TORONTO – RIV Capital Inc., a firm dedicated to developing a multi-state platform of cannabis brands in the United States, released its financial results for the third quarter ended September 30, 2024 (“Q3 2024”). All financial information 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.”
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.”
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.”
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 with Cansortium Inc., 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 which can be found under RIV Capital’s SEDAR+ profile.
Financial Results for the Third Quarter Ended September 30, 2024
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.
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., a subsidiary of The ScottsMiracle-Gro Company, 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
References to “EBITDA” and “Adjusted EBITDA” (each, as defined below), 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. 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.
