TORONTO, Nov. 9, 2020 (Canada NewsWire via COMTEX) -- Aggregate charges of $112.3 million recognized on PharmHouse investments
Appreciation of 101% in TerrAscend share price - current implied TerrAscend investment value of $214.5 million(1)
Continued growth and expansion within portfolio
Canopy Rivers Inc. ("Canopy Rivers" or the "Company") /zigman2/quotes/214109402/delayed CA:RIV -10.09% /zigman2/quotes/201002551/composite CNPOF -11.21% today released its unaudited condensed interim consolidated financial statements and management's discussion and analysis ("MD&A") for the three and six months ended September 30, 2020 ("Q2 2021").
"Our quarter was framed with a sharp focus on PharmHouse. We provided debtor-in-possession financing to enable PharmHouse to remain operational as it commenced its CCAA process and our team has been working towards securing the best possible outcome for our shareholders," said Narbe Alexandrian, President and CEO, Canopy Rivers. "While supporting PharmHouse has been our priority, we are confident we will put this challenging situation behind us and remain encouraged by the progress across our portfolio. This quarter, we participated in Headset's bridge round as it continues to bring its industry-leading analytical tools to new markets, High Beauty launched a new product line, and BioLumic's most recent cannabis field trials showed promising gains in dried flower mass and cannabinoid content."
"Most notably, the value of TerrAscend's common shares increased by 101% during the quarter, and the implied value of our investment in TerrAscend is now approximately $214 million," added Alexandrian. "After a U.S. election that potentially spells good outcomes for the cannabis sector, including the legalization of adult-use cannabis in New Jersey, we are pleased to have our U.S. exposure through our holdings of exchangeable shares in one of the nation's leading multistate operators. We believe that we will be well positioned to capitalize on opportunities in the U.S. once we are permitted to do so."
Q2 2021 Financial Results(2)
Select Summary of Quarterly Results Three months ended Three months ended Six months ended Six months ended 30-Sep-20 30-Sep-19 30-Sep-20 30-Sep-19 Operating income (loss) (before equity method investees and fair value changes) $ (5,795) $ 2,171 $ (3,133) $ 4,312 Operating expenses 1,555 6,192 4,224 11,959 Net operating loss (before equity method investees and fair value changes) (7,350) (4,021) (7,357) (7,647) Equity method investees and fair value changes (36,211) (1,241) (38,566) (697) Other PharmHouse-related charges(1) (70,756) (70,756) Net operating loss (114,317) (5,262) (116,679) (8,344) Net loss (110,381) (4,406) (113,807) (7,372) Other comprehensive income (loss) (net of tax) 23,417 (28,252) 34,118 (34,036) Total comprehensive loss (86,964) (32,658) (79,689) (41,408) Basic loss per share ("EPS") $ (0.58) $ (0.02) $ (0.60) $ (0.04) Diluted EPS $ (0.58) $ (0.02) $ (0.60) $ (0.04) Cash flows used in operating activities (1,055) (669) (1,862) (3,457) Cash flows used in investing activities (4,927) (5,327) (6,854) (18,029) Cash flows provided by (used in) financing activities (2) 25 (80) 82 --- (1) Excludes the Company's share of loss from its investment in PharmHouse common shares, which is captured in "Equity method investees and fair value changes"
"Naturally, we are extremely disappointed by the recent developments at PharmHouse and their impact on our financial results for this quarter, which reflect significant charges across various financial instruments we hold," said Eddie Lucarelli, CFO, Canopy Rivers. "While the Company's underlying net asset value continues to be supported by the sustained appreciation of our investment in TerrAscend, we remain critically focused on resolving PharmHouse's current situation and maximizing value preservation for our shareholders."
Three months Three months Six months Six months ended ended ended nded 30-Sep-20 30-Sep-19 30-Sep-20 30-Sep-19 Royalty, interest, and lease income (before provisions) $ 4,066 $ 2,171 $ 6,733 $ 4,312 Provision for credit losses on interest and royalty receivables PharmHouse (8,939) (8,939) Other (922) (927) Operating income (loss) $ (5,795) $ 2,171 $ (3,133) $ 4,312 (before equity method investees and fair value changes) Consulting and professional fees $ 350 $ 1,183 $ 726 $ 1,675 General and administrative expenses 1,287 1,998 2,629 3,545 Share-based compensation (555) 2,968 354 6,654 Depreciation and amortization expense 45 43 87 85 Restructuring costs 428 428 Operating expenses $ 1,555 $ 6,192 $ 4,224 $ 11,959 Net operating loss $ (7,350) $ (4,021) $ (7,357) $ (7,647) (before equity method investees and fair value changes) ---
Canopy Rivers reported a net operating loss of $7.4 million (before equity method investees and fair value changes) for the quarter.
Royalty, interest, and lease income (before provisions for credit losses) was $4.1 million for the quarter. This includes income from the Company's various royalty, convertible debenture, and loan agreements, among other items. Offsetting this income was a provision for credit losses of $9.9 million for the quarter, which primarily related to interest accrued on the Company's $40.0 million shareholder loan to PharmHouse Inc. ("PharmHouse") of $8.9 million.
Operating expenses were $1.6 million for the quarter, compared with $6.2 million for the same period last year. Share-based compensation was negative for the quarter as the Company recorded a significant recapture of previously-recognized share-based compensation expense as a result of stock option forfeitures. Operating expenses included $1.3 million of general and administrative expenses relating to employee and director compensation, marketing and business development, and other public company costs, as well as $0.4 million of professional fees relating to legal, audit, tax, accounting, and other regulatory advisory fees. Also included in operating expenses were $0.4 million in advisory fees relating to the Claim and Restructuring (each as defined and discussed in further detail below).
Three months Three months Six months Six months ended ended ended ended 30-Sep-20 30-Sep-19 30-Sep-20 30-Sep-19 Share of loss from equity method investees PharmHouse $ (32,607) $ (453) $ (37,025) $ (695) Other (550) (229) (117) (955) Net change in fair value of financial assets at FVTPL (3,054) (559) (1,424) 953 Other PharmHouse-related charges Provision for credit losses on loans receivable (45,756) (45,756) Provision for credit losses on financial guarantee liability (25,000) (25,000) Equity method investees and fair value changes $ (106,967) $ (1,241) $ (109,322) $ (697) ---
The Company's share of loss from equity method investees (excluding PharmHouse) was $0.6 million for the quarter. The Company's equity method investees include Canapar Corp. ("Canapar"), 10663522 Canada Inc. d/b/a/ Herbert ("Herbert"), High Beauty, Inc. ("High Beauty"), LeafLink Services International ULC ("LeafLink"), and Radicle Medical Marijuana Inc. ("Radicle").
The Company also reported a net decrease in the fair value of financial assets that are reported at fair value through profit or loss ("FVTPL") of $3.1 million for the quarter. The net decrease was primarily driven by negative changes in the estimated fair values of the Company's royalty investment in Agripharm Corp. ("Agripharm") and convertible debenture investments in 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company ("Greenhouse Juice"), and was partially offset by positive changes in the estimated fair values of the Company's royalty investment in The Tweed Tree Lot Inc. ("Tweed Tree Lot"), and term loan investment to TerrAscend Canada Inc. ("TerrAscend Canada"), along with the associated warrants issued by TerrAscend Corp. ("TerrAscend").
In light of recent developments at PharmHouse, described in further detail below, the Company performed a recoverability assessment as at September 30, 2020, to estimate the differences between the recoverable amounts of its investments in various PharmHouse-related financial assets and their respective carrying values. The Company estimated the recoverable amount of PharmHouse en bloc to determine the quantum of charges to be recognized in respect of its various financial assets. Due to the lack of profitable operating history of PharmHouse as a cannabis entity, the Company estimated the net proceeds to be received pursuant to an orderly liquidation of PharmHouse's assets and then compared this amount to the carrying values of various PharmHouse-related financial instruments held by the Company, in sequence based on the priority of claims on PharmHouse's assets held by various stakeholders (the "PharmHouse Recoverability Assessment").
Based on the PharmHouse Recoverability Assessment, the Company estimated that the recoverable amount of PharmHouse's assets en bloc may be less than the principal amount drawn on PharmHouse's $90.0 million non-revolving syndicated credit facility (the "PharmHouse Credit Facility"), which the Company has guaranteed (the "PharmHouse Guarantee"). Accordingly, the Company recognized the following charges during the quarter:
-- Share of loss from investment in PharmHouse common shares (due to impairment adjustments) of $32.6 million; -- Provision for credit losses on the Company's loans receivable with PharmHouse of $45.8 million; and -- Provision for credit losses on the PharmHouse Guarantee liability of $25.0 million.
The Company's financial liability in respect of the PharmHouse Guarantee was estimated to be $25.0 million as at September 30, 2020, on the basis of a number of assumptions and estimates regarding the recoverable amount of PharmHouse's assets under an orderly liquidation scenario where the greenhouse facility is no longer used for cannabis operations. A further deterioration in PharmHouse's credit worthiness, an inability to generate sufficient future cash flows, or a significant decrease in the value of the PharmHouse assets will expose the Company to the risk of additional losses. There is a risk that the actual net proceeds that PharmHouse would realize upon an orderly liquidation of its assets is less than that estimated, which could materially increase the Company's financial liability in respect of the PharmHouse Guarantee.
After consideration of operating income, operating expenses, equity method investees, FVTPL fair value changes, and PharmHouse charges, among other items, Canopy Rivers reported a net loss of $110.4 million for the quarter.
Three months Three months Six months Six months ended ended ended ended 30-Sep-20 30-Sep-19 30-Sep-20 30-Sep-19 TerrAscend $ 30,500 $ (20,000) $ 33,500 $ (30,000) Vert Mirabel (3,400) (8,237) 6,100 1,144 YSS (218) (435) (218) (1,197) Headset (100) 47 (300) (36) Zeakal (300) 154 (900) (246) BioLumic 61 61 Dynaleo 835 835 Other (4,129) (976) (8,843) Gross change in fair value of financial assets at FVTOCI $ 27,378 $ (32,600) $ 38,102 $ (39,178) OCI income tax expense (recovery) 3,962 (4,313) 3,962 (5,916) Net change in fair value of financial assets at FVTOCI (1) $ 23,416 $ (28,287) $ 34,140 $ (33,262) --- --- (1) In addition to the fair value change noted above, net change in fair value of financial assets at FVTOCI also includes FX gains/losses related to equity method investees denominated in USD currency
Other comprehensive income was $23.4 million, net of tax, for the quarter, which includes a net increase in the fair value of financial assets that are reported at fair value through other comprehensive income ("FVTOCI") of $27.4 million. The net increase was primarily attributable to the positive change in the fair value of the Company's exchangeable share investment in TerrAscend.
Total comprehensive loss for the quarter was $87.0 million.
As at As at Period ended 30-Sep-20 31-Mar-20 --- Cash $ 37,928 $ 46,724 Loans receivable 42,450 Equity method investees 13,379 50,543 Financial assets at FVTPL 78,290 80,170 Financial assets at FVTOCI 106,905 64,599 Other assets 9,165 15,899 Total assets $ 245,667 $ 300,385 Financial guarantee liability $ 25,000 $ Other liabilities 1,726 2,107 Total shareholders' equity 218,941 298,278 Total liabilities and shareholders' equity $ 245,667 $ 300,385 ---