RIV Capital Archives - Green Market Report

StaffNovember 23, 2021
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As this momentous year winds down, Green Market Report asked various leading cannabis companies what their predictions are for the coming year.

Here is the response from RIV Capital, which 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. RIV Capital also has a strategic relationship with The Hawthorne Collective, a subsidiary of The Scotts Miracle-Gro Company (NYSE: SMG), to which RIV Capital is the Hawthorne Collective’s preferred vehicle for investments not under the purview of other ScottsMiracle-Go subsidiaries.

  • Five more states will legalize cannabis. Heading into 2022, only 14 states are without any kind of framework for medical or adult-use cannabis. We believe that states such as Delaware and Oklahoma will move to legalize adult-use after successful medical rollouts, and several others will launch either adult-use or medical programs.


  • Attractive valuations of private single state operators will lead to a boom of M&A activity between those SSOs and public MSOs, and also add new public MSOs through consolidation. Private single state operators have yet to see their value boosted compared to the public counterparts. Heading into 2022 we expect to not only see an acceleration of the acquisition activity we’re already seeing, but also consolidation among SSOs to take public new MSOs ahead of legalization. 
  • MSO valuations and fundamentals will remain disconnected through the first half of 2022, but institutional capital will start to trickle in, lifting MSO trading valuations to 15x forward EV/EBITDA in H2 2022. MSOs continue to trade at a significant discount to their financials. Revenues continue to soar, but a lack of institutional capital and weak movement on federal legalization has weighed down industry stocks. We don’t see this holding the sector down for long, and see public MSOs getting back to their early 2021 highs around the halfway point of the coming year. 
  • East coast legalization will act as a catalyst for many emerging companies, but west coast brands will focus on licensing deals that make them the top-sellers into 2023. While limited license east coast states might favour hometown cultivators and operators, we believe that the brands that will dominate shelf space and sales will be those that have built brand loyalty in more mature markets. Licensing deals will enable these brands — like Cookies, for example — to be sold in newly legal, limited license states, and their legacy and reputation in other markets wil carry over, giving them a leg up over emerging east coast brands.

 

  • As the Canadian markets mature, lower cost of capital funds will flow into the US cannabis market in two large deals, as Canadian LPs look to exotic structures to gain US exposure. Canadian LPs continue to position themselves for US entry. We see two more milestone deals happening this year as LPs chase the attractive valuations that could finally deliver the positive results shareholders have been waiting for. 
  • The SAFE Banking Act, or a similar variation, will pass in 2022, triggering a cannabis IPO rush from small MSOs and SSOs in larger markets. Those bullish on the industry expected to see this happen in 2021, but the year has largely come and gone without much movement on federal cannabis reform. We don’t see that happening again in 2022. Industry pressure and growing bipartisan support for decriminalization will lead to a milestone passage in 2022, triggering a rush of go-public transactions in an attempt to cash in on the wave of institutional capital that will flood the sector.

 


Debra BorchardtNovember 18, 2021
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RIV Capital Inc. (TSX: RIV) (OTC: CNPOF) released its unaudited condensed interim consolidated financial statements for the quarter ending September 30, 2021, with a business update that mostly focused on The Hawthorne Collective. In August, a newly-formed cannabis-focused subsidiary of Scotts Miracle-Gro (NYSE: SMG), invested $150 million in RIV Capital through an unsecured convertible note.

With regards to actual financials, Riv Capital reported an operating loss of $1.7 million for the quarter, net of a provision for expected credit losses of $2.1 million. The loss per share was ($0.01). 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., 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company, and NOYA Cannabis Inc., offset by a provision for expected credit losses on the company’s royalty receivables.

In addition to that, Riv Capital reported a total comprehensive loss of $1.1 million for the quarter versus last year’s total comprehensive loss of $87 million, primarily attributable to several charges related to the company’s former investment in PharmHouse 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.”

Riv Capital reported that the 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.

“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.”

 


Debra BorchardtAugust 10, 2021
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Cannabis investment firm RIV Capital Inc.  (TSX: RIV) (OTC: CNPOF) has signed a deal with The Hawthorne Collective, a newly-formed cannabis-focused subsidiary of The Scotts Miracle-Gro Company (NYSE: SMG) for the purchase of a $150 million unsecured convertible note from RIV Capital. the investment is expected to close near August 24.

The Investment establishes RIV Capital as The Hawthorne Collective’s preferred vehicle for investments not currently under the purview of The Hawthorne Gardening Company. RIV Capital said its strategy remains the same as its previously disclosed plans to acquire, invest in, launch, and/or develop U.S. assets to build multistate cannabis operating and brand platform.

“As we approach the launch of our U.S. platform, we are excited to announce the strategic investment from The Hawthorne Collective, a subsidiary of one of the largest and most successful companies serving both the CPG and cannabis sectors,” said Narbé Alexandrian, President and CEO, RIV Capital. “The Investment opens opportunities for considerable value creation and growth for RIV Capital, including potential access to additional capital that will accelerate our platform’s growth. With ScottsMiracle-Gro’s strong track record, reputation, and brand awareness, we can build upon lessons learned in both the Canadian and U.S. cannabis markets, and leverage their insights to optimize our acquisition and investment strategy.”

Canopy Rivers History

Six months ago, RIV Capital’s wholly-owned subsidiary, RIV Capital Corporation (formerly Canopy Rivers Corporation) transferred its interests in TerrAscend Corp., TerrAscend Canada Inc., Les Serres Vert Cannabis Inc., and The Tweed Tree Lot Inc. to Canopy Growth in exchange for approximately $115 million in cash, 3,647,902 common shares of Canopy Growth (having a value of approximately $170.3 million as at the close of trading on the Toronto Stock Exchange on February 22, 2021), and the cancellation of all 36,468,318 Multiple Voting Shares and 15,223,938 Subordinate Voting Shares of RIV Capital held by Canopy Growth. The plan was a strategy to pave the way for investments into U.S. cannabis companies.

At the time, Alexandrian said, “With a revitalized balance sheet and our new strategy in place, we have been actively sourcing opportunities in the world’s largest and most exciting cannabis market, and continue to believe that this next chapter will create significant value for our shareholders in the quarters to come.”

On closing of the Investment, RIV Capital will also expand its Board of Directors to seven seats and add three ScottsMiracle-Gro nominees alongside the existing RIV Capital directors. The new board members include Chris Hagedorn, Executive Vice President, ScottsMiracle-Gro, and Division President, The Hawthorne Gardening Company. Mark Sims, Senior Vice President, Strategy and M&A, ScottsMiracle-Gro. Gary Vaynerchuk, Chairman of VaynerX, and CEO, VaynerMedia. Mr. Vaynerchuk is an established and successful entrepreneur. In his current roles, he assists Fortune 1000 brands to leverage emerging platforms to attain and retain consumer attention.

“The addition of The Hawthorne Collective into our portfolio allows us to explore and pursue new opportunities in an industry that is poised for significant growth in the years ahead,” said Jim Hagedorn, Chairman and CEO, ScottsMiracle-Gro. “We are confident in our partners at RIV Capital and that our long-term approach ultimately will drive meaningful value for our shareholders.”

With over six years of experience as a key ancillary provider in the U.S. cannabis industry via its subsidiary, The Hawthorne Gardening Company, North America’s leader in indoor and hydroponic growing supplies, ScottsMiracle-Gro has significant knowledge and expertise in the U.S. cannabis sector. Since its inception, The Hawthorne Gardening Company has grown into one of the largest cannabis-focused companies in the world on a revenue basis, and has cultivated relationships with operators, brands, and ancillary providers. Now, through the Investment, the newly-formed The Hawthorne Collective is injecting significant capital into the company, to be used for general corporate and lawful purposes, that will unlock potential access to capital which will accelerate the launch and expansion of its U.S. cannabis operating and brand platform.

“While the Investment adds further capital to our balance sheet, our strategy remains the same,” added Alexandrian. “We have an extensive deal pipeline with some near-term prospects, and we will continue to focus our efforts on those prospects that we believe will contribute to building a leading multistate operator and brand platform in the U.S. market.”

 


Debra BorchardtJune 3, 2021
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RIV Capital Inc. (TSX: RIV) (OTC: CNPOF) released its financial results for the fourth quarter and fiscal year ended March 31, 2021, which proved to be a very transitional period for the company. Riv reported operating income (before equity method investees and fair value changes) of $0.7 million for the quarter. The company said that the operating income primarily consisted of royalty and interest income from its royalty and debenture agreements with Agripharm Corp., Greenhouse Juice Company, Radicle Medical Marijuana Inc., and Tweed Tree Lot, as well as lease income generated from the company’s lease agreement with Tweed Tree Lot.

Riv also delivered a total comprehensive income of $64.8 million for the quarter, versus a total comprehensive loss of $36.8 million for the same period last year. The net change in the fair value of financial assets that are reported at fair value through other comprehensive income was an increase of $86.3 million, primarily driven by the positive change of $109.4 million in the fair value of the company’s exchangeable shares in TerrAscend. This was partially offset by a negative change of $7.6 million in the fair value of the Company’s investment in Vert Mirabel common shares, among other items.

“Our quarter and fiscal year were highlighted by the closing of our milestone transaction with Canopy Growth, paving the way for RIV Capital to launch into the U.S. market,” said Narbé Alexandrian, President and CEO, RIV Capital. “This transaction returned several multiples on invested capital and provided us with the strategic flexibility needed to pivot our business model. With a revitalized balance sheet and our new strategy in place, we have been actively sourcing opportunities in the world’s largest and most exciting cannabis market, and continue to believe that this next chapter will create significant value for our shareholders in the quarters to come.”

Canopy Transaction

On February 23, 2021, Riv sold certain financial assets held in TerrAscend Corp., TerrAscend Canada Inc., The Tweed Tree Lot Inc., and Les Serres Vert Cannabis Inc. to Canopy Growth for $118.4 million in cash, approximately 3.65 million common shares of Canopy Growth, and the cancellation of the multiple voting shares and subordinated voting shares of the company held by Canopy Growth. As a result of the completion of the CGC Transaction, the Company’s dual-class share structure was eliminated.

The proceeds represented a substantial return on invested capital for the company. The total fair value of the consideration received was measured at $335.9 million upon closing of the CGC Transaction. Riv said its financial results for the quarter reflected the impact of fair valuing the disposed of assets based on the fair value of the consideration received for each asset, as well as the derecognition of the disposed of assets and the corresponding recognition of the consideration received.

Eddie Lucarelli, Chief Financial Officer, said, “With the CGC Transaction complete and the PharmHouse Credit Facility fully settled, our rejuvenated balance sheet puts us in an advantageous position to capitalize on the growing momentum in the U.S. cannabis market.”

PharmHouse  Update

Riv noted that after the quarter ended it closed on its previously announced plan for PharmHouse to sell its greenhouse facility and certain equipment located at the facility. Riv made a payment of $25.0 million to the lenders of PharmHouse’s $90.0 million non-revolving syndicated credit facility. As a result of this payment, Riv’s liability in respect of the PharmHouse Guarantee, which had been estimated to be $32.5 million as of December 31, 2020, was reduced by $25.0 million. With the PharmHouse sale closed, PharmHouse used the net proceeds to reduce the amount owed under the Credit Facility. Riv said the PharmHouse Credit Facility has now been terminated and canceled. Riv said it is entitled to any cash available for distribution upon termination of the CCAA proceedings.

 

 


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