Audited consolidated financial statements and operational updates.
Canopy Rivers Inc. (TSX: RIV), 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 for the three and twelve months ended March 31, 2020.
Reflecting on the past year, there were several significant achievements that make me optimistic for fiscal year 2021.Narbé Alexandrian, President and CEO of Canopy Rivers
"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. " 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.
"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."
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., and The Tweed Tree Lot Inc., as well as interest income on the Company's $40.0 million shareholder loan agreement with PharmHouse Inc., 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 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.
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., 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 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.
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. The primary factors contributing to this loss were a decrease in the fair values of the Company's investments in TerrAscend Corp. 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.
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 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.
- 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. 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. 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.
Disclaimer: Past performance is not an indicator of future performance.
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