The company aims to participate in the growth of what it sees as the best early-stage licensed marijuana producers, cannabis oil extractors and retail networks. However, venture capital is always a highly uncertain and volatile investment area, and a focus on the cannabis boom heightens risk all the more.
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CANOPY RIVERS, $4.68, symbol RIV on the Toronto Venture Exchange (Shares outstanding: 171.3 million; Market cap: $924.4 million; TSI Cannabis Quality Rating (CQR): ; www.canopyrivers.com), is the venture capital arm of cannabis producer Canopy Growth (symbol WEED on Toronto). Canopy Rivers first began trading on September 20, 2018. The company got its listing through a reverse takeover of a shell company.
So far, Canopy Rivers has made about a dozen Canadian and international investments, which include licensed marijuana producers, cannabis oil extractors and retail networks. The company aims to hold a diversified basket of cannabis firms across a range of geographic regions.
For example, it recently invested in the Greenhouse Juice Company, a plant-based food and beverage producer. Canopy Rivers has committed to an investment of $9 million in a convertible debt financing package that includes secured and unsecured debt, warrants to buy shares, and representation on Greenhouse’s board of directors. Proceeds from this financing will be used to supplement the food company’s national expansion and the development of natural health and wellness beverages infused with cannabidiol (CBD).
Another recent investment for Canopy Rivers was $4.1 million in preferred shares of U.S.-based Headset Inc. That firm’s founders also started up Leafly, a cannabis information website. Headset’s services aim to provide cannabis companies with access to information on industry sales trends, emerging sectors, popular products and pricing. Its software platform supplies its customers with data they can use to try to identify new areas of opportunity, understand the competition, and tailor the development of their products to the market.
Canopy Rivers has also invested in several cannabis producers: Radicle Medical Marijuana, PharmHouse Inc., Agripharm Corp., James E. Wagner Cultivation Ltd. and Les Serres Vert Cannabis. It has made other industry investments outside of cannabis cultivation, including in Canapar Corp. That firm owns 80% of Canapar SrL, a Sicily-based producer of organic hemp and extract. In addition, Canopy Rivers has an interest in Civilized Worldwide Inc., a media firm and lifestyle brand focused on cannabis culture, as well as in Solo Growth Corp., which hopes to open cannabis retailing locations in both Alberta and Ontario.
In the three months ended September 30, 2018, the company had no revenue. However, as a venture capital firm, Canopy Rivers did report $24.0 million in gains on its financial investments. That contributed to its profit of $10.9 million, or $0.08 a share. There are no comparable year-earlier results. The company held cash of $105.8 million on September 30, 2018.
Canopy Rivers’ ultimate success will depend on its ability to identify the best early-stage companies with the greatest potential. That’s far from certain, especially in less familiar markets, like Europe and South America, where it hopes to expand. The company’s connection to Canopy Growth gives it access to an experienced management team and potentially a ready customer for some of the products and services provided by the firms it invests in.
However, Canopy Rivers’ holdings are a complex mix of the common equity, preferred shares and convertible debentures of mostly private, non-reporting firms. That makes it difficult to value the company. Venture capital is always a highly uncertain and volatile investment area, and a focus on the cannabis boom heightens risk all the more.
Canopy Rivers has a 2.5-Leaf Cannabis Quality Rating (CQR). Canopy Rivers does not inspire our confidence, and we don’t recommend the stock.
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