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RIV Capital Reports Second Quarter Fiscal Year 2022 Financial Results

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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 /CNW/ - 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").

RIV Capital logo (CNW Group/RIV Capital Inc.)
RIV Capital logo (CNW Group/RIV Capital Inc.)

"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 Convertible Note has a maturity date of August 24, 2027, and bears interest at a rate of approximately 2.0% per annum until August 24, 2023, after which no interest will accrue for the remainder of the term. Accrued interest will be payable on the maturity date or will be included in the conversion value of the Convertible Note at the time of conversion.

  • The Convertible Note is convertible into common shares of RIV Capital (the "RIV Shares") at a fixed conversion price of $1.90 per RIV Share. Assuming full conversion of the Convertible Note, including the full amount of the anticipated accrued interest over the life of the Convertible Note, The Hawthorne Collective would be entitled to receive approximately 103.2 million RIV Shares, representing approximately 42.0% of the Company's outstanding RIV Shares on a partially diluted basis based on the current number of non-diluted RIV Shares outstanding.

  • The Convertible Note may be converted into RIV Shares at the election of The Hawthorne Collective on a discretionary basis, or at RIV Capital's discretion upon the later of: (i) August 24, 2023; and (ii) the date on which federal laws in the U.S. are amended to allow for the general cultivation, distribution, and possession of cannabis.

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




Select Summary of Quarterly Results

Three months ended

Three months ended


30-Sep-21

30-Sep-20

Operating loss (before equity method investees and fair value changes)

$

(1,681)

$

(5,795)

Operating expenses


5,127


1,555

Net operating loss (before equity method investees and fair value changes)


(6,808)


(7,350)

Equity method investees and fair value changes


175


(36,211)

PharmHouse-related charges (recovery)


-


70,756

Net operating loss


(6,633)


(114,317)

Net loss


(1,496)


(110,381)

Other comprehensive income (net of tax)


434


23,417

Total comprehensive loss


(1,062)


(86,964)






Basic loss per share ("EPS")

$

(0.01)

$

(0.58)

Diluted EPS

$

(0.01)

$

(0.58)






Cash flows used in operating activities


(3,280)


(1,055)

Cash flows provided by (used in) investing activities


5,502


(4,927)

Cash flows provided by (used in) financing activities


187,248


(2)






Select Summary of Quarterly Results

Six months ended

Six months ended


30-Sep-21

30-Sep-20

Operating loss (before equity method investees and fair value changes)

$

(1,242)

$

(3,133)

Operating expenses


7,636


4,224

Net operating loss (before equity method investees and fair value changes)


(8,878)


(7,357)

Equity method investees and fair value changes


(36,357)


(38,566)

PharmHouse-related charges (recovery)


(1,935)


70,756

Net operating loss


(43,300)


(116,679)

Net loss


(31,915)


(113,807)

Other comprehensive income (loss) (net of tax)


(58)


34,118

Total comprehensive loss


(31,973)


(79,689)






Basic loss per share ("EPS")

$

(0.22)

$

(0.60)

Diluted EPS

$

(0.22)

$

(0.60)






Cash flows used in operating activities


(23,527)


(1,862)

Cash flows provided by (used in) investing activities


110,318


(6,854)

Cash flows provided by (used in) financing activities


187,249


(80)






"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."

_____________________

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

Operating Income and Expenses





Three months ended

Three months ended


30-Sep-21

30-Sep-20

Royalty, interest, and lease income (before provisions)

$

410

$

4,066

Provision for credit losses on interest and royalty receivables





PharmHouse


-


(8,939)

Other


(2,091)


(922)

Operating loss
(before equity method investees and fair value changes)

$

(1,681)

$

(5,795)






General and administrative expenses

$

2,962

$

1,287

Consulting and professional fees


1,847


350

Share-based compensation


272


(555)

Depreciation and amortization expense


46


45

Restructuring costs


-


428

Operating expenses

$

5,127

$

1,555






Net operating loss
(before equity method investees and fair value changes)

$

(6,808)

$

(7,350)







Six months ended

Six months ended


30-Sep-21

30-Sep-20

Royalty, interest, and lease income (before provisions)

$

976

$

6,733

Provision for credit losses on interest and royalty receivables





PharmHouse


-


(8,939)

Other


(2,218)


(927)

Operating loss
(before equity method investees and fair value changes)

$

(1,242)

$

(3,133)






General and administrative expenses

$

4,628

$

2,629

Consulting and professional fees


2,241


726

Share-based compensation


672


354

Depreciation and amortization expense


95


87

Restructuring costs


-


428

Operating expenses

$

7,636

$

4,224






Net operating loss
(before equity method investees and fair value changes)

$

(8,878)

$

(7,357)

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





Three months ended

Three months ended


30-Sep-21

30-Sep-20

Share of loss from equity method investees





PharmHouse

$

-

$

(32,607)

Other


(525)


(550)

Net change in fair value of financial assets at FVTPL


700


(3,054)

Other PharmHouse-related charges





Change in provision for credit losses on loans receivable


-


(45,756)

Change in provision for credit losses on financial guarantee liability


-


(25,000)

Equity method investees and fair value changes

$

175

$

(106,967)







Six months ended

Six months ended


30-Sep-21

30-Sep-20

Share of loss from equity method investees





PharmHouse

$

-

$

(37,025)

Other


(872)


(117)

Net change in fair value of financial assets at FVTPL


(35,485)


(1,424)

Other PharmHouse-related charges





Change in provision for credit losses on loans receivable


-


(45,756)

Change in provision for credit losses on financial guarantee liability


1,935


(25,000)

Equity method investees and fair value changes

$

(34,422)

$

(109,322)

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





Three months ended

Three months ended


30-Sep-21

30-Sep-20

Nova Cannabis

$

-


(218)

Headset


100


(100)

Zeakal


300


(300)

Biolumic


100


61

Dynaleo


-


835

Other


-


27,100

Gross change in fair value of financial assets at FVTOCI

$

500

$

27,378

OCI income tax expense


66


3,962

Net change in fair value of financial assets at FVTOCI(1)

$

434

$

23,416







Six months ended

Six months ended


30-Sep-21

30-Sep-20

Nova Cannabis

$

(267)


(218)

Headset


-


(300)

Zeakal


100


(900)

Biolumic


100


61

Dynaleo


-


835

Other


-


38,624

Gross change in fair value of financial assets at FVTOCI

$

(67)

$

38,102

OCI income tax expense (recovery)


(9)


3,962

Net change in fair value of financial assets at FVTOCI(1)

$

(58)

$

34,140

(1) In 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

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).





As at

As at

Period ended

30-Sep-21

31-Mar-21

Cash

$

404,231

$

127,882

Equity method investees


7,494


7,366

Financial assets at FVTPL


21,693


164,030

Financial assets at FVTOCI


21,700


23,218

Other assets


13,478


12,866

Total assets

$

468,596

$

335,362






Convertible note

$

94,435

$

-

Deferred tax liability


21,205


-

Financial guarantee liability


-


3,000

Other liabilities


2,693


20,902

Total shareholders' equity


350,263


311,460

Total liabilities and shareholders' equity

$

468,596

$

335,362

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:

  • Subsequent to quarter end, RIV Capital entered into an asset purchase agreement with TREC Brands Inc. ("TREC Brands") for the sale of the Company's financial assets in Agripharm. Subject to certain terms and conditions, the Company will sell its royalty interest in Agripharm to TREC Brands in exchange for common shares of TREC Brands representing an approximate 26% non-diluted equity interest in TREC Brands at the time of closing (excluding the impact of any concurrent financing).

  • Dynaleo Inc. ("Dynaleo") introduced Pocket Fives, its new value brand of edible cannabis products. The new brand will bring Dynaleo's trademark quality to a new price point on the premium spectrum, demonstrating that quality and value are not mutually exclusive. Subsequent to the quarter, 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.

  • Gage Growth Corp. announced that COOKIES, one of the best-known cannabis brands in the world, will be grown and distributed in Canada by NOYA.

  • Greenhouse Juice announced a partnership with Too Good To Go to combat food waste, as well as a retail partnership with BIO RAW to give consumers more options for organic, plant-based meals.

  • Headset expanded its competitive intelligence tool, Headset Insights Premium, to Michigan. This is Headset's eleventh retail-derived cannabis market read based on point-of-sale data in the U.S. and Canadian markets.

  • High Beauty, Inc. announced that it successfully closed its oversubscribed US$4.2 million convertible bridge financing round. The round was expanded three times to accommodate additional investments.

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.

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 plan to invest in, launch and/or develop U.S. assets to build a multistate cannabis operating and brand platform and the value to be derived therefrom; the anticipated benefits of the Hawthorne Investment; the Company's expectation that it will be ScottsMiracle-Gro's preferred vehicle for investments not under the purview of The Hawthorne Gardening Company; the timing of a potential transformative transaction; 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 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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