Joint venture seeks creditor protection while it restructures its business, financial obligations
Canopy Rivers to provide up to $7.2 million in interim DIP financing
TORONTO, Sept. 16, 2020 /CNW/ - Canopy Rivers Inc. ("Canopy Rivers" or the "Company") (TSX: RIV) (OTC: CNPOF) announces that PharmHouse Inc. ("PharmHouse"), the Company's 49%-owned joint venture in Leamington, Ontario, has obtained an order (the "Initial Order") from the Ontario Superior Court of Justice (the "Court") granting PharmHouse creditor protection under the Companies' Creditors Arrangement Act ("CCAA"). Ernst & Young Inc. has been appointed by the Court to act as the Monitor of PharmHouse in the CCAA proceedings while PharmHouse explores a restructuring of its business and operations (the "Restructuring").
Canopy Rivers views PharmHouse's decision to seek creditor protection as an important step forward in addressing its liquidity and capital resource concerns, determining the most effective way to conduct business going forward, and maximizing value for its stakeholders.
Pursuant to the Initial Order, the statement of claim (the "Claim") initiated by the Joint Venture Partner (as defined below) against PharmHouse and the Company, among others, as described in the Company's press release earlier this week, has been stayed.
Investment Background
PharmHouse was formed in May 2018 as a joint venture between the Company and the principals of a leading agriculture and produce company (the "Joint Venture Partner"). Offtake partnerships with Canopy Growth Corporation and TerrAscend Canada Inc. (the "Offtake Agreements") provided strong support for the Company's significant investment in PharmHouse's automated production facility, as well as its guarantee of the PharmHouse Credit Facility (as defined below). As disclosed in the Company's press release dated August 14, 2020, the previously anticipated timeline for PharmHouse to generate cash flows from the Offtake Agreements was not met, and the ultimate timing and receipt of cash flows became uncertain, creating liquidity and capital resource issues at PharmHouse.
Discussions between PharmHouse and the counterparties to the Offtake Agreements regarding the potential renegotiation of the Offtake Agreements have been unsuccessful and have led to a significant deterioration in the relationship between the parties, as evidenced by the filing of the Claim by the Joint Venture Partner.
Given the scale and automation of PharmHouse's facility, Canopy Rivers remains committed to taking the necessary actions to preserve and maximize value for PharmHouse and Canopy Rivers' shareholders, including providing the DIP financing (as defined and discussed below) at a time when PharmHouse is in critical need of capital. The Joint Venture Partner has indicated that it will not contribute financially to address PharmHouse's near-term liquidity issues.
DIP Financing
Pursuant to the Initial Order, Canopy Rivers will act as a debtor-in-possession ("DIP") lender for PharmHouse. The Company will provide up to $7.2 million in DIP financing, to enable PharmHouse to continue its day-to-day operations throughout the anticipated Restructuring. The special committee of the Company's Board of Directors (the "Special Committee") intends to continue its review of strategic alternatives for the Company's investment in PharmHouse.
Impairment Charges
In connection with the Restructuring, Canopy Rivers expects to record certain adjustments on its statement of financial position for its upcoming fiscal quarter ending September 30, 2020. The Company expects to record a full impairment charge on its investment in PharmHouse common shares, which had a carrying value of $32.6 million as at June 30, 2020. The carrying value as at June 30, 2020 reflected the cash investment of $11.0 million made by the Company in July 2018 and January 2019, the value of non-cash consideration paid to the Joint Venture Partner upon the formation of PharmHouse, and the Company's cumulative share of PharmHouse's comprehensive loss, as required by International Financial Reporting Standards. In addition, the Company may recognize impairment charges in respect of all or a portion of the balances relating to shareholder loans advanced by Canopy Rivers to PharmHouse, which were recorded at $50.2 million as at June 30, 2020 (inclusive of interest receivable of $7.7 million). Furthermore, the Company is a guarantor on PharmHouse's syndicated credit agreement, which provided PharmHouse with a non-revolving credit facility of $90.0 million (the "PharmHouse Credit Facility"). If PharmHouse is unable to service its obligations pursuant to the PharmHouse Credit Facility, the Company may be required to recognize a financial liability relating to its guarantee. As the CCAA process progresses, Canopy Rivers expects to have additional information that will allow it to assess and quantify the expected financial statement impact on the Company and will provide further updates regarding the Restructuring in due course.
About Canopy Rivers
Canopy Rivers is a venture capital firm specializing in cannabis with a portfolio of 18 companies across various segments of the cannabis value chain. We believe that bringing together people, capital, and ideas raises the potential of the entire cannabis industry. By leveraging our industry insights, in-house expertise, and thesis-driven approach to investing, we aim to provide shareholders with exposure to specialized and disruptive cannabis companies. Our mission is to invest in innovators across the cannabis value chain, help them grow, and ultimately create value by guiding these companies towards a monetization event. Together with our portfolio, we are helping build the cannabis industry of tomorrow, today.
Forward Looking Statements
This news release contains statements which constitute "forward-looking information" within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future business activities and operating performance. To the extent any forward-looking information in this news release constitutes "financial outlooks" within the meaning of applicable Canadian securities laws, the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such financial outlooks. Forward-looking information is often identified by the words "may", "would", "could", "should", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" or similar expressions and includes information regarding: the Company's view that the CCAA Proceedings are an important step forward for PharmHouse; expectations regarding the provision and amount of DIP financing and the anticipated use therefore; the intention of the Special Committee to continue its review of strategic alternatives for the Company's investment in PharmHouse; expectations regarding the financial statement impact for Canopy Rivers of the Restructuring; and expectations for other economic, business, and/or competitive factors.
Investors are cautioned that forward-looking information is not based on historical fact but instead reflects management's expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the Company. Financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to various risks as set out herein. Our actual financial position and results of operations may differ materially from management's current expectations. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: regulatory and licensing risks; competition risks; changes in cannabis industry growth and trends; changes in the business activities, focus and plans of the Company and the Special Committee; stock market volatility; the actual outcome of the CCAA proceedings and the impact of the Restructuring on the Company's financial results; changes in general economic, business and political conditions, including challenging global financial conditions and the impact of the novel coronavirus pandemic; potential conflicts of interest; the regulatory landscape and enforcement related to cannabis, including political risks and risks relating to regulatory change; changes in the Company's relationship with Canopy Growth Corporation and its investees; counterparty risks, including risks associated with joint venture arrangements; risks associated with the termination, renegotiation and enforcement of material contracts; credit, liquidity and additional financing risks; changes in applicable laws; compliance with extensive government regulation, including the Company's interpretation of such regulation; changes in the global sentiment towards, and public opinion of, the cannabis industry; divestiture risks; and the risk factors set out in the Company's most recent annual information form and management's discussion and analysis filed with the Canadian securities regulators and available on the Company's profile on SEDAR at www.sedar.com.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors that could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
SOURCE Canopy Rivers Inc.
Media: Rob Small, Senior Manager, Public Relations & Communications, [email protected]; Investor Relations: [email protected]
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