RIV Capital Inc.

Thank you, Joanna. Good morning, everyone, and welcome to Canopy Rivers' financial results conference call for the second quarter ended September 30, 2019.

My name is Karoline Hunter, and I'm the Senior Director of Investor Relations and Communications at Canopy Rivers. I'm joined this morning by Narbé Alexandrian, President and Chief Executive Officer; and Eddie Lucarelli, Chief Financial Officer.

Following our formal remarks, we will open up the line for your questions. For your convenience, the press release, MD&A and unaudited condensed interim consolidated financial statement for the second quarter are available on the Investor section of our website at www.canopyrivers.com as well as on SEDAR.

Before we start, please note that remarks on this conference call may contain forward-looking statements about Canopy Rivers and its investee's current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements or any other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances.

However, there can be no assurance that such 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.

As a result, Canopy Rivers cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Forward-looking information is made as of the date given and except as may be required by law, Canopy Rivers undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For additional information on these assumptions and risks, please consult the cautionary statements regarding forward-looking information contained in the company's financial results press release dated November 14, 2019, and in the Risk Factors section of the company's MD&A and in its annual information form dated July 15, 2019. Please note that Canopy Rivers reports in Canadian dollars and all dollar amounts expressed today unless otherwise stated are in Canadian currency.

I would now like to turn the conference over to Narbé.

Thank you, Karoline. Good morning, everyone and thanks for your interest in Canopy Rivers.

This morning, we reported our financial results for the second quarter ended September 30, 2019. I will begin the call with some brief highlights for the quarter, then I will turn it over to Eddie to provide you with a more detailed review of our financial results.

I will then provide an update subsequent to the quarter and discuss our growth plan before we turn to your questions. Let me start by giving you some insights into our view on the cannabis industry.

Over the last 12 months ended September 30, 2019 we have heard over 1,500 pitches and talked to entrepreneurs all around the world about their plans to cultivate cannabis, extract cannabinoids and build global brands among other things. Through these interactions, we are capturing an immense amount of data that helps us understand how the industry is evolving and helps inform our investment decisions.

We expect to see multiple new geographies come online in the near to medium term, including but not limited to the U.S. and countries in Latin America, Europe and Asia.

As a potential applications of the cannabis plant become more broadly understood, and an increasing number of companies are disrupting how we think about cannabis, we believe growth in this industry is inevitable. This idea is further supported by the number of industry adjacent players entering the space and bringing their expertise, talent and established track record of success.

We also believe that globalization of the cannabis economy will welcome more sophisticated entrepreneurs and capital providers which will help fuel this growth even further. At Canopy Rivers, we’re evaluating a multitude of potential opportunities and are continuing to work to build and strengthen a robust ecosystem of mutually beneficial companies to drive a forward thinking cannabis industry built for the long-term.

During the quarter, we reached a significant milestone just shy of the one-year anniversary of our going-public transaction. On September 9, we began trading on the TSX under the ticker symbol RIV.

We think the up-listing is a testament to the growth we were able to achieve during the past 12 months and is a further demonstration of our focus on good governance and compliance. With the increased visibility and liquidity that trading on the TSX may provide, we plan to continue to build our portfolio and strengthen our presence within the industry as we strive towards delivering value for our shareholders.

We also announced the formation of our Strategic Advisory Board made up of respected business leaders that will provide guidance and insight to our executive team. They inaugural members of the board include John Ruffolo, Co-Founder and Vice Chair of the Council of Canadian Innovators and Founder of OMERS Ventures, Philip Donne, Former President and CEO of Kellogg Canada and Meg Lovell, Former Co-Head of M&A and Corporate and Commercial Counsel at Imperial Brands.

Drawing on their experience in the field of tech, venture capital, consumer packaged goods, and the highly regulated tobacco industry, each of these members brings a unique set of skills that we plan on leveraging as we move forward in our next phase of growth. Look into the quarter, we added Julian Burzynski to our Advisory Board, Julian is Regional President of Breakthru Beverage Canada and brings with him insights into beverage brokerage, distribution and go-to-market strategies, all of which we think will be integral to the success of cannabis companies as we forge ahead into Cannabis 2.0.

I will detail our involvement with Breakthru’s wholly owned subsidiary Kindred later in the call. Moving on to our existing portfolio, TerrAscend a Canadian license producer, a multi-state U.S.

operator and a distributor into Europe announced several key milestones during the quarter. In the U.S., TerrAscend entered into a definitive agreement to acquire a company that operates a California cultivation facility and own State Flower, a premium cannabis brand.

The company also acquired Ilera Healthcare, owner of one of five fully vertically integrated licenses in the State of Pennsylvania. Ilera is a seed-to-sale operator and brings additional products, brands and retail under the TerrAscend umbrella.

In Canada, TerrAscend Canada is a wholly owned subsidiary of TerrAscend Corp entered into distribution agreement with Syqe Medical and is Israel based pharma technology company. We think the technology is particularly exciting because it is the world's first meter dose medical cannabis inhaler that provides predictable, precise and consistent treatment at pharmaceutical standards.

The Syqe product was first debuted in the Israeli market in June 2019 as it’s backed by control the clinical trials. Further TerrAscend Canada received an amendment to license from Health Canada to allow it to sell cannabis oils from its EU GMP certified facility in Mississauga, Ontario.

Sale of cannabis oils began immediately through TerrAscend’s medical marketplace Solace Health. The company also began shipping dry cannabis flower to its German distribution partner during the quarter.

Moving to PharmHouse, the company received a cultivation license from Health Canada this quarter and it immediately commenced operations in 190,000 square feet of licensed nursery infrastructure. PharmHouse has commercial offtake agreements in place with Canopy Growth and TerrAscend for combined 50% of its 2020 production capacity.

On the craft cultivation side of our portfolio, Radicle received approval from Health Canada for its production facility expansion project, which will nearly double its capacity. The 140,000 square foot facility is being developed in three phases, with 25,000 square feet currently in operation.

We believe that Radicle’s focus on the high quality craft cultivation segment will garner a loyal customer following at the retail level. Canadian LP and public company James E.

Wagner corporation received a license agreement from Health Canada allowing for the sale of cannabis oils from JWC’s pilot facility. JWC also entered into a purchase and supply agreement with TerrAscend Canada.

Pursuant to the agreement, JWC will supply cannabis flower and oils to TerrAscend that will be sold through TerrAscend online platform Solace Health. This agreement is another example of collaboration within the Canopy Rivers ecosystem.

Our portfolio company Headset announced that its cannabis market intelligence platform insights was launching in Canada. We invested in Headset because we think that data will be an increasingly valuable resource in the cannabis industry going forward.

And that Headset is focused on providing reliable real time data from multiple jurisdictions positions them well to realize on that value. In Canada, Alberta has signed on as the first province to access the Headset Insights product and another example of portfolio company collaboration, YSS another Canopy River portfolio company adopted Headset Insights to access data on consumer behaviors in order to better its retail operations.

YSS also has the news this quarter receiving its 12 cannabis retail license in Alberta with all 12 stores currently in operation. Lastly, Herbert Works an investment we made in January 2019 is a company established by the principles of the Greenhouse Juice Brand received its research and development license from Health Canada this quarter, which you will use to develop cannabis infused beverages.

Herbert’s mission is to create products specifically designed around consumers many lifestyle needs, and the company's core beverage offering is intended to be focused primarily around THC infused products designed for distribution within Canada. With the creative minds and Greenhouse Juice behind Herbert, we have confidence in Herbert team’s ability to successfully create a cannabis infused beverage brand and we're excited to see what product they bring to market.

In sum, there was good progress made throughout the Canopy Rivers portfolio during our second quarter. And we look forward to seeing this positive momentum continuing into Q3.

I will now hand it over to our CFO, Eddie Lucarelli to review our financial results in more detail, Eddie?

Thank you, Narbé and thank you again to everyone who has dialed into the call this morning. As you know, Canopy Rivers is a venture capital firm specializing in cannabis, with the objective of generating returns in the form of dividends, interest, rent, royalties or capital appreciation from new investments that we make.

As a reminder from our previous earnings call, we do not report financial metrics that are typical of Canadian LPs, or U.S. MSOs such as revenue or cost of goods sold.

Instead, you will see items on our financial statements such as income on financial assets and fair value changes. For a more detailed explanation on how to interpret our financial statements, we encourage you to visit our website at www.canopyrivers.com where we have posted explanatory materials.

Before I get into our financial results for the quarter, I want to take a few moments to discuss the state of capital markets for cannabis companies. In the early days of the technology industry, there was a boom, buzz and then sustained growth as the tech industry continues to realize its full potential.

We believe that we’re witnessing a similar trajectory for publicly traded cannabis companies. The market is expecting growth and profitability.

But we believe that for a variety of reasons that have been discussed at length among industry participants and in the financial mainstream media, the market has developed more slowly than people had anticipated. We think it is very important to separate the frustrating pace of development in these early days of an industry that has been prohibited for 95 years from the long-term potential of what has been described by some as one of the most significant global growth opportunities of the next decade and perhaps in our lifetime.

We believe that the volatility that is currently plaguing the markets is a direct result of frustration at the slower than expected pace of development, and that the underlying positive momentum across the sector globally will help propel disciplined companies through these short-term headwinds. Simply put, our perspective is to look beyond the short-term pain and focus on the long-term gain.

Furthermore, we believe that this correction represents a great opportunity for fundamental long-term institutional investors to enter the cannabis market by investing in companies that can execute and establish a path to delivering solid financial results for shareholders. We believe enhanced support from the institutional investor community would also provide the market with the stabilization that it currently lacks and help alleviate the negative impact and headlines from what is in our view, unwarranted momentum trading.

We’re witnessing the cannabis sector mature and we think it is imperative that the capital markets for cannabis companies mature with it. Turning to our financial results for the quarter, I will begin with our operating results.

Please note that well comparative information for the quarter ended September 30, 2018 is included in our financial statements and MD&A. I will only refer to the results for this quarter and selectively identify comparative figures in cases where it is relevant.

Total operating income was CAD0.9 million for the quarter. Operating income includes income on our finance lease receivable, income on our shareholder loan receivable with PharmHouse, our share of income or loss from equity method investees, royalty and interest income on financial assets the fair value through profit or loss and net changes in the fair value financial assets of fair value through profit or loss.

Income on finance lease receivable was CAD0.2 million for the quarter. The company received approximately CAD0.6 million each year in lease payments from Spot Therapeutics, a wholly owned subsidiary of Canopy Growth.

As Narbé will speak to in a moment, subsequent to quarter-end, we advanced CAD13.5 million to Spot pursuant to the terms of our previously announced for payable debenture and royalty agreement. Going forward, payments from Spot to Canopy Rivers will include royalty payments on production, which are subject to an annual minimum payment of CAD2.85 million per year for the next 25 years.

We reported income on loan receivable of CAD1.2 million for the quarter. The loan receivable is the $40 million shareholder loan to PharmHouse that bears interest at 12% per year, the interest receivable balance will build over time until PharmHouse begins generating revenue.

Income on financial assets at fair value through profit or loss was CAD0.8 million for the quarter. This includes royalty income on our various royalty interests, including Agripharm, JWC and Radicle, and interest income on our various debenture instruments, including Agrifarm and Greenhouse Juice.

Our share of loss from equity method investees was CAD0.7 million for the quarter. This includes assets such as our PharmHouse, Canapar and Herbert Equity Instruments, all of which are pre-revenue companies.

We know that as per in election available under the relevant accounting standard, we pick up our share of profit or loss one quarter in arrears, meaning that for the most part, the financial results of our equity method investees that we report for the quarter ended September 30, 2019 relate to their financial results for the quarter ended June 30, 2019. Included in the reported amount of our share of loss from equity method investees for the quarter is the pickup of our 25% share of Radicle’s CAD0.5 million reported net income for the quarter ended June 30, 2019.

Net change in fair value of financial assets at fair value through profit or loss was a decrease of CAD0.6 million for the quarter. There are several financial instruments in our portfolios that are classified as financial assets at fair value through profit or loss.

A detailed breakdown of the fair value changes in these instruments is included in Note 9 to our interim consolidated financial statements. It is worth noting that the comparative figure presented in our statement of income and other comprehensive income for the quarter ended September 30, 2018 is an increase of CAD24 million, which was almost entirely driven by the increase in the fair value of our investment in TerrAscend warrants during that period.

For reference during the quarter ended September 30, 2018, the share price of TerrAscend increased by almost 60%, which contributed to the significant increase in the fair value of the warrants that we held. Total operating expenses were CAD6.2 million for the quarter.

For explanatory purposes, we split operating expenses into two groupings. The first grouping is comprised of cash based operating expenses, which are reported as consulting and professional fees and general and administrative expenses.

The second grouping is comprised of non-cash based operating expenses, and primarily related to share-based compensation. Consulting and professional fees were CAD1.2 million for the quarter.

As we have stated previously, these expenses are primarily attributable to ongoing consulting services related to business management, the sourcing and evaluation of investment opportunities and due diligence related matters, legal fees related to transaction execution and general corporate and securities matters and audit tax accounting valuation and other regulatory compliance advisory fees. We know that consulting and professional fees were higher this quarter as a result of certain professional costs related to our graduation to the TSX.

General and administrative expenses were CAD2.0 million for the quarter. These expenses are primarily attributable to employee compensation, marketing and business development and other administrative activities of the company.

We know that general and administrative expenses were higher this quarter as a result of one-time fees related to our graduation to the TSX as well as the launch of a formal marketing and branding campaign, share-based compensation expense was CAD3 million for the quarter. This is a non-cash expense, the majority of which is related to options granted to non-employees, which occurred at an early stage in the company's growth and requires remeasurement each period.

When you combine our operating income, cash based operating expenses, and non-cash based operating expenses for the quarter, along with some other less material items, the result is a reported net loss of CAD4.4 million or $0.02 per share for the quarter. Below the net loss line, we capture the impact of net changes and fair value financial assets at fair value through other comprehensive income which is presented net of tax.

This line item includes the net impact of fair value changes in our investments and instruments of investees that are publicly traded, including TerrAscend, JWC and YSS. As you’re aware, and as we have discussed market prices for publicly traded cannabis companies experienced unprecedented challenges from July 1, 2019 to September 30, 2019.

As a result, we record a fair value decrease of CAD23.8 million during the quarter, reflecting the required mark-to-market of these three investments. As volatility in the public markets for cannabis companies persist, we expect that there will be drastic swings in share prices, and that we will continue to see a lot of movement in comprehensive income quarter-to-quarter.

This line item also includes the change in fair value of our investment in the common shares at Vert Mirabel, which decreased by CAD8.2 million during the quarter. The financial forecasts for Vert Mirabel that is used as the basis for the discounted cash flow model, the value of this asset each period has been revised this quarter to reflect more conservative production assumptions, which includes the dedication of a certain amount of licensed flowering space at the facility to pursue research and development activities with respect to organic cannabis cultivation.

Vert Mirabel has now successfully completed multiple harvest, and we expect to continue to see great improvement in this facility over time. In addition to our common equity interests in Vert Mirabel, we also own preferred shares that account for as a financial asset of fair value through profit or loss, which are accumulating dividends at a rate of 18% per year and are expected to be redeemed during the first half fiscal year 2021.

On a net of tax basis, the decrease in the fair value of financial assets at fair value through other comprehensive income was CAD28.3 million for the quarter, and our total comprehensive loss was CAD32.7 million. Shifting to our cash flow activity, which is reported in our financial statements on a six-month basis, net cash used in operating activities was CAD3.5 million for the six months ended September 30, 2019.

Net cash used in investing activities was CAD18.1 million for the six months ended September 30, 2019. This includes investing activities during the first quarter of fiscal year 2020, where we advanced funds pursuant to a pre-existing agreement with AgriPharm, completed a follow-on investment in Greenhouse Juice and made new investments in BioLumic, High Beauty and ZeaKal.

During the quarter, the primary item that impacted cash flows used in investing activities with the advancement of the final $5 million to AgriPharm, a 40% owned investee of Canopy Growth pursuant to the terms of our repayable debenture and royalty agreement, thereby fulfilling our $20 million capital commitment to that entity. There were no material cash flows from financing activities during the six months ended September 30, 2019.

We ended the quarter with CAD82.8 million of cash on our statement of financial position, subsequent to quarter-end, and as Narbé will discuss shortly, we deployed approximately CAD26.7 million of capital into TerrAscend Canada and Spot, we also have one remaining $3 million contractual commitment to Greenhouse Juice, which leaves us with just under CAD55 million of dry powder available to deploy. We will continue to be very diligent about the way we deploy capital, keeping shareholder value creation as our guiding principle.

At a time when capital markets conditions for cannabis companies have tightened, we think the strength of our cash position and overall health of our balance sheet enhance our ability to weather the storm. Total assets as of September 30, 2019 amounted to CAD379.7 million.

Aside from the CAD82.8 million cash balance, the significant components of total assets included, the shareholder loan to PharmHouse, the book value of CAD40 million, investments in equity method investees with the book value of CAD66.1 million, investments in financial assets at fair value through profit or loss, the book value of CAD69.5 million, and investments in financial assets at fair value through other comprehensive income with a book value of CAD112.3 million. Total liabilities as of September 30, 2019 amounted to CAD6.1 million, half of which is attributable to a CAD3.1 million deferred tax liability reflecting unrealized gains on certain investments, we currently have no interest bearing debt.

As a result of prudent cash management, we’re fortunate to be in a position where we are able to use our cash to make investments and tend to increase shareholder value rather than service debt. Finally, total shareholders’ equity, or the net book value of assets for accounting purposes as of September 30, 2019 amounted to CAD373.6 million.

Based on our closing share price of $1.34 on November 13, 2019, the implied basic market capitalization of Canopy Rivers is approximately CAD260 million, representing a price to September 30th book value of approximately 0.7X. I will now turn it back over to Narbé for commentary on the recent developments and our strategy going forward.

Thank you, Eddie. I would like to take a few minutes to provide you with a current corporate and portfolio update before moving on to discussion of some of the unique aspects of our business model.

In terms of recent general corporate highlights, we were proud to have hosted our first Cannabis Symposium on October 2, 2019. In addition to providing us with an opportunity to provide a brief company update, it also allowed us to offer our perspective on trends in the market, introduce some components of our brand strategy and give some predictive insights into synthetic cannabinoids.

If you haven't seen the video yet, please go to our YouTube channel to watch the recording of that event. Subsequent to the quarter, we have continued to execute on our corporate strategy and we have several updates from our end in that respect.

First, we provided TerrAscend Canada with $13.2 million by way of debt financing. We have been impressed with TerrAscend Canada's positioning and drive to meet evolving consumer demands in Canada and Europe, which is evidence based distribution agreement with Syqe and its EU GMP certification.

Net proceeds from the loan are expected to be used by TerrAscend Canada for general corporate purposes and will not be used in connection with cannabis or cannabis related operations in the U.S., unless and until such operations comply with all applicable laws of the U.S. We also invest $13.5 million to Spot Therapeutics, also known as Sweet Tree pursuant to the terms of the repayable debenture we had with them.

Spot is Canopy Growth’s prediction based production and distribution facility and operates under the flagship Tweed banner. The principal amount of the repayable debenture was immediately set-off against the purchase price of a royalty interest that provides us with a minimum annual payment of $2.8 million per year for 25 years, and that represents a significant and predictable cash flow for Canopy Rivers going forward.

A few weeks ago, we announced strategic alliance with Kindred Partners, a specialty cannabis brokerage and services company and a wholly owned subsidiary of Breakthru Beverage Group. Kindred is working with Canadian provincial control boards, public and private regulated cannabis businesses, licensed producers and retailers to broker regulated cannabis products for the adult-use market.

We believe distribution will be a key ingredient for success as the industry continues to mature, and it will be a particularly important as we head into Cannabis 2.0 and retail continues to expand across Canada. Our strategic alliance with Kindred provides our portfolio companies with access to network and team of marketing and branded product experts, Insights from Kindred enterprise resource planning and marketing infrastructure and brokered distribution via Kindred’s already established national sales platform.

At a portfolio level, I would like to provide a brief update on our joint venture assets. PharmHouse has progressed since receiving its initial cultivation license a few months ago, and we expect the Greenhouse to be fully licensed in the next few months.

As you know, the facility is one of the largest of its kind and our joint venture partners have a vision of PharmHouse becoming one of the most innovative, low cost large scale of Greenhouses in the industry today. We believe that the team behind PharmHouse has experienced to execute on this vision.

While we're not publicly disclosing any production estimates at this time, we believe that PharmHouse is generating revenue on its entire operation. It will be a catalyst for value creation for our investors, we will update investors on PharmHouse’s continued progress in the coming quarters.

Moving to Vert Mirabel, the entire 700,000 square foot facility is fully online, and a significant portion of the Greenhouse is already in production. The Greenhouse is expected to be optimized for full production in early 2020.

As a reminder, 100% of the offtake from Vert Mirabel is currently being sold to Canopy Growth. Finally, Canapar, our European Investment continues to make headway, the extraction machinery has shipped from the U.S.

and the team is eagerly waiting its arrival in that. The contracted hemp has been harvested, and is currently being pelletized and stored at Canapar’s facility.

Canapar is focused on its extraction strategy and continues to monitor the demand for extracts and isolates in Europe. In our other public and private venture investments, there have been many positive developments.

At Agripharm, the harvest of its outer process is complete and the company is using the cannabis from that that harvest for direct sales and white label pre-rolls. YSS announced its expansion outside of Alberta by signing a definitive agreement to acquire a licensed cannabis retail operator in Swift Current, Saskatchewan.

That was the retail location we branded under the Sweet Tree Banner. On a more general note, we have been pleased with the progress our portfolio companies have been making with respect to their Health Canada licenses.

JWC is now able to expand production into four new flowering rooms. TerrAscend Canada nearly tripled its license space, both TerrAscend Canada and JWC were awarded sales licenses for cannabis edibles, extracts and tropicals.

Meanwhile, Radicle received approval for cannabis oil sales. I would like to pivot now and talk about our impact team.

Since much of what I just discussed can be partly attributed to their work. At a high level, the Canopy Rivers impact team helps our portfolio companies on their path to commercialization, assisting them with Regulatory Affairs, facility build-outs, branding, distribution and other important operational areas.

The ultimate goal of the impact team is to help our portfolio companies find ways to build revenue and cash flow, guide them towards an eventual exit or monetization event. We believe their core component of the value that we offer to our portfolio companies and we have spent considerable organizational effort in recent months on optimizing the impact team.

One of the ways the impact team can help add value to portfolio companies is the connection that can be made with Canopy Growth. Most recently, our portfolio company Radicle expanded its commercial reach by making its products available on Canopy Grwoth Spectrum Therapeutics online distribution platform.

Canopy Rivers has previously facilitated Radicle’s participation and Canopy Growth’s craft grow program and we are thrilled to see Radicle leverage the large scale of Spectrum Therapeutics distribution platform to provide cannabis products to medical customers. From an investment strategy perspective, we at Canopy Rivers continue to believe that specialization will drive the cannabis industry forward.

As the industry continues to mature, we believe that vertical integration will become less and less common, as companies will see the increased value that can be created by focusing instead on one or two specific sub-segments of the industry. Our impact team is also focused on tying these specialist firms to one another, to create a synthetic vertically integrated value chain.

We believe that as a dollar flows from one company to another, it will create a multiplier effect on that same dollar, leading to increases in valuation across the portfolio. We currently have a majority of our portfolio companies working with one another, leveraging each other strengths as they continue to grow.

From a venture capital standpoint, we maintain a strong position with 19 companies in our portfolio across the spectrum of stages within each of their life cycles. We also have a very strong cash balance, and we’re not deploying our capital haphazardly.

Instead, we have a methodical way of determining where we want to focus our business development efforts, taking into account our own domain expertise and where we see the best opportunity for growth. We think our strongest resource right now is our cash and we will continue to be diligent in the way we deploy that cash.

When looking at our future opportunities, we were zeroing in on five key areas of interest. The first area of interest is brands, which we think will capture a large part of the market.

The second area of interest is biosynthesis, we believe value creation of a stable cannabinoid products for the pharmaceutical market is key. The third focus is within the plant size vertical.

We believe there is still a lot left to learn about the cannabis plant, including how to mitigate pests, and how to create a resilient plant for various growing conditions. Our investments in BioLumic, and ZeaKal are good examples of this, and we will continue to look at innovators in this space.

Fourth, our international opportunities, as new markets around the world adopt new regulatory frameworks for cannabis and hemp, we want to be at the forefront of those changes, helping support what we believe is a global industry. Finally, technology and data in our opinion will be another important area of development.

We have seen a lot of inefficiency in the way the cannabis industry has evolved, finding solution is rooted in technology and using data to help resolve pain points, and push the industry forward is an area we want to continue to support with our capital. As Eddie discussed earlier, volatility in the capital markets is a headwind, we and many of our peers are forced to face.

However, we remain very optimistic in the overall growth potential of the cannabis industry. We plan to execute on our growth plan using our thesis driven investment approach, and our high performance culture and team to continue to capitalize on opportunities that we believe will drive value for our shareholders.

That concludes our formal remarks. Eddie, and I will now be pleased to answer your questions.

Operator, please begin the question period.

Hi, good morning, everyone. So I wanted to start my questions with PharmHouse and you mentioned that that you've got partially licensed, the rest should be fully licensed within the next few months.

But just given the industry dynamics we're seeing play out here and commentary from Canopy Growth and TerrAscend around being a little more cautious around the Canadian outlook, are you in a position here where you can work with your JV partners there at PharmHouse just to maybe reset or think about how you're going to roll-out the production there and maybe defer for a period of time, so that you're not sitting on inventory that can't be moved?

Yes, Jeff it’s here. Thanks for the question.

So yes, just to recap what you said at the beginning of your question, there is about 190,000 square feet of nursery infrastructure that's licensed at PharmHouse right now, the amendment has been or the application for the license limit has been submitted based on our investments raised from right now, the earliest we anticipate that license amendments being received from Health Canada for the remaining 1 million square feet of dedicated flowering space would be during the first calendar quarter of 2020. As you see, there are offtake agreements in place with Canopy Growth and TerrAscend for 50% of the dedicated flowering space in calendar year 2020.

So, to the extent that PharmHouse produces cannabis in that dedicated flowering space, that's subject to contractual offtake agreements with those partners, and we know that those partners have relied upon that source of supply in terms of their inventory planting needs as well. So from a contractual cash flow perspective, we feel pretty confident in PharmHouse’s ability to be able to operate in the current environment.

Certainly, concerns about oversupply and what that means in terms of downward pressure on cannabis pricing is something that you do hear people commenting on, we don't believe that that changes the investment thesis environments at all, the industry seen a lot of capital invested in square footage and production capacity. But what we haven't necessarily seen proven out yet is really that operational excellence required to get product to market and to see where the markets going to tighten over time but winning in the market isn't going to be exclusively determined by who was selling cannabis versus especially given the store ramp-up that we are experiencing, and the global nature of the opportunity, it's going to be about who can produce high quality cannabis at the lowest cost possible and run a commercial scale operation to bring a really consistent product to market and there may be certain differences between cultivating cannabis and cultivating vegetables.

But what is not different is really that need for this operational excellence and the ability to do it at scale, we are doing this for decades and we're confident in their ability to do this successfully in cannabis. So we're very bullish still on the investment thesis partner.

And I guess, taking your comments there in mind, one of the appeals here is that you do have interrelated interests. And I guess I'm just sort of thinking from a business planning perspective that it might be nice to hit the gas at PharmHouse and crank out as much product as possible.

But maybe it's better just to as a group sort of plan how that ramp is going to look at to fit the market conditions at the time. So you're not sitting on a bunch of excess inventory.

Is that a fair way to think about the dynamics, I’m just trying to understand that, there's a number of parties at play here with bearing interest right now?

Yes, that definitely, that's something that we have in mind. We’re looking at various options and opportunities with the PharmHouse asset.

What we're seeing in the industry and we see continuously every day is a move away from vertical integration to horizontal integration where companies want to focus instead of cultivating and extracting and building brands, focus on building brands and leaving the cultivation extraction to companies that that are specialized in what they do. We believe PharmHouse is one of those assets and we continue to get interest from multiple parties for what would PharmHouse has to offer.

Okay, and then the CAD80 million bank facility that they've secured, has that been fully drawn on?

Pretty much, it's directly tied to the completion of the cash outflows related to capital processing facility. So it's almost 100% drawn.

Okay. And then I appreciate the commentary at the end about the continued view of many opportunities out there.

What's your sense in terms of valuation expectations now from a number of those parties seems like to your point, there might be a lot of good opportunities to go out there. Less capital to compete with in terms of striking, striking deals with the funnel pretty full right now.

And is there any particular area out of those five that you're targeting that seems to be the hot one right now?

Absolutely. The funnel is as strong as it's ever been that there's a number of companies out there that have reached out to us with cash situations that they'd like to be alleviated on.

This is a great time for venture capital and private equity type investing because you're getting a bargain on many companies that earlier on had while this valuations quite frankly, what we're seeing is that the public and private markets are finally starting to reconcile in terms of valuation expectations. And we remained bullish on the opportunity within the cannabis space across the world.

And in terms of how it's going to revolutionize and become a brand new multi-billion dollar industry for many geographies out there. If there's any area that we're really focused in on, I'd say it's between the plant science bio-synthetics and the brand space.

And we have about 15 to 20 areas of investment thesis at any given time that we’re focusing on but I’d say those three are the ones that we are most excited about.

Okay, great. And then maybe one last one here on the deployment of your committed funds into Spot.

I believe the agreement there is that you start to generate that that stream of income to you or the cash flow after six months after they get their cultivation license. So have you started the clock on that?

I'm not sure what the status of that cultivation licenses?

Yes. So Spot is a licensed facility.

We did deploy that capital into Spot in the first half of October. So that starts the clock on the receipt of that annual cash flow payment.

And is it paid annually or quarterly?

It’s paid quarterly based on production at the assets because there are those minimum contractual payments baked into the agreement. Should there be a shortfall in what the actual calculated royalty is throughout the quarters, once you get to the end of the year, then the shortfall is captured with a one-time payment at year’s end.

Okay, that’s great. Thanks.

Thanks. Good morning, guys.

I wanted to start on the wholesale side. I mean, we've seen a spike in supply across the industry and is based on Canopy Growth’s call right now, it sounds like access to supply is not really an issue for them.

So maybe you could just clarify the safety of the arrangements you have with Canopy Growth and with TerrAscend for PharmHouse and Mirabel, is there any ways they can defer purchases or delay purchases? Yes, just your commentary there would be helpful.

Thanks.

Sure, thanks for the question, John. With respect to the agreement between PharmHouse and Canopy Growth, as we detailed in the press release, which we released, I believe in May of this year, that agreement calls for Canopy Growth to purchase a minimum of 25,000 kilograms per year and a maximum of 45,000 kilograms per year over the three-year terms of that agreement, and that's based on the expected production from 20% of the dedicated flowering room space facility.

With respect to the agreement between TerrAscend and PharmHouse, that agreement doesn't necessarily have a minimum or maximum production amount associated with it, it’s simply for the production that comes from 20% of the dedicated flowering space at PharmHouse. So these are the contractual rights that have been outlined in the agreements in that we've announced.

Okay, thanks. Do you expect any of your existing investee companies will need additional capital to keep them afloat?

I mean, there of course, there are a number of our assets that that would require capital going forward. And we keep track of them and we do discuss that with them at various points in time as we have our weekly meetings or bi-weekly meetings with them at this point in time, that there's nothing that that we see in a window of cash deployment outside of the $3.3 million that Eddie mentioned going to Greenhouse.

Okay, thanks. I'm wondering, your thoughts on a potential buyback, obviously the stocks not where you'd like it to be.

But I mean you also consider the fact that cash is incredibly important in today's environment. So I'm curious to get your thoughts there?

Yes, it's something that we certainly, as we discussed in the past, we certainly continue to value on an ongoing basis. You're absolutely right.

The stock is not where we want it to be. And it's very logical to think that using the capital that we have to expect a share buyback, would be a good use of capital.

We constantly have to balance that against the competing force being the fact that we’re an investment company. There are a lot of great opportunities in our pipeline, and evaluations as Narbé alluded to, are certainly resetting the expectations where we see tremendous return potential some of those investment opportunities that we do have to continue to balance that.

But it's certainly something that's, that's front of mind for us and we're going to make sure that we make the decision that we think is in the best interest of shareholders.

Okay, great. I think I asked that last quarter as well.

But I'm curious to get an update. You're obviously in a very enviable position in the industry in terms of your balance sheet compared to others.

And there are lots out there who are in pretty, pretty poor liquidity situations. So I'm just trying to get a sense of what would be your interest in maybe looking at more debt or royalty deals?

It looks like there's very attractive terms out there, rather than the equity stakes, which I think is probably the majority of your portfolio?

Yes, I mean we're assessing them all. If we're talking about royalty or debt deal, I'd say they are pretty much dried up for speaking eight months ago.

Nowadays, you're seeing them come back again, as companies are more desperate for cash and are looking for different structures in order to get that cash in the door. So that's definitely something that we're seeing more and more of in the industry.

And it's from an investment point of view and deployment of cash point of view, it's an exciting time right now just to see how evaluations have depressed and how you can get some quality companies at very low valuations.

Okay, and last one from me. Two of the more material investments of your portfolio, PharmHouse and Mirabel, I guess it’s probably safe to conclude you expect at some point pretty material, cash payments from those and that includes the repayment of your loans.

Is there anything that stops you from disclosing what your expected cash payments are from these companies and the potential timing of those?

So we've communicated vis-à-vis the EBITDA projection for calendar year 2020 with respect to those two assets in particular. We do disclose in the financial statements, the expected timing of the redemption of the Mirabel’s preferred shares.

So just to recap of the $15 million preferred share investment that was made in December over the course of December 2017 to May 2018, those preferred shares are expected to be repaid by Vert Mirabel around the time of the end of the first calendar quarter of 2020. So when you run through the calculations on the accrued interest, there's a $15 million preferred share investment that's expected to be redeemed at around $20 million.

Beyond that, there is no cost base to our investment in Vert Mirabel. So the value of the cash flows that we get from our common equity position in that asset truly have a cost basis of zero.

And then with PharmHouse again, we've included it as part of that combined guidance with Vert Mirabel on an EBITDA basis. As we have communicated in the past, we do want to make sure that once calendar year 2020 comes around and PharmHouse is generating revenue at the scale that it's intended to.

We want to make sure we've got adequate disclosure in our MD&A so that the market understand exactly how that asset is performing for us. But as of right now the best, the best indicator that we’ve chosen in order to communicate value of those assets for the market is based on the EBITDA guidance that we provided.

Got it. And so if I could sneak in one more quick one, can you remind us is it next quarter or the quarter after that you expect to disclose revenue and adjusted EBITDA out of those assets?

We've been targeting doing that for the reporting for the first calendar quarter of 2020.

Okay, understood. Thank you very much.

Hi, good morning. Thanks for taking the questions here.

I just wanted to follow-up, regarding the previous commentary on the call so far, regarding strength of balance sheet, and funding requirements for the portfolio investments, I wanted to take that a bit further and discuss with respect to lots of good opportunities out there to attract evaluations, as you're going to be directing capital towards some pre-revenue companies, how do you balance the opportunities between seeing things that good valuations and managing potential ongoing funding commitments given the tight capital environment right now, I appreciate some color on how you guys are managing that net investment process? Thanks.

Yes, so thanks for the question. We look at capital deployment across a variety of different spectrums.

When we look at our current portfolio companies, we break them down into those that were producing cash in the near-term, those that are more venture capital type investments are pre-revenue that they're just growing and other companies that are more ready for a typical IPO or M&A process out there as well. So we have a good view on diversification across the portfolio.

And we continue to use that view and helping us educating us on what to look for within the market today. At the end of the day, you want a diversified portfolio of companies that both produce cash but and also have high growth expectations attached to them.

And that's similarly how we're looking at new investments as well.

So just to follow-up on that, does the type of environment we're seeing right now in the capital markets? Does that, do you think about readjusting potentially what the rates would be across those buckets or do you like to keep it more pretty spread and balanced in anticipation of how things might develop in the future?

I think it really depends on what geography you're looking at, and the maturity of the business over the industry within that geography. So if you're looking at areas such as North America, there's a bigger push towards creating more revenue or increasing revenue and becoming profitable or cash flow positive.

As we move our view to more emerging markets such as Latin America, Europe or Asia, it's pretty early days there. And the regulatory environment hasn't caught up to I said as much as what we've seen in Canada, and the U.S.

So for those types of opportunities, you're still looking at those pre-revenue type commitments and deals where you're coming in very early and you have a bit of a first mover advantage there.

Okay, I appreciate the color. Thank you very much.

Great. On behalf of Canopy Rivers, thank you for your participation and we look forward to updating you next quarter.