CNPOF - RIV Capital Inc. (CNPOF) Q3 2023 Earnings Call Transcript

2023-11-29 12:56:02 ET

RIV Capital Inc. (CNPOF)

Q3 2023 Results Conference Call

November 29, 2023 09:00 AM ET

Company Participants

Mike Totzke - Chief Operating Officer and Interim Chief Executive Officer

Matt Mundy - Chief Strategy Officer and General Counsel

Eddie Lucarelli - Chief Financial Officer

Presentation

Operator

Hello, and welcome to RIV Capital's Earnings Conference Call for the Three Months Ended September 30, 2023. I am joined this morning by Mike Totzke, Chief Operating Officer and Interim Chief Executive Officer; Matt Mundy, Chief Strategy Officer and General Counsel; and Eddie Lucarelli, Chief Financial Officer.

As stated in the press release issued on August 22nd, the company has changed its fiscal year end from March 31st to December 31st. RIV Capital's fiscal year will be comprised of three quarters for a total of nine months beginning on April 1, 2023. As such, the results of the three month period ended September 30, 2023 will be described as the third calendar quarter of 2023 throughout today's call. For your convenience, the press release, MD&A and consolidated financial statements for the three months ended September 30, 2023 are available on the Investors section of the company's Web site at www.rivcapital.com as well as on SEDAR.

Before we start, please note that remarks on this conference call may contain forward-looking information within the meaning of applicable securities laws about RIV Capital, its investors in Etain, current and future plans, expectations, intentions, financial results, levels of activity, performance, goals or achievements, or any other future events, trends or developments. To the extent, any forward-looking information contained in the remarks constitutes financial outlook. This information may not be appropriate for any other purpose and you should not place undue reliance on such financial outlook. Forward-looking statements are made as of the date hereof based on information currently available to management and on estimates and assumptions based on factors that management believes are appropriate and reasonable in these circumstances. However, there can be no assurance that some estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Financial outlooks are also based on assumptions and subject to various risks and the company's actual financial position and results of operation may differ materially from management's current expectations. As a result, RIV Capital cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on those forward-looking statements.

Forward-looking information is made as of the date given and except as may be required by law. RIV Capital undertakes no obligation to update or revise any forward-looking statement, whether as a results of new information, future events or otherwise. For additional information on these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in the company's financial results, press release dated November 29, 2023 and the risk factors referenced in the MD&A for the three-month ended September 30, 2023 and RIV Capital's Annual Information Form. In addition, this call may contain certain market and industry data obtained from various publicly available source. Although the company believes that these independent sources are generally reliable, the accuracy and completeness of such information is not guaranteed and has not been verified due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and the limits and uncertainty inherent in any statistical survey of market size, conditions and prospects. The company does not make any representation as to the accuracy of such information. All dollar amounts expressed today, unless otherwise stated, are in US currency.

I would now like to turn the conference over to your host, Mr. Mike Totzke, Chief Operating Officer and Interim Chief Executive Officer of RIV Capital. Mike, you may begin.

Mike Totzke

Thank you, operator. And welcome everyone to our earnings conference call for the three months ended September 30, 2023, otherwise known as the third calendar quarter of 2023. This has been an exciting quarter for us as we eagerly anticipate the launch of our adult use operations in New York. Having submitted our application to transition to adult use in early November, we expect to wholesale into adult use dispensaries by the end of the year, and transition into adult use sales at our first co-located dispensary at the beginning of 2024. This will be a tremendous accomplishment for our team. We have done significant preparation to ready our operations and are thrilled with the position we have established in New York. The commencement of our expanded operations at our Chestertown facility have also been successful this quarter. With five harvests now complete, initial yields and quality levels have performed above expectations. Alongside the expansion, we have commissioned automation technologies that will improve our production rate of flower and extract products. We believe that the additional lab and manufacturing capacity will allow us to further ramp-up our research and development activities and further diversify our product portfolio. Post expansion, we have tripled Etain's cultivation capacity at Chestertown, positioning us to serve the adult use wholesale market as soon as we receive regulatory approval.

Furthermore, construction is progressing well at our new flagship facility in Buffalo. The Buffalo facility will focus on producing high quality, indoor grown flower can leverage advanced technologies to stay highly competitive with our product offering. Currently, the exterior elements of the structure are nearing completion, and next, our focus will turn to work on tenant improvements. Once construction is completed, we expect operations to commence shortly after we have received all regulatory approvals. We anticipate this timing will align well with the rollout of the adult use market in New York and will further support the expansion of our retail and wholesale operations. At the wholesale level, revenue grew by over 20% quarter-over-quarter, which we believe highlights the effectiveness of our wholesale business and reinforces Etain's brand position in the New York cannabis market. As you can see, our early presence in New York and expanding operations provide us with a distinct competitive advantage, having honed significant first mover experience in the state. We believe we are in the best position possible to execute on the opportunity ahead. With that, I will now turn the call over to Matt Mundy, Chief Strategy Officer and General Counsel, for regulatory outlook on the New York market, followed by a review of the financial results with our CFO, Eddie Lucarelli. Matt?

Matt Mundy

Thank you, Mike. I would like to start by thanking the team for the considerable amount of work that was required to submit our application to transition to adult use. This was a significant undertaking. And we were thrilled to put together a package that showcases our commitment to both medical patients and adult use consumers in New York state, as well as the principles and ideas that the New York market is being built on. With that now completed, we are working diligently and collaboratively with regulators to gain better visibility into the timing of our entry into the adult use market. That being said, as Mike mentioned at the onset of the call, we anticipate a phased approach to our entry, starting with wholesale prior to year end and then our first retail store co-location in early 2024. With this in development, we will be ready to enter with confidence and participate in what we believe will be an incredibly exciting and dynamic market. We have long been of the belief that New York will be a top tier market in the US. And while the path there has undoubtedly had its hurdles, we think 2024 is going to be a watershed moment for the state market and we hope for the sector as a whole.

We are also not only seeing green shoots in New York. Across the country, we are seeing solid regulatory momentum. And similar to New York, we believe 2024 will be a pivotal moment for the industry. It has certainly not been as quick as many of us would like, but it is difficult to deny that there continues to be positive regulatory momentum in the industry. With the recent Department of Health and Human Services recommendation that cannabis be rescheduled under the Controlled Substances Act and the Senate Committee on Banking, Housing and Urban Affairs' recent passage of the SAFE Banking Act, we are incredibly pleased with the number of positive developments. Overall, there is a general excitement for the future again in our industry that has been missing as of late, and it is our hope that this momentum will continue and lead to safer, more accessible and more equitable markets across the country. I now hand the line to Eddie, who will walk us through our financial results. Eddie?

Eddie Lucarelli

Thank you, Mike and Matt, for those updates. I will now review our financial results for the three months ended September 30, 2023. For the third calendar quarter of 2023, we reported revenue, net of excise taxes of $1.7 million compared with $1.9 million for the same period last year. This included retail revenue of $1.5 million, which was generated from Etain's four medical cannabis dispensaries and wholesale revenue of $0.3 million, which was generated from sales of Etain branded products to other registered organizations in the medical cannabis market in New York. The decline in revenue was primarily attributable to competitive pressures in the medical cannabis market in New York as new adult use stores come online and the illicit market continues to proliferate. Retail pressure was slightly offset by the positive momentum we have seen in the growth of our wholesale program, as Mike referenced. Cost of goods sold was $1.9 million for quarter. And the effect of fair value items on gross profit was a positive $0.2 million, resulting in a gross profit of $0.1 million for the quarter compared with gross profit of $0.9 million for the same period last year. Gross profit this quarter continued to be impacted by the under utilization of Etain's expanded cultivation and production facilities, as well as an inventory write down on intermediate oils.

Selling, general, and administrative expenses were $4.8 million for the three months ended September 30th, in line with $4.8 million for the same period last year. Even as we expand our operations, we have tried to remain diligent and prudent in our cost management. Other loss was $3.8 million for the quarter compared with $1.6 million for the same period last year. The most significant component of other loss was non-cash accretion and interest expense of $3.6 million, which was primarily related to the convertible notes issued to the Hawthorne Collective and is a recurring non-cash item in our financial results each period. Other loss also included a $1.5 million decrease in the estimated fair value of financial assets held at fair value through profit or loss, which was offset by a $1.6 million foreign exchange gain. Altogether, we reported a net loss of $7.4 million for the quarter compared with a net loss of a $142.3 million for the same period last year. The significant net loss for the period last year was primarily attributable to the goodwill impairment charge we recognized in that quarter related to the Etain acquisition. Other comprehensive income was $0.7 million for the quarter compared with $0.4 million for the same period last year. And total comprehensive loss was $6.7 million for the quarter compared with $141.9 million for the same period last year. As at September 30, 2023, RIV reported approximately $85 million of cash on hand, which, as previously stated, we believe provides us with sufficient capital to continue the expansion and optimization of Etain's business in New York and its impending entry into the adult use market over coming years, as well as capture new growth opportunities in other jurisdictions.

I will now pass it over to Mike for closing remarks.

Mike Totzke

Thank you, Eddie. This quarter has seen a flurry of activity from our team as we optimize our production and prepare to open adult use retail stores in New York. I want to take a moment to sincerely thank the team for their hard work and dedication this year. Recent weeks have seen a buzz around the industry with regulatory developments progressing across the country. We firmly believe that there are a significant number of industry wide and company specific catalysts on the horizon that will make 2024 one of the most exciting years for us at RIV. We believe in New York and its ability to become one of the biggest cannabis markets in the country. I look forward to sharing our progress in the year ahead as we execute our goals of driving long term share value for our shareholders and participating in establishing a safe, accessible and thriving market in New York. Thank you to all for joining us today.

Question-and-Answer Session

End of Q&A

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