Ends fiscal year with approximately $97.9 million of cash and short-term investments, with more than sufficient liquidity to capitalize on upcoming New York transition and explore opportunities beyond the state
Recently announced New York draft regulations support the market and the Company's strategic direction; operational ramp-up expected to align with expanding the adult-use market later this year
Substantially completes expansion of leading cannabis cultivation and production facility in New York, tripling cultivation and manufacturing capacity
Buffalo flagship facility metal frame built; commissioning targeted for first half of calendar year 2024
TORONTO, June 14, 2023 /PRNewswire/ - RIV Capital Inc. ("RIV Capital" or the "Company") (CSE: RIV) (OTC: CNPOF), an acquisition and investment firm with a focus on building a leading multistate platform with one of the strongest portfolios of brands in key strategic U.S. markets, today released its financial results for the fourth quarter ("FQ4 2023") and fiscal year ended March 31, 2023 ("FY 2023").
Management Commentary
"Our fiscal year end marks nearly one year since we acquired ownership and control of New-York based Etain and officially entered the U.S. cannabis market," said Mike Totzke, COO and interim CEO of RIV Capital. "While the opening of the adult-use market in New York has been slower and less successful than we initially expected, we remain bullish on this market's long-term prospects, especially in light of the recently unveiled updated draft regulations that we believe are a much-needed move in the right direction."
"Through our balance sheet and asset portfolio, we are in an advantageous position to realize the potential of the New York cannabis market. As such, we are laser focused on executing our entry into the adult-use market later this year, and we anticipate building an early leadership position in this critical market."
Eddie Lucarelli, CFO of RIV Capital, added, "RIV continues to enjoy a favorable liquidity position, ending the fiscal year with approximately $97.9 million in cash and short-term investments. We continue to strategically deploy capital to enhance our team and capabilities, expand and optimize our Chestertown facility, and develop our flagship Buffalo facility. While we anticipate a significant investment in New York over the next two years, we believe that, even after these cash outlays, the Company will remain in a strong financial position to execute on M&A and other investment opportunities that we expect will further enhance shareholder value."
New York Regulatory Update
The Company, in cooperation with other stakeholder groups, has been working diligently to provide feedback on the New York Cannabis Control Board and Office of Cannabis Management's (the "Regulators") proposed adult-use ("AU") cannabis regulations.
On May 11th, the Regulators released a revised draft of the proposed regulations, which authorize medical operators to enter the retail tier of the AU market sooner than the previous draft regulations had outlined. The revised proposed regulations also modify the structure and timing of the one-time special licensing fee assessed on medical operators transitioning to AU, with half of the fee tied to achieving certain revenue thresholds. Based on the current version of the draft regulations, which are undergoing a public comment period, RIV Capital anticipates that Etain will enter the AU wholesale market in the fourth quarter of calendar year 2023, with a first retail dispensary opening by January 1, 2024, followed by two additional retail dispensaries on or around July 1, 2024.
While the Company believes that the revised proposed regulations represent progress, there is still substantial work to do from a regulatory perspective, and RIV Capital will continue to advocate alongside other stakeholder groups for additional changes to position New York to be a successful, safe, and equitable cannabis market. In addition to the revised provisional regulations, the state legislature and governor adopted into law broader enforcement legislation designed to crack down on the rampant illicit cannabis market. The Company applauds such action and hopes to see further enforcement action taken to curtail illicit activity that is currently creating unsafe conditions for New Yorkers and unfair market conditions for all of New York's licensed cannabis operators.
Strategic and Operational Update
Chestertown Facility
The expansion of Etain's cultivation and production infrastructure in Chestertown, New York is now substantially complete and is expected to triple Etain's existing cultivation capacity. Plant propagation across the new high-tech greenhouse bays has commenced, with first harvests expected to coincide with the Company's anticipated entry into the AU wholesale market in the fourth quarter of calendar year 2023. Investments and operational improvements at the facility's existing operations have resulted in notable flower yield and THC potency improvements, which have garnered positive customer feedback.
Flagship Buffalo Facility
The Company continues to develop its indoor flagship facility located in Buffalo, New York, with the exterior metal frame now erected. Interior commissioning is scheduled to start this fall, and subject to the receipt of regulatory approval for the site, facility completion is expected in the first half of calendar year 2024. RIV Capital is designing the Buffalo facility to be focused on the production of premium flower, which the Company believes will differentiate its positioning in the state and facilitate the development of brand equity with consumers.
Strategic Growth Committee
As previously disclosed, the Company's Board has established a Strategic Growth Committee ("SGC") to develop and lead growth strategies, including potential strategic M&A, to capitalize on RIV Capital's unique strengths and drive value for the Company's stakeholders. The Company believes that its strong balance sheet, unique New York assets and positioning, and strategic partnership with The Hawthorne Collective, Inc. create multiple avenues for realizing value, and believes that strategic M&A will be instrumental in unlocking that value.
The Company is engaged in conversations with potential counterparties and continues to prioritize M&A initiatives alongside the development of its New York assets. In addition, the Board continues its search for a permanent CEO and looks forward to providing updates as it pursues a well-suited candidate for the role.
Marketing
As of March 31, 2023, Etain products were in 30 of 38, or almost 80%, of medical dispensaries across the state. Etain also continues to develop its wholesale business for anticipated entry into the AU market later this year.
Etain is also proud to continue investing in and supporting the community in which it operates, including its Warrior Women medical cannabis education series held in partnership with The JUSTÜS Foundation, and supporting events with Black Girls Smoke, NCIA, On The Revel, The Cannabis Parade, and more.
In celebration of Pride month, Etain launched its Motif Pride pen battery, with a portion of proceeds being donated to Callen-Lorde, a global leader in LGBTQ+ health care, and the Company continues to explore new flower, pre-roll, and powder formats for additional near-term product launches.
Fiscal Q4 and Full Fiscal Year 2023 Financial Results
The following is a summary of the Company's financial results the three months and year ended March 31, 2023 and 2022. Unless otherwise indicated, all financial highlights summarized in tables in this press release are presented in thousands of dollars, except share and per share amounts. All references to "$" are to United States dollars.
Summary Operating Results(1)(2)
|
| Three months
ended
Mar. 31, 2023
| Three months
ended
Mar. 31, 2022
| Fiscal year
ended
Mar. 31, 2023
| Fiscal year
ended
Mar. 31, 2022
|
Revenue
| $ 1,837
| $ -
| $ 7,250
| $ -
|
Excise taxes
| (109)
| -
| (443)
| -
|
Total revenue, net
| 1,728
| -
| 6,807
| -
|
Cost of goods sold
| 1,596
| -
| 4,372
| -
|
Gross profit excluding fair value items
| 132
| -
| 2,435
| -
|
Fair value items included in gross profit
| 80
| -
| (29)
| -
|
Gross profit
| 212
| -
| 2,406
| -
|
Selling, general, and administrative expenses
| 5,332
| 3,804
| 20,502
| 11,819
|
Impairment of goodwill
| -
| -
| 138,937
| -
|
Operating loss
| (5,120)
| (3,804)
| (157,033)
| (11,819)
|
Other income (loss)
| (19,437)
| (12,212)
| (25,142)
| (40,325)
|
Loss before taxes
| (24,557)
| (16,016)
| (182,175)
| (52,144)
|
Income tax recovery
| (987)
| (2,273)
| (2,916)
| (9,939)
|
Net loss
| $ (23,570)
| $ (13,743)
| $ (179,259)
| $ (42,205)
|
Other comprehensive income (loss)
| (1,128)
| 3,980
| (8,061)
| 2,268
|
Total comprehensive loss
| $ (24,698)
| $ (9,763)
| $ (187,320)
| $ (39,937)
|
|
|
|
|
|
Loss per share – basic
| $ (0.15)
| $ (0.10)
| $ (1.09)
| $ (0.30)
|
Loss per share – diluted
| $ (0.15)
| $ (0.10)
| $ (1.09)
| $ (0.30)
|
(1)
| The operating results reported by the Company for the fiscal year ended March 31, 2023, include the operating results for Etain, LLC from April 23, 2022, to March 31, 2023. The revenue and net loss reported by the Company for the fiscal year ended March 31, 2023, would not have been materially different had the initial closing of the Etain Acquisition been effected April 1, 2022, instead of April 22, 2022.
|
(2)
| The Company changed its presentation currency from the Canadian dollar to the U.S. dollar, effective April 1, 2022. Comparative period results have been restated to reflect current period presentation.
|
The Company reported revenue, net of excise taxes, of $1.7 million for FQ4 2023, compared to $1.9 million for the three months ended December 31, 2022 ("FQ3 2023") (the Company did not report revenue for any reporting periods ended on or prior to March 31, 2022). Retail revenue of $1.6 million was generated from Etain, LLC's dispensaries in Manhattan, Kingston, Syracuse, and Yonkers, and wholesale revenue of $0.2 million was generated from sales of Etain-branded products to other registered organizations in New York. New York's medical market continues to be challenged by the proliferation of the illicit market. Based on state-level data, medical cannabis revenue appears to be declining across New York and Etain's medical business is experiencing similar pressure.
The Company reported cost of goods sold (which excludes unrealized fair value changes included in biological assets and realized fair value changes included in inventory sold) of $1.6 million for FQ4 2023, compared to $1.1 million for FQ3 2023 (the Company did not report cost of goods sold for any reporting periods ended on or prior to March 31, 2022). Cost of goods sold for FQ4 2023 was impacted by the continued expansion and ramp-up of Etain's operations ahead of its anticipated transition to the AU market later this year, as well as certain expense re-allocations and recognition during the quarter.
Based on the foregoing, the Company reported a gross profit of $0.2 million for FQ4 2023, compared to a gross profit of $0.8 million for FQ3 2023 (the Company did not report gross profit for any reporting periods ended on or prior to March 31, 2022).
The Company reported selling, general, and administrative ("SG&A") expenses of $5.3 million for FQ4 2023, compared with operating expenses of $4.8 million for FQ3 2023 and $3.8 million for the three months ended March 31, 2022 ("FQ4 2022"). The increase in SG&A expenses relative to the comparative periods was primarily due to the significant increase in the size and scope of general and administrative functions of the Company to support its strategic shift to the U.S. cannabis market and the scaling up of Etain's operations, including incremental personnel, legal, insurance, and audit-related expenses.
The Company reported other loss of $19.4 million for FQ4 2023, compared with $6.3 million for FQ3 2023 and $12.2 million for FQ4 2022. Included in this is a $16.0 million charge related to the settlement agreement announced on February 23, 2023. Pursuant to that settlement agreement, the Company repurchased for cancellation all RIV Capital Class A common shares owned or controlled by JW Asset Management, LLC ("JWAM") and its affiliates, amounting to 33,733,334 common shares, for an aggregate purchase price of $19.6 million, and reimbursed certain legal expenses incurred by JWAM in the amount of $0.4 million. From a financial reporting perspective, the $19.6 million share repurchase price was bifurcated such that the Company recognized a $4.0 million decrease to share capital based on the closing share price of the Company's Class A common shares on the Canadian Securities Exchange on February 22, 2023, with the residual amount being classified as a "Other income (loss)" on the Company's consolidated statements of loss and comprehensive loss for FQ4 2023 and FY 2023.
The Company reported an income tax recovery of $1.0 million for FQ4 2023, compared with an income tax recovery of $0.4 million for FQ3 2023 and $2.3 million for FQ4 2022.
Based on the foregoing, the Company reported a net loss of $23.6 million, and a basic and diluted loss per share of $0.15, for FQ4 2023, compared with a net loss of $9.9 million, and a basic and diluted loss per share of $0.06 for FQ3 2023, and a net loss of $13.7 million, and a basic and diluted loss per share of $0.10, for FQ4 2022.
The Company reported other comprehensive loss of $1.1 million for FQ4 2023, compared with $2.8 million for FQ3 2023 and other comprehensive income of $4.0 million for FQ4 2022. Included in other comprehensive loss for FQ4 2023 was a decrease in the estimated fair value of the Company's investment in Dynaleo Inc., while other comprehensive loss for FQ3 2023 included the previously disclosed decrease in the estimated fair value of the Company's investment in Headset, Inc.
Based on the foregoing, the Company reported a total comprehensive loss of $24.7 million for FQ4 2023, compared with a total comprehensive loss of $12.7 million for FQ3 2023 and $9.8 million for FQ4 2022.
Summary Cash Flows and Financial Position Data
|
| Fiscal year
ended
Mar. 31, 2023
| Fiscal year
ended
Mar. 31, 2022
|
Net cash flows from operating activities
| $ (23,358)
| $ (25,190)
|
Net cash flows from investing activities
| (234,899)
| 85,442
|
Net cash flows from financing activities
| 18,892
| 144,947
|
Net increase (decrease) in cash
| $ (239,365)
| $ 205,199
|
Effect of foreign exchange rate movements on cash held
| (1,873)
| 11,812
|
Cash, beginning of fiscal period
| 318,706
| 101,695
|
Cash, end of fiscal period
| $ 77,468
| $ 318,706
|
Short term investments, end of fiscal period
| 20,392
| -
|
Cash and short-term investments
| $ 97,860
| $ 318,706
|
|
|
|
| As at
Mar. 31, 2023
| As at
Mar. 31, 2022
|
Current assets
| $ 111,906
| $ 330,190
|
Non-current assets
| 149,912
| 36,021
|
Total assets
| $ 261,818
| $ 366,211
|
|
|
|
Current liabilities
| $ 6,828
| $ 3,946
|
Non-current liabilities
| 146,143
| 97,551
|
Total liabilities
| $ 152,971
| $ 101,497
|
|
|
|
Total shareholders' equity
| $ 108,847
| $ 264,714
|
This press release should be read in conjunction with the Company's audited consolidated financial statements and management's discussion and analysis ("MD&A") for FQ4 2023 and FY 2023, 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.
For more information regarding the Company and its portfolio companies, please refer to the MD&A and the Company's annual information form ("AIF") dated June 14, 2023, 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 acquisition and investment firm with a focus on building a leading multistate platform with one of the strongest portfolios of brands in key strategic U.S. markets. Backed by in-house expertise and cannabis domain knowledge, RIV Capital aims to grow its own brands and partner with established U.S. cannabis operators and brands to bring them to new markets and build market share. RIV Capital established the foundational building blocks of its active U.S. strategy with its announced Etain Acquisition. Through its strategic relationship with The Hawthorne Collective, Inc. ("The Hawthorne Collective"), a subsidiary of ScottsMiracle-Gro, RIV Capital is The Hawthorne Collective's preferred vehicle for cannabis-related investments not under the purview of other ScottsMiracle-Gro 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 strategies, objectives, goals, opportunities and plans, including in respect of Etain and its product portfolio; the Company's expectations regarding the proposed regulations for the New York adult-use cannabis market and its intentions to provide feedback on the revised draft of the regulations; the Company's expectations regarding the special licensing fees that Etain LLC may be required to pay to the OCM (as defined herein) to operate in New York State's adult-use cannabis market; the Company's liquidity position, including its ability to finance its growth objectives in New York and long-term expansion plans; the Company's strategy to invest in and/or acquire US-based cannabis companies; the Company's expectations with respect to the establishment of the Strategic Growth Committee; expectations regarding M&A opportunities; plans with respect to searching for a new CEO; the Company's expectations for creation of multiple avenues to realize shareholder value; the true value of the Company; the benefits associated with realigning the Company's strategy and execution; the Company's ability to appropriately scale Etain's existing infrastructure, processes and systems and the development of a robust wholesale program; the Company's expectations regarding the U.S. cannabis market; expectations regarding legal cannabis market opportunities in New York and the benefits of the New York cannabis market; the ability of the Company to capitalize on its assets, including its balance sheet, strategic partner and vertical licenses in New York; expectations regarding adult-use sales in the state of New York; expectations regarding the expansion of Etain's Chestertown facility, and the impact of the expansion on the existing cultivation and production footprint; expectations regarding the timing of the Company's entry into the AU wholesale market; plans to update Etain's existing retail locations and the potential to build new locations; the Company's expectations regarding Etain's position in the New York cannabis market; the Company's expectations and plans regarding Etain's business, including its market share, sales, brand, products and locations; the Company's expectations regarding growth opportunities; challenges faced by the existing U.S. medical cannabis market; the Company's expectations with respect to the development of the Buffalo flagship facility, including timing for completion thereof; the Company's intention to, and the anticipated benefits of, supporting New York state cannabis equity initiatives; the Company's expectations regarding its capital allocation strategy; the benefits of the strategic partnership with The Hawthorne Collective and Scotts Miracle-Gro; 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, Etain and the Company's 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; litigation risks; 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 has invested in and acquired, and intends to in the future 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.
