Canopy Rivers Reports Third Quarter Financial Highlights and Provides Current Corporate Update
RONTO, Feb. 27, 2019 (GLOBE NEWSWIRE) -- Canopy Rivers Inc. (the “Company” or “Canopy Rivers”) (TSXV: RIV) today released its financial results for the three and nine months ended December 31, 2018. The Company’s full Management's Discussion and Analysis (the “MD&A”) and unaudited condensed interim consolidated financial statements for the three and nine months ended December 31, 2018 are available on the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.canopyrivers.com/financials. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
“We believe that Canopy Rivers has rapidly developed a strong position in the dynamic and fast-growing global cannabis industry,” said Bruce Linton, Chairman and Chief Executive Officer of Canopy Rivers. “By bringing focus and clarity to every investment decision and working alongside global market leader Canopy Growth, Canopy Rivers is responding to the greatest need in the cannabis industry – smart capital.”
Q3 and Year to Date Fiscal 2019 Financial Highlights
Select Summary of Quarterly Results (CAD, in thousands)
|Total shareholders' equity||292,364||192,230|
|Three months ended||31-Dec-18||31-Dec-17|
|Net operating income||1,746||28,495|
|Other comprehensive income (loss) (net of tax)||(80,948)||9,710|
|Total comprehensive income (loss)||(79,525)||34,184|
|Basic earnings per share (“EPS”)||0.01||0.23|
|Cash flows used in operating activities||(1,630)||(298)|
|Cash flows used in investing activities||(57,324)||(22,155)|
|Cash flows provided by financing activities||37||-|
|Nine months ended||31-Dec-18||31-Dec-17|
|Net operating income||9,457||25,746|
|Other comprehensive income (loss) (net of tax)||(56,689)||9,710|
|Total comprehensive income (loss)||(50,945)||31,481|
|Basic earnings per share (“EPS”)||0.04||0.25|
|Cash flows used in operating activities||(3,333)||(78)|
|Cash flows used in investing activities||(96,567)||(30,875)|
|Cash flows provided by financing activities||100,530||55,113|
“With more than $55 million of capital deployed during the quarter, Canopy Rivers continues to position itself as a preeminent investment firm in the cannabis industry,” said Eddie Lucarelli, Chief Financial Officer of Canopy Rivers. “As we continue to see meaningful developments at our portfolio companies, the closing of our bought deal financing and strategic investment from Canopy Growth will add additional strength to our balance sheet. With a strong pipeline of investment opportunities and regulatory reform continuing around the world, Canopy Rivers is optimally positioned to continue to prudently deploy capital to the global cannabis sector.”
Q3 Corporate Highlights
The regulatory landscape in the cannabis industry is swiftly changing, with more and more countries across the globe considering and implementing regulatory reform relating to cannabis. Of particular note during the third quarter was the legalization of adult-use cannabis in Canada on October 17, 2018, heralding a historic moment in cannabis reform, as well as the legalization of hemp in the U.S. when the 2018 Farm Bill was signed into law on December 20, 2018. The Company reported several operational milestones during this quarter:
On November 16, 2018, Radicle Medical Marijuana Inc. (“Radicle”) received its licence to sell cannabis under the Cannabis Act. The receipt of the sales license triggered the conversion of Canopy Rivers’ outstanding debenture with Radicle into an approximately 24% equity stake, set-off against consideration otherwise paid for by a royalty interest with a minimum yearly guarantee of $900,000 for the next 20 years. During the quarter, Radicle also launched Gage Cannabis Co., a new brand that offers high-grade craft cannabis.
On November 21, 2018, Canopy Rivers entered into a shareholder loan agreement with PharmHouse Inc. (“PharmHouse”), a joint venture between Canopy Rivers and the principals and operators of a leading North American cultivator and distributor of greenhouse-grown vegetables (the “PharmHouse JV Partner”). The agreement provides up to $40 million of secured debt financing with an annual interest rate of 12% over a three-year term. The Company and the PharmHouse JV Partner also amended their global non-competition agreement, securing additional rights in favour of Canopy Rivers in the event that the PharmHouse JV Partner enters the U.S. cannabis market. With a global strategic framework in place, Canopy Rivers and the PharmHouse JV Partner are able to pursue regulated cannabis opportunities together on a global scale. PharmHouse also secured an offtake agreement during the quarter with fellow Canopy Rivers portfolio company TerrAscend Corp. (“TerrAscend”) (CSE: TER) for 20% of the flowering space at its greenhouse facility until December 31, 2021.
On November 30, 2018, TerrAscend successfully completed a capital reorganization that will allow TerrAscend to explore and pursue growth opportunities internationally, including select opportunities in the U.S. In connection with the reorganization, the Company exercised its common share purchase warrants in the capital of TerrAscend for no cash consideration, resulting in the net issuance of 8,159,829 common shares in the capital of TerrAscend. All TerrAscend common shares held by the Company were then immediately exchanged for 19,445,285 new, non-participating, non-voting conditionally exchangeable shares of TerrAscend. As a result of marketability restrictions on this new class of exchangeable shares, the Company recorded a write-down on the fair value of its investment in TerrAscend in other comprehensive income. While Canopy Rivers no longer has short-term liquidity in its TerrAscend investment, the Company believes in the long-term value potential of TerrAscend’s international growth strategy.
On December 6, 2018, Canopy Rivers announced a further investment in Canapar Corp. (“Canapar”), the Canadian parent corporation of Canapar SrL (“Canapar Italy”), an Italy-based hemp production and processing platform. Canopy Rivers invested an additional approximately $17.4 million, which closed in two separate tranches on December 6, 2018, and February 1, 2019. As a result of this follow-on investment, the Company’s equity stake in Canapar increased from approximately 35% to approximately 49% on a non-diluted basis. Canopy Rivers believes Canapar Italy to be well positioned to capitalize on the rapidly expanding European cannabidiol (“CBD”) market.
On December 21, 2018, Canopy Rivers completed a $4.1 million equity investment in Headset Inc. (“Headset”), a U.S.-based data and analytics service provider for the cannabis industry. Through its business intelligence and analytics software platform, Headset turns retail sales data into real-time market insights, helping illuminate emerging trends in the rapidly developing cannabis industry. Having founded Leafly, the world’s largest cannabis information resource, the leadership team at Headset is well-versed in the power of information. Headset’s proprietary software platform is meeting increased demand for reliable, actionable information in the cannabis industry and is helping operators make more informed business decisions through access to real-time market intelligence.
Subsequent to the end of the third quarter, the Company has been actively making new investments and strategically supporting its portfolio companies, as well as securing additional financing. The following represents a brief summary of certain additional milestones achieved by Canopy Rivers and/or its portfolio companies:
On January 7, 2019, PharmHouse, with the support of Canopy Rivers, secured what the Company believes to be the largest syndicated credit facility provided to a private company in the cannabis industry to date. The facility, which will provide PharmHouse up to $80 million of secured debt financing at a rate of interest that is expected to average in the mid-to-high 5% per annum range over its three-year term, was supported by three Schedule I banks. The credit facility will be used to finalize the acquisition of PharmHouse’s 1.3 million square foot modern greenhouse facility and further fund necessary project equipment and ongoing construction costs as the production and distribution platform is readied for production.
On January 14, 2019, Canopy Rivers announced a convertible debt financing in Greenhouse Juice Company, legally 10831425 Canada Ltd. (“Greenhouse”), a dynamic plant-based food and beverage company expanding its business model to focus on developing natural health and wellness beverages infused with full-spectrum CBD extracts, pure CBD isolates, and other non-psychoactive cannabinoids. Canopy Rivers committed $9 million in a convertible debt financing package that included secured and unsecured debt, warrant coverage, and board representation rights. As a wellness ingredient, CBD is a natural fit for Greenhouse’s existing range of organic, plant-based, functional beverages. Greenhouse’s existing product line includes cold-pressed juices, kombuchas, nutmilks, probiotic hydrators, shakes, and boostershots. In five years, Greenhouse has grown from a single shop/production facility in Toronto into a vertically integrated, omnichannel business with 14 retail stores, a direct-to-consumer delivery and subscription service from its website (greenhouse.ca), as well as hundreds of partner retail locations, including national grocery chains and specialty boutiques.
On January 17, 2019, Canopy Rivers announced the appointment of Narbé Alexandrian to President. Reporting directly to CEO, Bruce Linton, Narbé will continue to lead the corporate development initiatives as well as manage the day-to-day business of the Company. Prior to joining Canopy Rivers, Narbe was a venture capitalist at OMERS Ventures, where he sourced and lead private debt and equity investments, helped raise more than half a billion dollars of capital for deployment in several of the firm’s investment funds, and acted as a board observer for several of the firm’s portfolio companies.
On January 22, 2019, Canopy Rivers completed a $1.5 million equity investment in Herbert, legally 10663522 Canada Inc. (“Herbert”), a unique brand platform that focuses on the adult-use cannabis beverage and edibles market. Canopy Rivers also received incremental warrants entitling Canopy Rivers to increase its economic interest in Herbert under certain circumstances, as well as other governance-related rights. Herbert intends to leverage Greenhouse’s existing purpose-built, food-grade and GMP-compliant production and processing facility to create products infused with tetrahydrocannabinol (“THC”) for distribution within Canada. With the next wave of cannabis products, including edibles and extracts, expected to come into force in Canada by October 2019, the Company believes Herbert to be well-prepared to capture a share of this nascent segment of the cannabis industry.
On February 27, 2019, Canopy Rivers closed a bought deal offering (“Bought Deal”) of 13,225,000 subordinated voting shares at a price of $4.80 per share, offered by way of short form prospectus. The Bought Deal was co-led by CIBC Capital Markets and Eight Capital, with a syndicate that included three Schedule I banks. Concurrent with the Bought Deal, Canopy Growth Corporation (“Canopy Growth”), Canopy Rivers’ largest shareholder, purchased 6,250,000 subordinated voting shares on a private placement basis, also at a price of $4.80 per share, increasing its ownership of Canopy Rivers to approximately 27.1% of the issued and outstanding shares of Canopy Rivers on a non-diluted basis. The combined gross proceeds to Canopy Rivers was approximately $93.5 million. Canopy Rivers intends to use the net proceeds from the Bought Deal and Canopy Growth’s investment for new domestic and international investments, follow-on investments in existing portfolio companies, and working capital and general corporate purposes.
To date, the Company has made investments in fourteen companies, and in doing so has established a diversified portfolio that includes licensed companies, late stage licence applicants, international hemp cultivators, pharmaceutical formulators, brand developers and distributors, retail networks, technology and media platforms, health and wellness brands, and creators of adult-use cannabis ingestibles. The following is an update of select recent activity of the portfolio companies not already discussed above. For more information regarding the Company’s portfolio investments, please refer to the MD&A, filed with Canadian securities regulators and available on the Company’s profile on SEDAR at www.sedar.com.
Canapar Italy began the development of its flagship CBD extraction and processing facility in Sicily, Italy. Targeting a completion date in late 2019, this facility, which is expected to be the largest of its kind in Europe, will employ modern extraction technology solutions for industrial and agri-processing demands. Through its outsource farming model, Canapar Italy has secured more than 1,000 hectares for hemp cultivation to transform hemp biomass into CBD extracts and isolates, which are then proposed to be used for a wide range of health and beauty, cosmetics, pharmaceutical and veterinary products across the European market.
Civilized Worldwide Inc. (“Civilized”), an international modern media company and lifestyle brand, announced two acquisitions during the quarter: (i) The 420 Games, an events company, which hosts athletic competitions that highlight cannabis consumption; and (ii) Revolution Strategy, a full-service marketing communications agency, which will add in-house marketing and public relations expertise to Civilized. These two acquisitions provide Civilized with a multi-platform strategy to capitalize on the significant number of opportunities in the cannabis sector.
James E. Wagner Cultivation Ltd. (“JWC”) (TSXV: JWCA) continued to progress its expansion into a second facility (“JWC2”) this quarter, having received a permit for full occupancy and a main building permit during the quarter. It is anticipated that JWC2 will be operational in late 2019 and is expected to provide 345,000 square feet of both production space and a variety of support areas. JWC2 will feature more than 130 production rooms utilizing advanced research and cultivation methods, including JWC’s aeroponic GrowthSTORM™ Dual Droplet cultivation platform. JWC also capitalized on its proprietary technology by licensing the GrowthSTORM™ system to Wellness Farms Inc., for use in the cultivation of cannabis plants at its independently owned and operated facilities.
LiveWell Canada Inc. (“LiveWell”) (TSXV: LVWL) entered into a binding letter of agreement to acquire 100% of Vitality CBD Natural Health Products Inc. (“Vitality”), which will result in a reverse takeover transaction by Vitality. Vitality, a privately-owned Canadian company, is a cultivator and producer of bulk CBD isolates from hemp with operations in both the U.S. and Canada. LiveWell and Vitality plan to focus on addressing the anticipated growing demand for CBD and other cannabinoid products in North American and international markets. Following the announcement of the proposed reverse takeover transaction, IIROC, the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada, imposed a temporary trading halt of LiveWell. Trading halts are issued based on the principle that all investors should have the same timely access to important company information. At the time of this press release, the trading halt is still in effect.
TerrAscend announced several strategic transactions following its restructuring, including the finalization of a US$75 million credit facility that provides access to non-dilutive capital earmarked for acquisitions in the U.S. as well as for general corporate and working capital purposes. TerrAscend also announced the acquisition of the assets of Grander Distribution, LLC, a producer and distributor of innovative hemp-derived wellness products, which are available for sale in approximately 10,000 retail locations worldwide. TerrAscend’s majority owned subsidiary, NETA NJ, LLC, was also awarded a permit to apply for a vertically integrated licence in Phillipsburg, New Jersey. Finally, TerrAscend announced the signing of definitive agreements for the purchase of the award-winning retail dispensary brand known as “The Apothecarium”. TerrAscend will establish its U.S. retail footprint through The Apothecarium’s four retail dispensaries located in California and Nevada. The acquisition also includes a vertically integrated operation in Nevada with cultivation and edible manufacturing capabilities, as well as an edible brand, Valhalla Confections.
About Canopy Rivers Inc.
Canopy Rivers is a unique investment and operating platform structured to pursue investment opportunities in the emerging global cannabis sector. Canopy Rivers works collaboratively with Canopy Growth (TSX: WEED, NYSE: CGC) to identify strategic counterparties seeking financial and/or operating support. Canopy Rivers has developed an investment ecosystem of complementary cannabis operating companies that represent various segments of the value chain across the emerging cannabis sector. As the portfolio continues to develop, constituents will be provided with opportunities to work with Canopy Growth and collaborate among themselves, which Canopy Rivers believes will maximize value for its shareholders and foster an environment of innovation, synergy and value creation for the entire ecosystem.
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. Forward-looking information is often identified by the words “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or similar expressions including: the global sentiment towards cannabis; evolution of the regulatory landscape; conditions for potential gains; the ability of the Company to pursue opportunities internationally with PharmHouse; market volatility and the potential long-term value of certain investees; the potential of certain investees to capitalize on the European CBD market; the anticipated use of proceeds by PharmHouse under the credit facility; the expansion of Greenhouse’s business model and the symmetries of CBD with its existing business operations; the proposed business operations of Herbert, the expected legalization of cannabis edibles and extracts and Herbert’s ability to capture market share; the anticipated use of proceeds from the Bought Deal and concurrent private placement; the ability of the Company to identify and pursue opportunities within the cannabis sector; the timing for completion of Canapar Italy’s extraction and processing facility and the use of modern extraction technology solutions; the potential benefits of Civilized’s acquisitions; the timing for completion and licensing of JWC2, including the expected number of production rooms and use of the GrowthSTORMTM system; the completion of Livewell’s reverse takeover with Vitality and the combined company’s focus on hemp operations internationally; the completion of the acquisitions by TerrAscend and the establishment of its U.S. retail footprint through The Apothecareium; and expectations for other economic, business, and/or competitive factors.
Investors are cautioned that forward-looking information is not based on historical facts 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. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: regulatory and licensing risks; changes in general economic, business and political conditions, including changes in the financial markets; potential conflicts of interest; the Canadian 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; changes in applicable laws; compliance with extensive government regulation; public opinion and perception of the cannabis industry; and the risk factors set out in the final prospectus of the Company dated February 21, 2019, filed with 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 which 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.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
For further information:
Canopy Rivers Inc.
Sr. Director, Investor Relations & Communications