RIV Capital Inc. (OTCPK:CNPOF) Q4 2024 Earnings Conference Call April 29, 2024 6:00 PM 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
Conference Call Participants
Operator
Hello, and welcome to RIV Capital’s Earnings Conference Call for the Three Months and Fiscal Year Ended December 31, 2023. I’m 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 22, 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 December 31, 2023 will be described as the fourth calendar quarter of 2023 throughout today’s call and results for the nine month period ended December 31, 2023 will be described as fiscal year 2023. For your convenience, the press release, MD&A and consolidated financial statements for the three month and nine month periods ended December 31, 2023 are available on the Investors section of the company’s website 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 and 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 April 29, 2024 and the risk factors referenced in the MD&A for the three months and nine months ended December 31, 2023 and RIV Capital’s Annual Information Form.
In addition, this call may contain certain market and industry data obtained from various publicly available sources. 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 limitations 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 U.S. 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. Thank you, Mike. You may begin.
Mike Totzke
Thank you, operator. And welcome everyone to our earnings conference call for the three months ended December 31, 2023, otherwise known as the fourth calendar quarter of 2023 and the end of our fiscal year 2023.
This was an incredibly exciting year for RIV as we undertook a considerable amount of work throughout the year that positioned us to execute on the New York adult-use opportunity.
I’m proud of our team’s efforts to successfully submit our adult-use application in early November and subsequent receipt of New York’s Cannabis Control Board approval for Etain to transition to an adult-use license in December. This was a phenomenal achievement for us and we are thrilled to begin fully capitalizing on the strong foundation we have established in New York.
In preparation for this moment, we have been readying our cultivation and manufacturing operations to support significant growth. Our Chestertown facility expansion was substantially completed during the fiscal year 2023 and to-date, we have now completed 15 harvests from the expansion. The quality and yields from these harvests have continued to exceed our expectations and we are further implementing additional improvements to gain more efficiencies and ramp up production rate of flower and extract products. This has included equipment upgrades such as new production machinery, as well as implementation of automation technologies.
By utilizing the full capabilities of our expansion and these technological improvements, we are identifying several opportunities to broaden our product arrangement and diversify our offerings to best serve our growing base of adult-use and medical customers. In addition to our expansion in Chestertown, construction at our new indoor flagship facility in Buffalo is well underway. With the exterior construction largely complete, we have shifted our focus towards tenant improvements.
This facility will position us extremely well to serve the adult-use market in New York with its focus on growing premium indoor flower and will more than double our current cultivation capacity. Upon completion of the construction process, we anticipate the commencement of commercial operations will start at the beginning of 2025 once we receive any remaining regulatory approvals.
With our expanded capacity and Etain’s long established history in New York, we are in a desirable position in the adult-use market. We look forward to proudly serving our newly expanded customer base and introducing them to our high quality products and premium customer service.
With that, I will now turn the call over to Matt Mundy, Chief Strategy Officer and General Counsel, for an update on how the adult-use operations are rolling out in the New York market, followed by a review of our financial results with our CFO, Eddie Lucarelli. Matt?
Matt Mundy
Thanks, Mike. I cannot understate the significant amount of work our team accomplished to successfully launch our adult-use operations in New York. The relationships they have built across the state and trusts they have established with third parties and regulators has been very impressive to see unfold.
Having received CCB approval at the end of the year, we started 2024 with the landmark opening of our first co-located retail and medical dispensary in White Plains. Relocating the dispensary from Yonkers to White Plains enabled us to be well-positioned to service the greater metropolitan area and optimize our footprint to meet the expected increase demand as the legal market expands in the state.
As well as optimizing our footprint, we were able to custom design a space that best reflects the values Etain has always stood for, an inclusive, safe and thriving market. The new store features a remodeled layout to create an inviting space for medical patients and adult-use consumers, offering integrative wellness offerings, personal consultations and premium products to elevate the customer experience.
The initial response has been fantastic and we have proudly served over 18,000 customers in our first 70 days of operation. We anticipate we will open two additional retail dispensaries in or around July of this year. Concurrently, New York regulators have enacted several adjustments to the existing tax framework aimed at alleviating the financial obligations for cultivators, processors and distributors in the state.
This included revoking the wholesale THC potency tax and introducing a wholesale excise tax set at 9%. Additionally, the excise tax on medical cannabis has been significantly reduced from 7% to 3.15%. The state also plans to intensify its enforcement actions to curtail the ongoing illicit market.
These measures empower the Office of Cannabis Management and municipal authorities, including New York City, to promptly close down businesses found selling illicit cannabis, especially if they pose immediate threats to public health and safety. Moreover, illicit operators will now face expanded penalties, including the potential loss of alcohol, tobacco and lottery licenses. Landlords who knowingly enable or condone illicit market activities will also be subject to heightened fines and penalties.
Our commitment to New York has never wavered and we have long maintained that this will be a top tier market in the U.S. We believe 2024 is the year we begin to see this come to fruition. There’s excitement across the industry on the strong potential for upcoming positive regulatory changes across the country, and we are excited to be here on the precipice of the next phase in our up and coming industry.
I’ll 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 and nine-month transition period ended December 31, 2023. As previously announced and referenced in our public disclosure, due to a change in the company’s fiscal year end from March 31 to December 31, our most recent fiscal year was comprised of three calendar quarters for a total of nine months, which began on April 1, 2023, and ended on December 31, 2023.
As a result, the comparative fiscal year figures for the year ended March 31, 2023 are not directly comparable. For the fourth calendar quarter of 2023, we reported revenue net of excise taxes of $2.1 million, compared with $1.9 million for the same calendar quarter last year.
This included retail revenue of $1.9 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.
For greater clarity, there was no revenue contribution from sales to adult-use, retail or wholesale customers in 2023 as the company did not commence sales in the adult-use market until the first quarter of 2024. For the nine month fiscal year ended December 31, 2023, net revenue was $5.5 million compared with $6.8 million for the 12 month fiscal year ended March 31, 2023.
Cost of goods sold was $1.5 million for the quarter compared with $1.1 million for the same calendar quarter last year. Cost of goods sold has increased as a percentage of net revenue as the company has scaled operations at the expanded Chestertown facility and not yet optimized its productive capacity.
For the nine month fiscal year ended December 31, 2023, cost of goods sold was $5 million compared with $4.4 million for the 12 month fiscal year ended March 31, 2023. Also included in gross margin is an unrealized loss on changes in fair value of biological assets of $1.2 million for the quarter compared with a nominal amount for the same calendar quarter last year. This is a result of updating our estimates for the selling price of wholesale bulk flower in the New York market, which is a key input to the biological asset valuation analysis each reporting period.
For the nine month fiscal year ended December 31, 2023, the unrealized loss on biological assets was $0.7 million compared with a nominal amount for the 12 month fiscal year ended March 31, 2023. As a result of these items, gross profit for the fourth calendar quarter of 2023 was a loss of $0.6 million compared with gross profit of $0.8 million for the same calendar quarter last year.
For the nine month fiscal year ended December 31, 2023, gross loss was $0.1 million, compared with gross profit of $2.4 million for the 12 month fiscal year ended March 31, 2023.
Selling, general, and administrative expenses were $5.5 million for the quarter, compared with $4.8 million for the same calendar quarter last year. For the nine month fiscal year ended December 31, 2023, SG&A expenses were $15.6 million, compared with $20.5 million for the 12 month fiscal year ended March 31, 2023.
The most significant factor impacting the company’s reported net loss for the fourth calendar quarter of 2023 was an impairment charge of $48.7 million related to the goodwill and intangible assets that the company had recognized in connection with its acquisition of attain in 2022. The company tests its goodwill for impairment annually and when indicators of impairment are present and tests its finite life intangible assets for impairment whenever indicators of impairment are present.
The impairment charges, which were allocated to goodwill, cannabis license rights and brands, were primarily driven by a reduction in the company’s projected cash flows for attains New York operations due to slower than expected market development and illicit market competition, among other factors.
Income tax recovery was $14.2 million for the quarter, compared with income tax recovery of $0.4 million for the same calendar quarter last year. The income tax recovery was largely driven by the deferred tax impact of the impairment charges. For the nine month fiscal year ended December 31, 2023, income tax recovery was $15.4 million, compared with $2.9 million for the 12 month fiscal year ended March 31, 2023.
Based on the foregoing, we reported a net loss of $47.3 million for the quarter, compared with a net loss of $9.9 million for the same calendar quarter last year. For the nine-month fiscal year ended December 31, 2023, net loss was $63.8 million, compared with $179.3 million for the 12-month fiscal year ended March 31, 2023.
The goodwill and intangible asset impairment charges recognized during the quarter were the primary drivers of the company’s net loss for both the three- and nine-month periods.
Other comprehensive loss was $3 million for the quarter, compared with $2.8 million for the same calendar quarter last year. Amounts included in other comprehensive loss generally relate to the company’s legacy portfolio and foreign currency items.
For the nine month fiscal year ended December 31, 2023, other comprehensive loss was $2.9 million, compared with $8.1 million for the 12-month fiscal year ended March 31, 2023.
All in total comprehensive loss was $50.3 million for the quarter and $66.7 million for the nine month fiscal year ended December 31, 2023, compared with $12.7 million for the same calendar quarter last year and $187.3 million for the 12-month fiscal year ended March 31, 2023.
As at December 31, 2023, we reported approximately $82 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 our expansion into the adult use market over the coming years, as well as potentially capture new growth opportunities in other jurisdictions.
I will now pass it over to Mike for closing remarks.
Mike Totzke
Thank you, Eddie. In 2023, our team was incredibly active as we geared up to enter New York’s adult use market.
I want to take a moment to sincerely thank the team for their hard work and dedication this year. We firmly believe that 2024 is going to be one of the most exciting years for us at RIV, with significant industry wide and company specific catalysts on the horizon. We have faith in New York and its potential to become one of the biggest cannabis markets in the country.
I’m looking forward to sharing our progress as we work towards our goals of driving long term shareholder value and contributing to the establishment of a safe, accessible and thriving market in New York. Thank you to all for joining us today.
Question-and-Answer Session
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