrAscend Board of Directors
as Executive Chairman in November
2019 and was appointed as interim CEO in January 2020. He is the founder of FreshDirect, a
company he went on to lead for 18 years, growing it to over
$600 million in annual sales.
TerrAscend also announced a US$30
million non-brokered private placement which, following
strong investor demand, was upsized to US$37
million. Finally, TerrAscend also announced the opening of
its third retail dispensary location in Pennsylvania. As of market close on
August 13, 2020, TerrAscend's
Canadian listed stock had increased from $2.49 on March 31,
2020 to $4.84, representing an
increase of 94%. The Company owns 19,445,285 exchangeable shares of
TerrAscend that are convertible into common shares upon the
occurrence of certain events. Assuming conversion of the
exchangeable shares, this would imply a value of $94.1 million for the Company's investment in
TerrAscend.
- BioLumic Ltd. appointed Steve
Sibulkin as its CEO. Mr. Sibulkin is the founder of
agricultural field modelling company Agronomic Technology Corp
("Agronomic"), which operates Adapt-N. He had been working
with Yara International, the Norwegian fertilizer company that
acquired Agronomic, since 2017.
- YSS Corp. ("YSS") announced its Q1 2020 financial
results. YSS reported a 15% revenue increase and 21% gross margin
increase over Q4 2019.
- Agripharm received a licence amendment from Health Canada to
allow for the sale of dried cannabis, extracts, edibles, and
topicals. The amendment enables Agripharm to exercise its exclusive
rights to introduce U.S.-based brands from SLANG Worldwide Inc. and
Green House Seed Co. to the Canadian market.
- Greenhouse Juice announced that its products are now available
in 42 additional stores across Ontario, including grocery chains such as
Loblaws, Zehrs, City Market, Your Independent Grocer, and
Valu Mart.
This press release should be read in conjunction with the
Company's unaudited condensed interim consolidated financial
statements and MD&A for the three months ended June 30, 2020, which are available under the
Company's profile on SEDAR at www.sedar.com and on the Company's
website at www.canopyrivers.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.canopyrivers.com/investors.
About Canopy Rivers Inc.
Canopy Rivers is a venture capital firm specializing in
cannabis with a portfolio of 18 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. Our mission is to invest in innovators across
the cannabis value chain, help them grow, and ultimately create
value by guiding these companies towards a monetization event.
Together with our portfolio, we are helping build the cannabis
industry of tomorrow, today.
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. To
the extent any forward-looking information in this news release
constitutes "financial outlooks" within the meaning of applicable
Canadian securities laws, the reader is cautioned that this
information may not be appropriate for any other purpose and the
reader should not place undue reliance on such financial outlooks.
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: management's belief that Dynaleo is
positioned to help Canada's
licensed producers and brands catch up to consumer demand for
gummies; the Company's belief that cannabis can remain resilient
during economic downturns and its expectations regarding the role
that the Company's portfolio companies will play in the cannabis
sector; the Company's expected focus and priorities for the coming
quarters; the expectation that certain equity method investees will
continue to generate net losses in the near term; the Company's
targeted reduction in operating cash outflows; expectations
regarding timing and receipt of cash inflows at PharmHouse, the
provision of additional capital to PharmHouse and the strategic
alternatives available to PharmHouse, as well as the Company's
belief that PharmHouse may have insufficient liquidity and capital
resources to achieve its business objectives and there exists
material uncertainty regarding PharmHouse's ability to meet its
financial obligations and that PharmHouse has the potential to
become a key component of the Canadian supply chain for low-cost,
high-quality cannabis; the Company's belief that it is
well-positioned for U.S. market development through its investment
in TerrAscend as well as its expectations regarding the conversion
and implied value of its TerrAscend exchangeable shares; Pantry's
plans to expand to Canada; 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. Financial
outlooks, as with forward-looking information generally, are,
without limitation, based on the assumptions and subject to various
risks as set out herein. Our actual financial position and results
of operations may differ materially from management's current
expectations. Among the key factors that could cause actual results
to differ materially from those projected in the forward-looking
information are the following: risks associated with the
termination, renegotiation and enforcement of material contracts;
credit, liquidity and additional financing risks for the Company
and its investees; stock market volatility; regulatory and
licensing risks; cannabis pricing risks; changes in cannabis
industry growth and trends; changes in the business activities,
focus and plans of the Company and its investees and the timing
associated therewith; the Company's actual financial results and
ability to manage its cash resources; changes in general economic,
business and political conditions, including challenging global
financial conditions and the impact of the novel coronavirus
pandemic; competition risks; 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 and its investees;
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.
|
|
|
|
|
1
|
The financial
highlights in this summary are presented in CA$
thousands.
|
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SOURCE Canopy Rivers Inc.