CNPOF - Riv Capital Third Quarter Revenue Is Flat CEO Leaves
RIV Capital Inc. (CSE: RIV) (OTC: CNPOF) released its financial results for the quarter ending December 31, 2022 and told investors that CEO Mark Sims left the company. Revenue for Riv Capital’s fiscal third quarter (which is essentially the sales from New York medical operator Etain) was $2 million, which was only a slight improvement over the second quarter revenue of $1.9 million. No sales were recorded for the same time period in 2021.
The company recorded a net loss of $9.8 million, a big jump over last year’s net loss of $2.7 million for the same time period. This compares to the net loss in the second quarter which was $144 million. The loss per share for the third quarter was $0.06.
CEO Departs
RIV Capital announced Mark Sims, former President and CEO of RIV Capital, has left the company. Sims was instrumental in the acquisition of Etain, which cost the company over $200 million and so far has only delivered $5.4 million in sales over the past nine months ending in December 2022.
The Board of Directors appointed Chief Operating Officer Mike Totzke as interim CEO, and said it would begin searching for a new CEO. Totzke has been with the company since June 2022 and will continue to focus on building out the company’s New York State cultivation, dispensary, and sales operations, among other management duties previously performed by Mr. Sims, who also resigned from the Board.
“We believe we have sufficient capital to facilitate both our growth objectives in New York and expansion into other geographies,” said Eddie Lucarelli, Chief Financial Officer of RIV Capital. “We have an enviable balance sheet, a great strategic partner, and one of only ten vertical licenses in New York, which we believe will be among the most exciting cannabis markets in the U.S. over the next five years. In our view, these assets represent significant intrinsic value that we plan to capitalize upon.”
The company reported $125 million in cash at the end of December 2022.
“RIV Capital’s market capitalization is not indicative of the true value of the Company, especially given its solid cash position,” said Mr. Hagedorn. “By realigning its approach to strategy and execution at both the executive leadership and Board levels, we believe the Company will strengthen its ability to unlock that value to the benefit of all stakeholders.”
Riv also announced that the Board is in the process of establishing a Strategic Growth Committee to develop and lead growth strategies, including potential strategic M&A. In a company statement, Riv said, “The Strategic Growth Committee will be chaired by Mr. Chris Hagedorn, Board member and President of Hawthorne, and will include Board members Ms. Dawn Sweeney, Ms. Amy Peckham, and Mr. Richard Mavrinac. The Company believes that its cash resources, New York assets and positioning, and strategic partnership with Hawthorne create multiple avenues for realizing value that is not currently reflected in the company’s share price.”
Conflict Settlement
The company recently settled a bruising conflict with one of its investors over the Riv Capital acquisition of Etain. JW Asset Management and its founder Jason Wild had complained that the company overpaid for the acquisition and sought a change in the board members. Riv fought the claim and instead acquired JWAM’s investment the company – essentially buying him out.
Wholesale Business
Since Etain is shut out of the adult-use market in the state of New York, it has turned its focus to wholesale cannabis. Etain will be able to provide cannabis to conditional adult-use (CAURD) dispensaries that open this year. The wholesale plan is also based on finishing and equipping the Chestertown expansion, completing the development of the Flagship Facility, and fully transitioning to serve both the wholesale and retail adult-use markets in New York. Currently, the company can’t participate in the adult-use market since it is a vertical operation, which is not allowed. However much of the language in the MD&A filed on Sedar suggested that it was working with the New York OCM (Office of Cannabis Management) to be able to enter the market. The company noted that such an expansion would require additional capital expenditures in the range of $35,000 to $40,000.
Adult Use in New York?
The company’s filing stated, “These projected capital expenditures include estimates for one-time fees that Etain LLC may be required to pay to the OCM to operate in New York’s adult-use cannabis market. The Company’s estimates are based upon proposed regulations for New York’s adult-use cannabis market that were filed by the Cannabis Control Board on December 14, 2022. As discussed above, these proposed regulations have not been finalized as of the date of this MD&A. The proposed regulations currently prescribe that one-time fees related to an RO’s transition to New York’s adult-use cannabis market could be approximately $19,000 in total, including $5,000 payable upon entry into the adult-use wholesale market, with another $5,000 payable in stages over a five-year period, and $3,000 payable for each co-located medical and adult-use dispensary (ROs are permitted to co-locate a maximum of three facilities under the proposed regulations, but the co-location cannot occur until December 29, 2025, which is three years from the date of the first legal sale of adult-use cannabis in the State of New York).”