Canopy Rivers Reports Fourth Quarter and Fiscal Year 2020 Financial Highlights

Published: June 4, 2020

Canopy Rivers Reports Fourth Quarter and Fiscal Year 2020 Financial Highlights

Canopy Rivers Inc., a venture capital firm specializing in cannabis, today released its audited consolidated financial statements for the fiscal year ended March 31, 2020 and management’s discussion and analysis (MD&A) for the three and twelve months ended March 31, 2020.

“The global economic uncertainty brought on by COVID-19 capped off a volatile and challenging year for the cannabis sector. Despite these challenges, I am pleased with what our team achieved last year. However, we were not immune to this volatility, and following a strategic and operational review of our business, we recently announced a number of changes aimed at strengthening our financial discipline and positioning Canopy Rivers for sustained success moving forward,” said Narbé Alexandrian, President and CEO of Canopy Rivers.

“Reflecting on the past year, there were several significant achievements that make me optimistic for fiscal year 2021. First, our portfolio companies reached new milestones, including the licensing of PharmHouse, the expansion of TerrAscend’s U.S. operations, and ZeaKal’s successful trials of its PhotoSeed™ technology. Second, our graduation to the TSX and the launch of our Strategic Advisory Board signalled our company’s continued maturation. Finally, we made four new investments, including two in ag-tech, which we believe is a critical component of the value chain that is poised to disrupt the cannabis sector.”

“While headwinds persist, we remain positive as we evaluate new opportunities that we believe will ultimately create value for our shareholders and help build the cannabis industry of tomorrow,” added Alexandrian.

Q4 2020 Financial Results1

Table 1

Select Summary of Quarterly Results

Three months ended 

Three months ended 

31-Mar-20

31-Mar-19

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

$

2,589

$

2,558

Operating expenses

3,484

7,512

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

(895)

(4,954)

Equity method investees and fair value changes

(30,671)

3,524

Net operating loss

(31,566)

(1,430)

Net loss

(30,515)

(1,826)

Other comprehensive income (loss) (net of tax)

(6,280)

22,418

Total comprehensive income (loss)

(36,795)

20,592

Basic earnings (loss) per share (“EPS”)

$

(0.16)

$

(0.01)

Diluted EPS

$

(0.16)

$

(0.01)

Cash flows used in operating activities

(686)

700

Cash flows used in investing activities

(2,378)

(33,047)

Cash flows provided by financing activities

110

89,601

Select Summary of Annual Results

Twelve months ended 

Twelve months ended 

31-Mar-20

31-Mar-19

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

$

11,922

$

4,867

Operating expenses

19,303

30,450

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

(7,381)

(25,583)

Equity method investees and fair value changes

(34,576)

33,610

Net operating income (loss)

(41,957)

8,027

Net income (loss)

(40,566)

3,918

Other comprehensive loss (net of tax)

(77,560)

(34,271)

Total comprehensive loss

(118,126)

(30,353)

Basic EPS

$

(0.22)

$

0.03

Diluted EPS

$

(0.22)

$

0.02

Cash flows used in operating activities

(7,666)

(2,633)

Cash flows used in investing activities

(50,915)

(129,614)

Cash flows provided by financing activities

1,122

190,131

1 The financial highlights in this summary are presented in CA$ thousands.

“Looking back on FY 2020, it is clear that cannabis companies encountered challenging conditions in the capital markets over those 12 months, and the impact of this shows in our financial results for the fiscal year,” said Eddie Lucarelli, CFO of Canopy Rivers. “However, we believe that this is more of a function of the slower-than-expected pace of development of the cannabis economy, rather than its long-term potential, which we continue to believe is significant. Based on our available cash resources and deep sector insights, we believe we are well-positioned to capitalize on the current market conditions and strengthen our portfolio of cannabis disruptors.”

Table 2

Three months ended 

Three months ended 

31-Mar-20

31-Mar-19

Royalty, interest, and lease income

$

2,858

$

2,558

Provision for credit losses

(269)

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

$

2,589

$

2,558

Consulting and professional fees

$

866

$

1,046

General and administrative expenses

1,330

1,900

Share-based compensation

1,246

4,566

Depreciation and amortization expense

42

Operating expenses

$

3,484

$

7,512

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

$

(895)

$

(4,954)

Twelve months ended 

Twelve months ended 

31-Mar-20

31-Mar-19

Royalty, interest, and lease income

$

12,191

$

4,867

Provision for credit losses

(269)

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

$

11,922

$

4,867

Consulting and professional fees

$

3,470

$

2,833

General and administrative expenses

6,630

3,132

Share-based compensation

9,033

24,485

Depreciation and amortization expense

170

Operating expenses

$

19,303

$

30,450

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

$

(7,381)

$

(25,583)

Canopy Rivers reported a net operating loss (before equity method investees and fair value changes) of $0.9 million for the quarter.

Royalty, interest, and lease income was $2.6 million, net of a $0.3 million provision for expected credit losses. This includes income from the Company’s royalty and debenture agreements with Agripharm Corp., 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company, Radicle Medical Marijuana Inc. (“Radicle”), and The Tweed Tree Lot Inc., as well as interest income on the Company’s $40.0 million shareholder loan agreement with PharmHouse Inc. (“PharmHouse”), among other items.

Operating expenses were $3.5 million for the quarter, of which $1.2 million (or approximately 36% of the total) related to share-based compensation, a non-cash expense. Excluding non-cash items, operating expenses decreased by approximately 25% from the comparative period last year. Operating expenses included $0.9 million of consulting and professional fees relating to legal, audit, tax, accounting, and other regulatory advisory fees, as well as $1.3 million of general and administrative expenses relating to employee and director compensation, marketing and business development, and other public company costs. In response to the novel coronavirus (“COVID-19”) pandemic, the Company is taking measures to manage its cash resources. Specifically, subsequent to the end of FY 2020, the Company announced a series of organizational changes focused on generating net positive cash flows from operations. This includes a material reduction in its operating cash outflows (driven by a reduction in headcount, directors’ compensation, marketing expenses, and general corporate expenses) of a targeted minimum of 35% from the Company’s FY 2020 operating cash outflows on a normalized basis.

Table 3

Three months ended 

Three months ended 

31-Mar-20

31-Mar-19

Share of loss from equity method investees

$

(3,198)

$

454

Impairment of equity method investees

(11,162)

Net change in fair value of financial assets at FVTPL

(16,311)

3,070

Equity method investees and fair value changes

$

(30,671)

$

3,524

Twelve months ended 

Twelve months ended 

31-Mar-20

31-Mar-19

Share of loss from equity method investees

$

(6,155)

$

(2,165)

Impairment of equity method investees

(11,162)

Net change in fair value of financial assets at FVTPL(2)

(17,259)

35,775

Equity method investees and fair value changes

$

(34,576)

$

33,610

(2) Net change in fair value of off-market commitment is included in the net change in fair value of financial assets at FVTPL for the twelve months ended March 31, 2019 

The Company’s share of loss from equity method investees was $3.2 million for the quarter. This includes the Company’s equity interests in Canapar Corp., 10663522 Canada Inc. d/b/a/ Herbert, High Beauty, Inc. (“High Beauty”), LeafLink Services International ULC, 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.

In addition to the reported share of losses and in connection with the Company’s regular assessment of indicators of impairment for equity method investees, the Company identified several factors that indicated that the Company’s equity investments in certain portfolio companies may be impaired. These factors included economic and regulatory uncertainty caused by COVID-19, a slowdown in retail distribution in both Canada and the United States, and a slower-than-expected ramp-up of commercial activities for certain entities. In total, the Company recognized impairment charges of $11.2 million for the quarter.

The Company also reported a net decrease in the fair value of financial assets that are reported at fair value through profit or loss (“FVTPL”) of $16.3 million for the quarter. This includes a decrease in the estimated value of certain royalty investments, as the slower-than-expected growth of the cannabis industry and broader economic challenges posed by the outbreak of COVID-19 have increased the risk profiles of the operations of certain counterparties to these agreements.

After consideration of operating income, operating expenses, equity method investees, and FVTPL fair value changes, Canopy Rivers reported a net operating loss of $31.6 million for the quarter.

Table 4

Three months ended 

Three months ended 

31-Mar-20

31-Mar-19

JWC

$

(2,714)

$

3,628

TerrAscend

(5,500)

20,000

Vert Mirabel

(88)

3,453

Eureka

(148)

(2,169)

YSS

(272)

979

Headset

415

(84)

Zeakal

1,214

Gross change in fair value of financial assets at FVTOCI

$

(7,093)

$

25,807

OCI income tax expense (recovery)

(609)

3,424

Net change in fair value of financial assets at FVTOCI(2)

$

(6,484)

$

22,383

Twelve months ended 

Twelve months ended 

31-Mar-20

31-Mar-19

JWC

$

(12,803)

$

(325)

TerrAscend

(56,500)

(32,240)

Vert Mirabel

(14,586)

(1,331)

Eureka

(2,020)

(355)

YSS

(2,721)

(5,213)

Headset

297

(76)

Zeakal

713

Gross change in fair value of financial assets at FVTOCI

(87,620)

(39,540)

OCI income tax expense (recovery)

(9,959)

(5,234)

Net change in fair value of financial assets at FVTOCI(3)

$

(77,661)

$

(34,306)

(3)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 loss was $6.3 million, net of tax, for the quarter, which includes a $6.5 million, net of tax, decrease in the fair value of financial assets that are reported at fair value through other comprehensive income (“FVTOCI”). The primary factors contributing to this loss were a decrease in the fair values of the Company’s investments in TerrAscend Corp. (“TerrAscend”) and James E. Wagner Cultivation Corporation, the latter of which recently filed for protection under the Companies’ Creditors Arrangement Act. Due to the high levels of volatility observed in stock prices of publicly-traded cannabis companies and the market broadly, it is expected that net changes in fair value of financial assets at FVTOCI will continue to exhibit volatility in the near-term.

Table 5

As at

As at

Period ended

31-Mar-20

31-Mar-19

Cash

$

46,724

$

104,183

Loan Receivable

42,450

40,000

Equity method investees

50,543

64,891

Financial assets at FVTPL

80,170

54,705

Financial assets at FVTOCI

64,599

137,298

Other assets

15,899

18,208

Total assets

$

300,385

$

419,285

Total liabilities

2,107

11,099

Total shareholders’ equity

298,278

408,186

Total liabilities and shareholders’ equity

$

300,385

$

419,285

Outlook

As the Company’s equity method investees continue to ramp up operations, it is expected that in the near term, its comprehensive income (or loss) will continue to be largely driven by net changes in the fair value of financial assets at FVTPL or financial assets at FVTOCI. In turn, the Company expects that these net changes will continue to be largely dependent upon the regulatory, business, and capital markets environment in the cannabis industry, as well as the regulatory, business, and capital markets environment in the broader economy as a result of the COVID-19 pandemic. Given the inherent volatility of valuations of investments in the global cannabis sector and the unknown impact of the COVID-19 pandemic, the Company anticipates continued volatility in its financial results.

Q4 2020 Corporate and Portfolio Updates

The following represents a summary of the milestones achieved by Canopy Rivers and its portfolio companies during the fourth quarter of FY 2020:

Canopy Rivers

  • Canopy Rivers announced the launch of a normal course issuer bid, signalling management’s position that the current share price does not reflect the Company’s underlying value and future prospects.

Portfolio Updates

  • PharmHouse received a licence amendment from Health Canada, enabling it to ramp up operations across its 1.3 million sq. ft. automated greenhouse and begin to fulfil its offtake agreements.
  • TerrAscend strengthened its financial position, finalizing a US$33.5 million non-brokered private placement and, later in the quarter, its wholly-owned subsidiary TerrAscend Canada Inc. entered into an $80.5 million loan financing arrangement with Canopy Growth Corporation.
  • TerrAscend also continued to develop its U.S. operations, as two of its subsidiaries (one in New Jersey and another in Utah) received approval for the processing or cultivation of medical cannabis in their respective states.
  • BioLumic Ltd. (“BioLumic”) received approval from the New Zealand government to apply its proprietary UV light technology to medical cannabis and has begun conducting medical cannabis commercial trials. BioLumic also entered into a collaboration with New Zealand’s largest medical cannabis company, Helius Therapeutics.
  • YSS Corp. opened two downtown Calgary flagship stores in January, as well as its 17th retail location in Grand Prairie, Alberta in February.
  • Headset, Inc. (“Headset”) and High Beauty both grew their Canadian presence. Headset launched its Insights product for the British Columbia cannabis retail market and High Beauty officially launched in Canadian retail outlets, including The Bay, Shoppers Drug Mart, and Indigo.
  • ZeaKal Inc. announced research results from multi-year field trials of its PhotoSeed™ technology. The trials showed an increased ability to significantly improve both oil and protein composition in soybeans.
  • Canopy Rivers advanced $1.0 million to Radicle pursuant to a convertible debenture, which is expected to enable Radicle to increase production of its Gage brand, which is regularly sold out in cannabis retail stores, and work towards the launch of other popular brands for which it holds certain exclusive licences.

This press release should be read in conjunction with the Company’s audited consolidated financial statements for FY 2020 and MD&A for the three and twelve months ended March 31, 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.

Canopy Rivers is a venture capital firm specializing in cannabis. Its unique investment and operating platform is structured to pursue investment opportunities in the emerging global cannabis sector. Canopy Rivers identifies strategic counterparties seeking financial and/or operating support.