Company reports record quarterly revenue of $4.9 million
Adjusted EBITDA1 loss improves; net loss primarily driven by non-cash pre-tax impairment charge on intangible assets
Ended the quarter with $50.7 million of cash to support growth initiatives in New York and Florida
Cansortium Business Combination anticipated to close in the coming weeks
TORONTO, Nov. 29, 2024 /PRNewswire/ - RIV Capital Inc. ("RIV Capital" or the "Company") (CSE: RIV) (OTC: CNPOF), a firm dedicated to developing a leading multi-state platform with a strong portfolio of cannabis brands focused on key strategic markets in the United States ("U.S."), today released its financial results for the third quarter ended September 30, 2024 ("Q3 2024"). All financial information in this press release is reported in U.S. dollars unless otherwise indicated.
Management Commentary
"Since the launch of adult-use sales in New York this year, we have achieved significant growth, driven by our ongoing enhancements to customer retail experiences and commitment to delivering exceptional customer service," said Dave Vautrin, Chief Retail Officer and Interim Chief Executive Officer of RIV Capital. "With our operations scaling as patient and consumer demand continues to build, we experienced significant acceleration in the third quarter results, demonstrated by our record net revenue of $4.9 million. We now proudly operate three co-located adult-use and medical retail dispensaries, plus an additional medical-only location, across our footprint, and customer response has been great, with especially strong enthusiasm following the launch of the highly popular MOODS brand by FLUENT into the New York market."
Mr. Vautrin added, "As we continue to improve our retail network, we're also scaling our wholesale operations, with a growing pipeline of approximately 60 retailers. With the recent strategic distribution agreement with Nabis, we're well-positioned to support this rapid growth across the state. This momentum has continued into the fourth quarter."
Mr. Vautrin concluded, "Since announcing the proposed Business Combination with Cansortium, we've identified and captured substantial synergies, and our joint integration efforts are progressing smoothly. With Cansortium, we're poised to complete this transaction on a solid foundation and positioned to quickly capitalize on the combined expertise and experience of our teams in some of the most dynamic markets in the cannabis industry."
1 | Adjusted EBITDA is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. A reconciliation of net loss to Adjusted EBITDA is provided in the table "Supplemental Information - Non-IFRS Financial Measures" below. |
Regulatory Update
New York State continues to undertake efforts to combat illicit market activities, which the Company believes will positively impact the ability of the legal market to establish a stronger and safer footprint. The Company continues to work closely with the Office of Cannabis Management ("OCM") and foster its strong relationship with New York stakeholders. At the federal level, the Company continues to monitor developments regarding the rescheduling of cannabis from a Schedule I to a Schedule III substance under the Controlled Substances Act (the "CSA"), as rescheduling is anticipated to lead to the removal of 280E taxes and provide support for further potential federal reform. Additionally, this change has the potential to expand institutional access to invest in the cannabis sector and accelerate opportunities for research into the medical benefits of cannabis.
Business Combination Update
The Company anticipates being in a position to complete the previously announced business combination (the "Business Combination") with Cansortium Inc. (CSE: TIUM.U) (OTCQB: CNTMF) ("Cansortium"), a vertically integrated, multi-state cannabis company operating under the FLUENT brand, in the coming weeks. Closing remains subject to, among other things, the requirement for RIV Capital to maintain a certain minimum cash balance as of a specified date prior to closing, and the satisfaction of certain other closing conditions customary in transactions of this nature, all of which are expected to be completed during this quarter. Further details regarding the Business Combination, including the principal closing conditions and the anticipated benefits for RIV Shareholders, can be found in RIV Capital's management information circular dated July 12, 2024 in respect of the RIV Meeting (the "Circular") and in the joint press release issued by RIV Capital and Cansortium on May 30, 2024, both of which can be found under RIV Capital's SEDAR+ profile at www.sedarplus.ca.
Financial Results for the Third Quarter Ended September 30, 2024
The following is a summary of the Company's unaudited financial results for the three and nine months ended September 30, 2024, and 2023. As previously announced, the Company has changed its fiscal year end from March 31 to December 31. Accordingly, the comparative period presented for the nine months ended September 30, 2023, had not previously been reported in historical unaudited condensed interim consolidated financial statements published by the Company. Further details regarding the change in fiscal year end, including the length and ending dates of the Company's financial reporting periods, are available in the Company's Notice of Change in Year End prepared in accordance with Section 4.8 of National Instrument 48-102 and filed on the Company's SEDAR+ profile at www.sedarplus.ca.
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 | ||||
Three months ended Sep. 30, 2024 (unaudited) | Three months ended Sep. 30, 2023 (unaudited) | Nine months Sep. 30, 2024 (unaudited) | Nine months Sep. 30, 2023 (unaudited) | |
Revenue, net | $ 4,859 | $ 1,697 | $ 10,786 | $ 5,211 |
Cost of goods sold | 5,737 | 1,851 | 12,571 | 5,038 |
Gross profit excluding fair value items | (878) | (154) | (1,785) | 173 |
Unrealized gain (loss) on changes in fair value of biological assets | (520) | 214 | (598) | 493 |
Realized fair value amounts included in inventory sold | 238 | (9) | 271 | (10) |
Gross profit | (1,160) | 51 | (2,112) | 656 |
Selling, general, and administrative expenses | 4,583 | 4,804 | 16,613 | 15,442 |
Impairment of intangible assets | 67,372 | - | 67,372 | - |
Operating loss | (73,115) | (4,753) | (86,097) | (14,786) |
Other loss | (3,832) | (3,785) | (8,348) | (27,511) |
Loss before taxes | (76,947) | (8,538) | (94,445) | (42,297) |
Income tax recovery | (13,588) | (1,152) | (17,816) | (2,199) |
Net loss | $ (63,359) | $ (7,386) | $ (76,629) | $ (40,098) |
Other comprehensive income (loss) | (1,332) | 732 | (1,347) | (994) |
Total comprehensive loss | $ (64,691) | $ (6,654) | $ (77,976) | $ (41,092) |
Net loss per share - basic | $ (0.46) | $ (0.05) | $ (0.56) | $ (0.28) |
Net loss per share - diluted | $ (0.46) | $ (0.05) | $ (0.56) | $ (0.28) |
Supplemental Information - Non-IFRS Financial Measures (1) | ||||
Three months ended Sep. 30, 2024 | Three months ended Sep. 30, 2023 | Nine months ended Sep. 30, 2024 | Nine months ended Sep. 30, 2023 | |
Net loss | $ (63,359) | $ (7,386) | $ (76,629) | $ (40,098) |
Income tax recovery | (13,588) | (1,152) | (17,816) | (2,199) |
Accretion and interest expense, net | 3,608 | 2,610 | 10,030 | 7,595 |
Depreciation and amortization(2) | 1,629 | 692 | 3,585 | 2,103 |
EBITDA | $ (71,710) | $ (5,236) | $ (80,830) | $ (32,599) |
Impairment of intangible assets | 67,372 | - | 67,372 | - |
Fair value items in inventory and biological assets | 332 | (115) | 431 | (380) |
Non-operating expenses (income) ( 3 ) | 94 | 202 | (1,931) | 2,835 |
Other non-recurring expenses (income)(4) | 675 | 181 | 4,143 | 16,558 |
Adjusted EBITDA | $ (3,237) | $ (4,968) | $ (10,815) | $ (13,586) |
(1) | EBITDA and Adjusted EBITDA are non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. |
(2) | Depreciation and amortization includes expenses recognized through both cost of goods sold and selling, general, and administrative expenses. |
(3) | Non-operating expenses (income) include foreign exchange, share of loss from associates, impairment of associates, and net change in fair value of financial assets at FVTPL. |
(4) | Other non-recurring expenses (income) include litigation settlement expenses, M&A transaction costs, severance, and gain or loss on disposal of fixed assets. |
Summary Cash Flows and Financial Position Data | ||
Nine months ended Sep. 30, 2024 (unaudited) | Nine months ended Sep. 30, 2023 (unaudited) | |
Net cash flows used in operating activities | $ (9,293) | $ (29,574) |
Net cash flows used in investing activities | (19,665) | (5,322) |
Net cash flows used in financing activities | (2,033) | (5,717) |
Net decrease in cash | $ (30,991) | $ (40,613) |
Effect of foreign exchange rate movements on cash held | (195) | 8 |
Cash, beginning of fiscal period | 81,887 | 125,601 |
Cash, end of fiscal period | $ 50,701 | $ 84,996 |
As at Sep. 30, 2024 (unaudited) | As at Dec. 31, 2023 (unaudited) | |
Current assets | $ 61,928 | $ 98,246 |
Non-current assets | 62,980 | 120,831 |
Total assets | $ 124,908 | $ 219,077 |
Current liabilities | $ 11,831 | $ 19,603 |
Non-current liabilities | 148,920 | 157,353 |
Total liabilities | $ 160,751 | $ 176,956 |
Total shareholders' equity | $ (35,843) | $ 42,121 |
- Net revenue was $4.9 million for Q3 2024, compared to $1.7 million for the three months ended September 30, 2023 ("CQ3 2023"), representing an increase of 28% quarter-over-quarter and 186% year-over-year. Retail revenue of $3.4 million was generated from Etain LLC's co-located adult-use and medical retail dispensaries in White Plains, Kingston, and Manhattan, and its medical retail dispensary in Syracuse, compared to $1.5 million in CQ3 2023 from medical-only retail operations. The financial results for Q3 2024 include only a few weeks of revenue contribution from adult-use retail sales in Kingston and Manhattan, as these stores did not begin selling adult-use products until mid-September. Wholesale revenue of $1.6 million was generated from sales of internally-produced adult-use and medical cannabis products to other adult-use or medical dispensaries in New York, as well as sales of bulk flower to other license holders in the New York adult-use market, compared to $0.3 million in CQ3 2023. The change in net revenue between the two periods reflects the impact of the early stages of the Company's transition to serve the New York adult-use market.
- Cost of goods sold (which excludes unrealized fair value changes included in biological assets and realized fair value changes included in inventory sold) was $5.7 million for Q3 2024, compared to $1.9 million for CQ3 2023. The increase in cost of goods sold relative to the comparative period was attributable to the greater revenue base for the current period, an increase in the Company's inventory reserve, and a lower volume of finished goods production. The increase in inventory reserve recognized during the current quarter resulted in the negative gross profit identified below.
- The Company reported an unrealized loss on changes in fair value of biological assets of $0.5 million and realized fair value amounts included in inventory sold of $0.2 million for Q3 2024, compared to an unrealized gain on biological assets of $0.2 million and a nominal fair value realization included in inventory sold for CQ3 2023. The unrealized loss in the current period was primarily attributable to a reduction in the estimated selling price for bulk flower used in the fair value analysis.
- The Company reported a gross profit of $(1.2) million for Q3 2024, compared to $0.1 million for CQ3 2023.
- Selling, general, and administrative ("SG&A") expenses were $4.6 million for Q3 2024, down from $4.8 million in CQ3 2023. While the scope of the Company's operations has increased since the comparative period, the Company has sought to achieve greater efficiencies in its SG&A cost profile, with year-over-year decreases in personnel, non-M&A advisory, and insurance expenses.
- The Company reported an impairment of intangible assets of $67.4 million for Q3 2024, compared to no impairment in CQ3 2023. The impairment charge related to the cannabis license rights and brands acquired in the acquisition of Etain in April 2022, and reflect lower anticipated operating profits for the New York market compared to the last impairment testing date. The impairment expense is a non-cash item in the current period and reduces the carrying value of the Company's intangible assets on its unaudited condensed interim consolidated statements of financial position to $10.9 million.
- Other loss was $3.8 million for Q3 2024, compared to $3.8 million in CQ3 2023. Consistent with prior periods, the most significant factor impacting other loss was non-cash accretion and interest expense.
- The Company reported a net loss of $63.4 million, and a basic and diluted net loss per share of $0.46, for Q3 2024, compared to a net loss of $7.4 million, and a basic and diluted net loss per share of $0.05, for CQ3 2023. The most significant factor impacting net loss in the current period was the $67.4 million non-cash pre-tax impairment expense described above.
- Other comprehensive loss was $1.3 million for Q3 2024, compared to other comprehensive income of $0.7 million for CQ3 2023.
- Total comprehensive loss was $64.7 million for Q3 2024, compared to a total comprehensive loss of $6.7 million for CQ3 2023.|
- The Company reported an Adjusted EBITDA (as defined below) loss of $3.2 million for Q3 2024, compared to an Adjusted EBITDA loss of $5.0 million for CQ3 2023. Adjusted EBITDA is a non-IFRS financial measure that management believes provides meaningful insight into the Company's operational performance. While not directly comparable to measures used by other companies, Adjusted EBITDA offers a view of the Company from management's perspective and is intended to complement IFRS measures in understanding the Company's financial results. A reconciliation of net loss to EBITDA and Adjusted EBITDA is provided in the table "Supplemental Information - Non-IFRS Financial Measures" above.
This press release should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2024 and 2023, which are available under the Company's profile on SEDAR+ at www.sedarplus.com and on the Company's website at www.rivcapital.com/investors.
About RIV Capital
RIV Capital is a firm dedicated to developing a leading multi-state platform with a strong portfolio of cannabis brands focused on key strategic markets in the U.S. 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 previously announced acquisition of Etain. Through its strategic relationship with The Hawthorne Collective, Inc. ("The Hawthorne Collective"), a subsidiary of The ScottsMiracle-Gro Company ("ScottsMiracle-Gro"), RIV Capital is The Hawthorne Collective's preferred vehicle for cannabis-related investments not under the purview of other ScottsMiracle-Gro subsidiaries.
Non-IFRS Measures
This press release includes references to "EBITDA" and "Adjusted EBITDA" (each, as defined below), which are non-IFRS (as defined below) financial measures. The Company believes that these non-IFRS financial measures, in addition to conventional measures prepared in accordance with International Financial Reporting Standards ("IFRS"), provide information that is helpful to understand the results of operations and financial condition of the Company. The objective is to present readers with a view of the Company from management's perspective by interpreting the material trends and activities that affect the operating results, liquidity, and financial position of the Company. These non-IFRS measures are not recognized under IFRS and, accordingly, readers are cautioned that these measures should not be construed as alternatives to net income (loss) determined in accordance with IFRS. These non-IFRS measures are not necessarily comparable to similarly-titled measures used by other companies.
The Company defines "EBITDA" as net income (loss) under IFRS, adjusted for accretion and net interest expense (income), income tax expense (recovery), and depreciation and amortization. The Company defines "Adjusted EBITDA" as EBITDA, adjusted for impairment on intangible assets, fair value losses (gains) in inventory and biological assets, non-operating expenses (income), and other non-recurring expenses (income), as determined by management. See "Financial Results for the Third Quarter Ended September 30, 2024 - Supplemental Information - Non-IFRS Financial Measures" above. The terms EBITDA and Adjusted EBITDA do not have any standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other companies.
Forward Looking Statements
This press release contains statements which constitute "forward-looking information" within the meaning of applicable securities laws. Often, but not always, forward-looking statements and information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "enables", "intends", "anticipates" or "does not anticipate", "potential", "seeks" or "believes", or variations of such words and phrases, or state that certain actions, events or results "may", "can", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements or information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Cansortium, RIV Capital or their respective subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements or information contained in this press release. Examples of such statements include, but are not limited to, statements regarding: RIV Capital's expectations regarding rapid growth as a result of the strategic distribution agreement with Nabis; RIV Capital's beliefs regarding the legal market for cannabis in New York State; RIV Capital's expectations regarding its relationship with the OCM; RIV Capital's continued monitoring of and expectations regarding the rescheduling of cannabis under the CSA; the timing and completion of the proposed Business Combination between RIV Capital and Cansortium; the anticipated benefits and synergies created by ongoing integration activities and the impact such activities will have on the financial and operating performance of RIV Capital, Cansortium, and the combined company, including, but not limited to, operational efficiencies, expanded product and brand portfolios, and improvements to the in-store customer experience; expectations regarding the ability of RIV Capital, Cansortium, or the combined company's ability to achieve or take advantage of such anticipated benefits; the estimated growth opportunities as a result of the Business Combination and ongoing integration activities, including the combined company's total addressable market at maturity; RIV Capital's dedication to developing a leading multi-state platform with a strong portfolio of cannabis brands; expectations regarding the U.S. cannabis market; 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 include: the prompt and effective integration of Cansortium's and RIV Capital's businesses and the ability to achieve the anticipated synergies contemplated by the Business Combination and ongoing integration activities; the diversion of management time on issues related to the Business Combination transaction; expectations regarding future investment, growth and expansion of Cansortium's and RIV Capital's operations; regulatory and licensing risks; Cansortium's and RIV Capital's reliance on licenses issued by state authorities; future levels of revenues and the impact of increasing levels of competition; changes in laws, regulations and guidelines and Cansortium's and RIV Capital's compliance with such laws, regulations and guidelines; the timing and manner of the legalization of cannabis in the United States; business strategies, growth opportunities and expected investment; the potential effects of judicial, regulatory or other proceedings, litigation or threatened litigation or proceedings, or reviews or investigations, on Cansortium's and RIV Capital's business, financial condition, results of operations and cash flows; risks associated with divestment and restructuring; the anticipated effects of actions of third parties such as competitors, activist investors or federal, state, provincial, territorial or local regulatory authorities, self-regulatory organizations, plaintiffs in litigation or persons threatening litigation; consumer demand for cannabis; risks related to stock exchange restrictions; risks related to the protection and enforcement of Cansortium's and RIV Capital's intellectual property rights; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; changes in general economic, business and political conditions, including changes in the financial and stock markets; inflation risks; risks relating to the economic impacts caused by the ongoing conflicts in Europe and the Middle East; risks relating to anti-money laundering laws; compliance with extensive government regulation and the interpretation of various laws, regulations, and policies; public opinion and perception of the cannabis industry; and such other risks contained in the public filings of Cansortium filed with Canadian securities regulators and available under Cansortium's profile on SEDAR+ at www.sedarplus.ca and in the public filings of RIV Capital filed with Canadian securities regulators and available under RIV Capital's profile on SEDAR+ at www.sedarplus.ca, including RIV Capital's annual information form for the year ended March 31, 2023, annual management's discussion and analysis for the nine-month period ended December 31, 2023, and Circular dated July 12, 2024 under the heading "Risk Factors".
Cansortium and RIV Capital, through several of their respective subsidiaries, are directly involved in the manufacture, possession, use, sale, and distribution of cannabis in the adult-use and medical cannabis marketplace in the U.S. Local state laws where Cansortium and RIV Capital operate permit such activities, however, investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the U.S. Cannabis remains a Schedule I drug under the U.S. Controlled Substances Act, making it illegal under federal law in the U.S. to, among other things, cultivate, distribute, or possess cannabis in the U.S. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the U.S. 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 U.S. has trended toward non-enforcement against individuals and businesses that comply with adult- use and medical cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve Cansortium and RIV Capital of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against Cansortium or RIV Capital. The enforcement of federal laws in the U.S. is a significant risk to the business of Cansortium and RIV Capital and any proceedings brought against Cansortium or RIV Capital thereunder may adversely affect operations and financial performance.
Should one or more of the foregoing 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 Cansortium and RIV Capital have 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 forward-looking information and statements included in this press release are made as of the date of this press release and Cansortium and RIV Capital do not undertake any obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities laws.
SOURCE RIV Capital Inc.
