RIV Capital Inc.

Thank you, Joanna. Good morning, everyone, and welcome to Canopy Rivers' financial results conference call for the third quarter ended December 31, 2019.

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

Following our formal remarks, we will open the line to your questions. For your convenience, the press release, MD&A and unaudited condensed interim consolidated financial statements for the third 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, financial results, levels of activity, performance, goals or achievements or any other future events, trends or developments. Forward-looking statements are made as of the date hereof 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 those forward-looking statements. Forward-looking information is made as of the date given and except as 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 February 14, 2020, and in the Risk Factors section of the company's MD&A for the third quarter and annual information form dated July 15, 2019. Please note 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 third quarter ended December 31, 2019. I will begin the call with some brief highlights for the quarter, before I pass it over to Eddie to provide you with a more detailed review of our financial results.

I will then provide a more recent update on Canopy Rivers and some of the portfolio companies before we turn to your questions. I want to start by talking about the overall theme of growth in the cannabis industry.

We have heard over 1900 pitches and I have spoken to entrepreneurs all around the world about the plans to cultivate cannabis, extract cannabinoids and build global brands among other things. Digging into the data, the current legal global cannabis market was estimated to be approximately $15 billion in 2019.

Looking five years down the road, estimates indicate this industry has the potential to grow to between $40 billion to US$200 billion over the next five years. We understand how this sector is growing, how it is evolving, and we believe we have a strong understanding of the overall potential of the cannabis industry.

And yet we feel we have barely scratched the surface. As of potential obligations for the cannabis plant become more broadly understood, and an increasing number of companies are disrupting what we can do with cannabis, we believe global growth in this industry is inevitable.

We believe this growth will be further supported by industry adjacent players entering the space. The cannabis opportunity may offer these entrants additional revenue streams, a chance to innovate, and a potential for new growth verticals.

Further, these entrants are bringing their expertise, talent and established track records of success to the cannabis industry. We have already witnessed the changing of the garden when it comes to founder-led cannabis companies and we think this trend will accelerate as we see new players coming into the industry.

With more sophisticated entrepreneurs, and capital providers entering the space, we think credibility and trust is on the rise and we believe it will fuel even greater growth in the industry. As companies grow, so too does the need for additional capital.

We have experienced an increase in companies approaching us for investment and while we are evaluating numerous potential opportunities, we do so keeping in mind several important factors. The first being value creation for our shareholders.

With every instrument we make, we consider the roadmap to value creation how along the way we can help our portfolio companies scale, build revenue and generate profitability. The second is our goal to build and strengthen our robust portfolio of mutually beneficial companies and we aim to do this by fostering collaboration opportunities within our portfolio and with Canopy Growth.

And third, we develop a time horizon for each of our investments with the end goal being a monetization event that could be in the form of dividends, royalty payments, or liquidation through M&A or an IPO. We think a thesis-driven approach is determined to where we want to focus our business development efforts.

Taking into account our own domain expertise and where we see the best opportunities for growth and portfolio collaboration. One of our strengths today is our cash balance, as Eddie will discuss in a few minutes and we will continue to be diligent in a way we deploy it.

My last thought on this theme of growth is that inevitably, with growth comes expectation of profitability. In the cannabis sector, that path has developed more so even than the markets have anticipated.

We think it is 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 potential of what we see as a significant global growth opportunity. It seems unreasonable that profitability was expected this early on in the growth cycle of the industry.

Look at Uber or Facebook as examples where continued growth and market domination has been the focus rather than profitability. Nowhere is a frustration at the slower than expected pace of development more evident than the public capital markets where midst expectations that contributed to volatility.

But we believe that these are short-term headwinds and there is an underlying positive momentum across the sector globally that will help propel disciplined companies focus on fundamentals and achieving their growth strategies. Our perspective is to look beyond the short-term gains and focus on the long-term gains.

Turning to our corporate highlights for the quarter. In early October, we provided TerrAscend Canada with a $13.2 million loan.

We have been impressed with TerrAscend Canada’s focus and drive to meet evolving consumer demand in Canada and Europe evidenced by the 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.

Subsequent to the quarter, we made some amendments to the debt that we’ll detail later in the call. We announced a strategic alliance with Kindred Partners, a specialty cannabis brokerage and services company and a wholly-owned subsidiary of Breakthru Beverage Group, one of the largest distributors of spirit alcohol in North America.

We believe distribution is a key ingredient for success as the industry matures, 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 intelligence infrastructure and broker distribution via Kindred’s national sales platform.

We also strengthened our strategic advisory board, made up of respected business leaders in the field of tech, venture capital, consumer package goods and the highly regulated tobacco industry, that provides guidance, and insights to our executive team. Julian Burzynski, Regional President of Breakthru Beverage Canada joined in October.

Julian has insight 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. In November, we announced that Thirty Five Ventures, the business owned by NBA star Kevin Durant and sports executive Rich Kleiman, who was also added as a Strategic Advisor.

We are excited to collaborate with Thirty Five Ventures leveraging the group’s experience and brand development, marketing, and its sports and entertainment industries. Finally, we advanced $13.5 million to Tweed Tree Lot pursuant to the terms of a repayable debenture we had with them.

Tweed Tree Lot is Canopy Growth Fredericton based production distribution facility. The principal amount of the repayable debenture will immediately set-off against the purchase price of a royalty interest that provides us with a minimum annual payment of approximately $2.9 million per year for 25 years and now represents cash flow for Rivers going forward.

Moving on to our existing portfolio, several of our Canadian licensed producers in our portfolio received amendment approval from Health Canada during the quarter. TerrAscend Canada was given the green light to expand its Mississauga, Ontario facility to include a commercial kitchen, formulation rooms, testing lab, space for breeding and research and development, and increased primary and secondary packaging capacity.

TerrAscend also received a license amendment allowing it to process and sell cannabis edibles, extracts, and topical. JWC received license amendments allowing for cannabis production in four new flowering rooms and the processing and sale of cannabis edibles, extracts, and topicals at its second facility.

JWC launched four new strains in response to patient and consumers’ demands for strains featuring higher THC levels. It hopes to reach additional consumers through its expanded compassionate care program and through the planned opening of a farmgate store.

Finally, Radicle received approval to develop and sell a range of new cannabis oil and concentrate products. We believe that Radicle’s focus on the high quality craft cultivation segment will result in a loyal customer following at the retail level.

Moving across the value chains of the consumer products vertical, our portfolio company High Beauty announced strong sales growth driven by its growing list of retail partners. We have always believed that High Beauty has a competitive advantage over other cannabis beauty brands in the global beauty market due to two factors.

First its distribution and retail partnerships are strong. And include retailers in the U.S., Canada and Europe, such as Sephora, Macy’s, Urban Outfitters, Anthropologie, Shoppers Drug Mart, Hudson's Bay, Indigo, Amazon and Douglas.

Second, High Beauty’s formulation uses cannabis sativa seed extracts making it free of cycle active cannabinoids and legal in many markets around the world even where cannabis is still prohibited. We made an additional $1 million investment in High Beauty last quarter to support the growth.

Hence that platform was bolstered by the launch of two new products designed to help find, understand the cadence of the recreational cannabis market. Retail market benchmark enables cannabis retailers to keep track of their sales metrics and compare their metrics to the overall marketplace.

Demand planning is a specific add-on to help retailers plan when they need to stock up on certain types of inventory. Demand planning also provides valuable information to producers to help them identify when they need to ramp up production or restock at retail.

We invested in Headset because we think that data is an integral resource in the cannabis industry going forward, like it is in traditional consumer packaged goods. And that Headset is focused on providing reliable real-time data from multiple jurisdictions positions them well to realize the value of that resource.

At the retail level, we saw YSS continue to gain traction at west. The retail chain opened its 13th and 14th locations and acquired its first brick and mortar store in Saskatchewan.

I will touch upon the company’s expansion plans for Ontario a little later in this call. In sum, there was good progress made through our Canopy Rivers portfolio during our third quarter and we are already seeing this positive momentum continue into Q4.

I will now hand it over to 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 the 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.

Turning to our financial results for the quarter, I will begin with our operating results. Total operating income was $1.8 million for the quarter, compared to $8.4 million for the same period last year.

This decrease year-over-year primarily relates to the swing in the net change in the fair value of financial assets at fair value through profit or loss, which I will discuss in more detail momentarily. Royalty, interest and lease income increased to $5 million for the quarter, compared to $1.3 million for the same period last year.

Royalty, interest and lease income is primarily generated from the company’s royalty interest in Agripharm JWC, Radicle and Tweed Tree Lot, as well as the company’s shareholder loan to PharmHouse. As Narbé mentioned, during the quarter, we advanced $13.5 million to Tweed Tree Lot pursuant to the terms of our previously announced repayable debenture and royalty agreement.

Going forward, payments from Tweed Tree Lot to Canopy Rivers will include royalty payments on production, which are subject to an annual minimum payment of approximately $2.9 million per year for the next 25 years. Our share of loss from equity method investees was relatively flat year-over-year coming in at $1.3 million for the quarter, which is approximately the same amount that was recognized during the same period last year.

Our equity method investees include PharmHouse, Canapar and Herbert, which are pre-revenue companies. We know that as per interaction available under the relevant accounting standard, we pick up our share of profit or loss one quarter in arrears, meaning that 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 September 30, 2019.

The net change in fair value of financial assets at fair value through profit or loss was a decrease of $1.9 million for the quarter, compared with a net increase of $8.4 million for the same period last year. There are several financial instruments in our portfolios that are classified as financial assets at fair value through profit or loss.

A detailed breakdown in the fair value changes in these instruments is included in Note 10 to our Interim Consolidated Financial Statement. The largest drivers of the net decrease in fair value for the quarter are a $1.2 million decrease in the fair value of the Agripharm royalty interest, offset by a corresponding recognition of royalty income, a $1 million decrease in the fair value of the TerrAscend Canada investment, which include the attached warrants in TerrAscend Corporation, and a $0.4 million decrease in the fair value of the Civilized venture investment.

As previously discussed, we split operating expenses into two grouping. 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 relates to share-based compensation. Total operating expenses decreased to $3.9 million for the quarter, compared to $6.6 million for the same period last year, primarily relating to a lower share-based compensation expense.

With respect to our cash-based operating expenses, consulting and professional fees increased to $0.9 million for the quarter, compared to $0.8 million for the same period last year and general and administrative expenses increased to $1.8 million for the quarter, compared to $0.7 million for the same period last year. Cash-based operating expenses for the quarter represented $10.7 million on an annualized basis.

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 $2.7 million or $0.01 per share, compared to net income of $1.4 million or $0.01 per share for the same period last year. Below the net loss line, we capture the impact of net changes in fair value of 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 in instruments of investees that are publicly traded, including TerrAscend, JWC and YSS. As you are aware, market prices to publicly traded cannabis companies continue to experience significant pressure from October 1 to December 31.

As a result, we recorded a fair value decrease of $25.4 million during the quarter reflecting the required mark-to-market of these three investments as share price volatility for public companies persists, we expect that we will continue to see significant movement in comprehensive income or loss quarter-over-quarter. This line item also includes the change in fair value of our investment in the common shares at Vert Mirabel, which decreased by $15.6 million during the quarter.

This decrease was primarily driven by a decrease in the forecast of our wholesale cannabis market prices, which impacts the projected revenue generated from the off-take agreements in Canopy Growth and Vert Mirabel. In addition to our common equity interest in Vert Mirabel, we also own preferred shares that are accounted for as financial assets at 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 company’s next fiscal year.

On a net of tax basis, the decrease in the fair value of financial assets at fair value through other comprehensive income was $37.2 million for the quarter and our total comprehensive loss was $39.9 million. Shifting to our cash flow activity, which is reported in our financial statements on a nine-month basis, net cash used in operating activities was $7 million for the nine months ended December 31, 2019.

Net cash used in investing activities was $48.5 million for the nine months ended December 31, 2019. This includes investments in four new portfolio companies, High Beauty, BioLumic, ZeaKal and TerrAscend Canada.

We also advanced funds by way of pre-existing agreements and exercise of warrants and a new promissory note to existing portfolio companies, Agripharm, Greenhouse Juice, Tweed Tree Lot, JWC and PharmHouse. We also advanced deposits to Kindred Partners pursuant to our strategic alliance.

We ended the quarter with $49.7 million of cash on our statement of financial position. We will continue to be diligent about the way we deploy capital, keeping shareholder value creation as our guiding principle.

At a time when capital market conditions for cannabis companies 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 December 31, 2019 amounted to $337.2 million.

Aside from the $49.7 million cash balance, the significant components of total assets included, the shareholder loan and promissory note to PharmHouse, the book value of $41.5 million, investments in equity method investees with a book value of $64.7 million, investments in financial assets at fair value through profit or loss, the book value of $95.5 million, and investments in financial assets at fair value through other comprehensive income with a book value of $71.2 million. Total liabilities as of December 31, 2019 amounted to $2.2 million.

We currently have no interest-bearing debt. As a result of prudent cash management, we are fortunate to be in a position where we are able to use our cash to make investments and intend to increase shareholder value rather than service debt.

Finally, total shareholders’ equity, or the net book value of assets for accounting purposes as at December 31, 2019 amounted to $335.1 million. Based on a closing share price of $1.19 on February 13, the implied basic market capitalization of Canopy Rivers is approximately $228.7 million, representing a price to December 31st book value of approximately 0.7x.

Moving on to our financial outlook. We previously provided calendar year 2020 attributable EBITDA guidance relating to PharmHouse and Vert Mirabel in the range of $85 million to $100 million representing our estimated proportionate EBITDA based on our ownership percentages in each of these entities, as well as interest income on our shareholder loan to PharmHouse, and dividend yield on our preferred share investment in Vert Mirabel.

Since that time, multiple factors have emerged that will likely impede our ability to achieve this target including unanticipated delays in licensing, reform views on the operational ramp up period requires a large-scale cannabis greenhouses and a general decline in wholesale cannabis prices. After consideration of these factors, and due to the uncertainty inherent in forecasting operating results given the current state of the Canadian cannabis industry, we’ve made the difficult decision to withdraw our estimated calendar year 2020 attributable EBITDA guidance.

In the near-term, we expect that our net income or loss and comprehensive income or loss will continue to be largely driven by net changes in the fair value of financial assets at fair value to profit or loss or financial assets at fair value through other comprehensive income. In turn, we expect that these net changes will continue to be largely dependent upon the regulatory, business and capital markets environment in the cannabis industry, which environments will in turn continue to inform our investment strategy.

Given the inherent volatility evaluations of investments in the global cannabis sector, we anticipate continued volatility in our financial results. While we anticipate that in the long-term, our share of income or loss from equity method investees will have a more significant impact in our financial results.

We do not anticipate it to happen over the next few fiscal quarters. I will now turn it back over to Narbé for commentary on the recent developments from Canopy Rivers and our portfolio of companies.

Thank you, Eddie. Looking to the end of the quarter, we have continued to execute on our corporate strategy and we have several updates from our – in that regard.

As mentioned earlier, we provided a loan to TerrAscend Canada during the third quarter, following subsequent discussions with the TSX, TerrAscend, TerrAscend Canada, and Canopy Rivers, we agreed to amend certain terms of the loan and Canopy Rivers and TerrAscend Canada entered into a new $13.2 million loan agreement. Interest on the principal amount advance accrues at a rate of 6% per annum and the loan has a maturity date of October 2, 2024.

TerrAscend also issued Canopy Rivers additional common share purchase warrants. We recently made an additional investment in JWC for $500,000 as we continue to support their strategic vision and operational plans.

At the 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 Health Canada is actively reviewing PharmHouse’s application to have the remainder of its facility license.

PharmHouse plans to ramp up its entire 1.3 million square foot greenhouse in the coming months. We believe PharmHouse will generate revenue within a few months of receiving its license amendment for the entire greenhouse.

We do appreciate the concerns about oversupply and what that means in terms of downward pressure on cannabis pricing. However, as this does not change our investment thesis in PharmHouse, the cannabis industry has seen a lot of capital invested in square footage and production capacity.

In our view, success won’t be determined by who is selling cannabis first, instead, what we achieved by those who can produce high quality cannabis at the lowest cost possible and run a commercial scale operation to bring a consistent product to market. Our joint venture partners have been successfully growing, distributing and marketing produce for decades.

While there may be certain differences between cultivating cannabis and cultivating vegetables, two of the things that are common between the two as the need for this operational excellence and the ability to do it at scale. We believe creating efficiency and delivering consistency will win in a hypercompetitive environment.

We believe that PharmHouse will be successful in the pursuit of low-cost, large-scale, high-quality production. We will continue to update investors on PharmHouse’s continued progress in the coming quarters.

Moving to Vert Mirabel, the entire 700,000 square foot facility is ramped up with all flowering zones being fully functional and in production. The team at Vert Mirabel originally growers of organic pink tomatoes, which is a particularly challenging vegetable to cultivate.

Applying their skills to cannabis, this team has to calculate which quality targets in their initial harvest. As a reminder, 100% of the off-take from Vert Mirabel is currently being sold to canopy growers for distribution in Quebec and across the country.

Finally, Canapar, our European investment continues to make good headways. The company successfully installed its extraction machinery and is now working on commissioning their equipment in preparation for extraction.

The hemp purchased from farmers on a wholesale basis has been harvested and – is being stored at Canapar’s facility. We believe there continues to be a strong for made in EU CBD and CBD derivatives in Europe.

Canapar also received Senate of the Republic of Italy’s 100 National Ambassadors Award. The award is given to companies whose work positively impacts the socioeconomic development of the communities in which they operate.

Italy has recently passed regulations that are favorable to hemp and CBD making it one of the most CBD-friendly countries in the EU. We will continue to update you on Canapar as the year progresses.

In our other public and private venture investments, there have been several positive developments recently. BioLumic received approval from the New Zealand Ministry of Health to apply its proprietary UV light technology to medical candidates.

Their approach has been successful in increasing yields in certain crops such as strawberries by up to 60%. BioLumic hopes that is research will show increased yields in the cannabis plant as well.

They are kick starting their research by partnering with two producers including our own portfolio company, JWC. With each company committed to advance cultivation techniques, we believe this collaboration will be beneficial to the overall strategic expansion plans of both JWC and BioLumic.

As I mentioned earlier, YSS announced its plans to expand into Ontario. The recently released Ontario framework proposes cannabis retail will transition from a current lottery-based system to an open market with approximately 20 new retail store authorizations expected per month starting in April of 2020.

YSS has applied for its retail operating license in Ontario. With 70 stores in Western Canada, we believe they are well positioned to leverage their experience to successfully enter into market.

Finally, TerrAscend made progress in the U.S. announcing that its New Jersey subsidiary was issued a permit to cultivate medical cannabis by the New Jersey Department of Health.

Also, TerrAscend Utah subsidiary was awarded approval for a medical cannabis processor license by the Utah Department of Agriculture and Food. Both of these announcements demonstrate TerrAscend’s continued pursuit of the U.S.

market. At this juncture we are unable to invest in plant touching opportunities in the U.S.

That said, we have been able to find ways to gain exposure to the U.S. market.

We think TerrAscend is a good example of the type of unique structures we can employ to accelerate the path to value creation for our shareholders. From a venture capital standpoint, we have 19 companies in our portfolio across a spectrum of stages within each of their lifecycles.

Our platform provides public market investors with access to diverse structures and investment opportunities including production-linked royalty and debt and preferring any common equity. We also had diverse cannabis-related geographic exposure in Canada, the U.S., Europe and New Zealand and have our eye on some new jurisdictions that are starting to come online.

From an investment strategy perspective, we 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 segments and sub-segments of the cannabis 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 dollar flows from one portfolio 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’s strengths as they continue to grow. When looking at future opportunities, we are focusing at 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 – the value and the creation is stable in every product for the pharmaceutical market. The third area of focus is within the plant science 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 for innovators in this space.

Fourth, our international opportunities. As new markets around the world adopts 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 for development. We have seen a lot of inefficiency in the way the cannabis industry has evolved.

Finding solutions based in technology and using data to resolve pain points and push the industry forward as an area we want to continue to support with our tactical. As discussed earlier, the idea of growth is rooted in every decision we make.

Whether it is in our optimism for the overall potential of the cannabis industry, the expectations we have for our portfolio companies, our own growth plan using our thesis-driven approach in investing and our high-performance culture in teams. We plan to continue to capitalize on opportunities that we believe will drive value for our shareholders as we all look for further growth in the early days of this budding industry.

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

Operator, please begin the question period.

Hey guys. It’s Will on here for Graeme.

Thanks for taking my questions. I was just wondering, so last quarter, you guys had stated that, you expected to receive $15 million back from Vert Mirabel and then pay dividends with like – and with interest that was expected to be approximately $20 million, kind of you guys were saying that you were expecting that, I believe in calendar Q1 this year, I was just wondering if you guys have received this payment yet?

And if not is there an updated timeline on that?

Yes, thanks for the question, Will. It’s Eddie here.

So, the timing of the redemption of those preferred shares is dependent upon the cash flow generation at Vert Mirabel and one of the things that we are referencing in the prepared remarks included the fact that the forecast for Vert Mirabel has decreased this period as a result of the decline in wholesale prices for cannabis. And those wholesale prices for cannabis to market prices would influence the price of Canopy Growth pace at Vert Mirabel pursuing to that off-take agreement.

So, because of the lower cash flow profile, the timing of that redemption has now gone out into the next fiscal year for us, for fiscal year 2021. Should there be variability in market prices going forward on the upside, that could accelerate that timeline.

But those preferred shares will continue to accumulate dividends at that 18% rate. So that will be taken through into account in the final amount that is redeemed and we do anticipate that to happen in the next fiscal year.

Perfect. Perfect.

Thank you. And then, just one last question, I think, towards the end of last year, we saw an article that that New Frontier Data was trying to acquire Civilized.

I was just wondering if you guys could provide on that investment and just kind of comment on whether or not a potential sale has or will occur in the future.

The conversation between both parties continues, just similar to what it was publicly released a few months ago. There has – we don’t have any new updates beyond that.

The merger between or the acquisition between New Frontier Data and Civilized is being made with a thesis of developing a fully holistic technology platform for the cannabis space. So we continue to monitor the progress there and we will provide with you with updates as they come about.

Perfect. Thank you for that.

Thanks, good morning. I also wanted to ask about the guidance removal and on this one more I suppose PharmHouse, you referenced the reform views on ramping up operations.

What are those new views? And I guess, what led to that change?

Yes, thanks for the question, John. So, and I guess, I will start it by saying it’s certainly a decision we didn’t take lightly and in the course of making that decision, one of the – two assets that formed or influenced the view on what distributable EBITDA would be or Vert Mirabel and PharmHouse and again, just to reiterate on the Vert Mirabel side, it’s the compression in market prices that influences the cash flow profile of that asset.

With PharmHouse, candidly, we’ve been frustrated with the timeline of receiving the license amendment. Obviously, that’s been something – that’s been in the works since we had original cultivation license for the first 190,000 square feet was received in July of last year.

We had originally hoped that that license amendment was something that would come through towards the end of calendar year 2019. And obviously, we are about a month and a half into the first calendar quarter of this year and haven’t received the license yet.

So that pushed out the timeline for when we anticipate initial revenue generation at PharmHouse. This is a rather large facility.

It is 1 million square feet that will be coming online. And so, in reviewing the ability of that asset to ramp up to full capacity, we come to the conclusion that it will take a little bit longer than originally anticipated and that’s which is some of the cash flows beyond the calendar year 2020 that we originally provided going forward.

Okay. That’s helpful.

Thanks. And I guess, sticking with that topic, I appreciate the commentary on pricing dynamics at Mirabel.

Can you remind us on PharmHouse how does the pricing works for those off-takes? Are they market price?

Or was there a fixed price that was negotiated at certain levels, not looking for exact numbers, but just trying to get an idea if its market or if it was previously fixed?

Yes, with the PharmHouse off-take agreements with both Canopy Growth and TerrAscend, those are both based on fixed prices.

Okay. That’s helpful.

And then, so sticking with Mirabel, I mean, this asset has been up and running for a while now. I guess, what’s the reluctance on disclosing its revenue or adjusted EBITDA as some others do with JV partners?

Is there something contractual? Or is it just you’d rather not share that with competitors?

No, it’s not necessarily anything that’s contractual an issue. I think, our intention had been at the time that we had originally released EBITDA guidance at the beginning or around the beginning of 2019, we had a view towards being able to provide additional disclosure on those assets that would be contributing to that attributable EBITDA when they came online and part of the view there was that we would start providing that sometime in the first calendar half of 2020.

So, we are continuing to look at what the right timing is for providing that disclosure. But as you alluded to John, Vert Mirabel has been operating successfully for a while now and it’s something that we are going to look to be able to provide investors with in the near-term.

Okay. Thanks and if I can squeeze in one last one.

On Canapar, that sounds like there is some encouraging signs in Italy. What do you think is a reasonable timeline for that asset to be producing revenues as it likely to be in calendar 2020?

Thanks.

Yes, so, definitely encouraging results coming out of Italy and we are very bullish on how Italy fits into the EU market and wherever Canapar’s position is there. At this point in time, like, the guidance that – we are not providing any guidance on Canapar in terms of when the revenue will come about.

But as we get more of an understanding of how our portfolio projects into fiscal year 2021, we will provide the street with guidance on that.

Okay. Understood.

Thank you very much.

Hey guys. I just had a quick follow-up question here.

I was just wondering, in relation to Canapar, I see that you guys specifically noted that that you are pulling the guidance of $20 million to $30 million attributable to EBITDA for them. I was just wondering is that included in the $85 million to $100 million that you had pulled for PharmHouse and Vert?

Thank you.

Yes. Hey Will.

No, actually, that guidance adjustment actually took place a few quarters ago. We include the description of it in our MD&A since the MD&A does encompass the entire period from March 31 of 2019.

But that is – that’s legacy information that was adjusted in the second calendar quarter of 2019.

Perfect. Thanks for that.

Hi guys. Thanks for taking my call here.

Just another follow-up on PharmHouse here. I would just like to get a bit of information on some of the supply agreements that were previously announced.

So I believe there were some minimums baked into these contracts. Maybe if you guys could just provide a bit of color on these minimums in this oversupply environment that we are currently in?

Yes, sure, thanks for the question, Devin. So the original supply contract with Canopy Growth in TerrAscend were a little bit different in nature of the canopy growth contract.

It referenced an annual minimum which was disclosed in the press release that we put out at the time that that contract was announced. The TerrAscend contract did not have a specific annual minimum in terms of kilograms produced.

But both contracts were anchored to work a certain percentage of dedicated flowering space of production capacity of that asset. So, as PharmHouse ramps over the course of the year, and again, that is dependent upon the exact timing of the receipt of the license amendment, we will make sure that the dedicated flowering space related to those contracts is certainly what would get prioritized.

The other 50% of production capacity at that asset could be used for a variety of purposes. One would be to potentially enter into off-take agreements with other partners.

And then the other purpose could be to produce PharmHouse branded products for sales directly to potential distributors or retail entities where that’s allowed. So, those are certainly the plans for how to use the overall productive capacity at PharmHouse.

But if the initial 50% that’s being focused on that is meant to service those off-take contracts with Canopy Growth and TerrAscend.

Okay. Yes.

Now that makes sense. So, the 25,000 kilograms minimum to Canopy Growth, is there any penalty if they don’t take that amount?

Like, obviously, like you guys are partners in this business and are looking to work together for the longer term. But what’s the – what’s kind of the confidence in that number right now?

The confidence in the number from the perspective of production or from the perspective of the counterparty paying for the production?

The counterparty paying for the 25,000 kilos?

Yes, so, I mean, it is structured as a take or pay obviously. So, the counterparty to the agreement being Canopy Growth and the case won’t be required to purchase the production that’s produced from that 20% of dedicated farm space and as we look to that contractual minimum, that’s 25,000 kilograms.

So, the parties are – sorry, the individual entities that are parties of the agreement and will have to honor their commitments out of that agreement and that includes the annual production minimum.

Okay. Perfect.

And just quickly, lastly here. Could you just provide with us the unencumbered cash position as of today?

Is that’s available?

Yes. So, we disclose in the subsequent events in the financial statements and MD&A about $1.5 million of incremental investing cash flows after period end.

So, when you take that off of the $49.7 million cash balance we reported at December 31st, it was around $48 million. We do disclose in the financial statements as well as some commitments to existing portfolio of companies.

The primary ones being the more on Greenhouse Juice, which is – has a forced exercise upon the achievement of certain revenue targets and that’s a $3 million warrant. And we also had certain obligations that came through partners.

Again those are referenced in the financial statements and the MD&A. Beyond that, there are no specific contractual commitments to any other of the portfolio companies.

So you can think as the resulting base as dry powder. Again, we do want to be good partners with the companies that we’ve invested in and you’ve seen over the last six months, we have deployed about $4.5 million in existing portfolio companies.

So we are continuing to evaluate whether there is any needs at the portfolio company level for additional flows. But beyond those commitments that are disclosed in the financial statements and the MD&A.

That $48 million can be put for the writing purposes.

Okay. Perfect.

Thank you for that.

Great. Thanks for joining the call and we look forward to giving you an update next quarter.