RIV Capital Inc.

Good morning everyone. Thank you for joining us today and for your interest in RIV Capital.

This morning, we reported our financial results for the quarter ended June 30, 2021. I am joined this morning by Eddie Lucarelli, Chief Financial Officer, and Matt Mundy, Chief Strategy Officer and General Counsel.

I want to start this morning’s call by taking you through some of our thinking over the past several months and what you can expect from us next. I will then ask Matt to expand on our plans before handing it over to Eddie to take you through our Q1 financials.

I will then conclude today’s call and we will have a brief Q&A period. I want to start today’s call by thanking you for your patience over the past quarter.

Our first quarter was focused on tying up loose ends at FarmHouse and bringing our U.S. strategy to life.

We know that this period, especially coming off of the excitement of closing the Canopy Growth transaction in February, generated a lot of questions and considerable anticipation about what our future holds. Our goal to pivot our business to the U.S.

market was intentionally broad to ensure we could properly explore the opportunities that exist across this sector. We have analyzed the market state by state to determine the best path forward and we continue to be engaged in discussions with a number of companies in these markets.

These discussions have revolved around a number of different deal structures with the end goal of always being able to create sustainable, long term value for our shareholders. It was important to us from the outset of our pivot into the U.S.

to differentiate our platform in a unique way, and we sought to create that differentiation as we began our pivot in earnest. As such, while our exploration of opportunities in the U.S.

progressed through spring and summer, so did our conversations with the team at ScottsMiracle-Gro. After being introduced to them last year, we recognized this could be a critical relationship moving forward in our pursuit of creating a truly differentiated U.S.

cannabis company. This became especially evident as our U.S.

ambitions came into focus and we saw the parallels between how our respective teams viewed the opportunities in the U.S. market.

With over six years of experience as a key ancillary provider in the U.S. cannabis industry via its subsidiary, Hawthorne Gardening Company, North America’s leader in indoor and hydroponic growing supplies, ScottsMiracle-Gro has significant knowledge and expertise in the U.S.

cannabis sector. Since its inception, Hawthorne Gardening Company has grown into one of the largest cannabis focused companies in the world on a revenue basis and has gathered extensive insights and knowledge and built significant expertise along the way.

Opportunities to work with a team that has built a company like Hawthorne with ambitions to do much more do not come along every day. Our discussions with Scotts ultimately culminated in what we announced last week, a USD $150 million convertible debt investment in RIV Capital by the Hawthorne Collective, a newly formed cannabis focused subsidiary of Scotts.

Scotts established the Hawthorne Collective to strategically expand their scope in the cannabis industry and through the investment in RIV Capital will become the Hawthorne Collective’s preferred vehicle for transactions not under the purview of Hawthorne Gardening Company. On top of our pipeline, this will provide RIV Capital with a first look at a variety of other opportunities in the U.S.

cannabis sector. With Scotts’ reputation in the sector, we expect that our position as a preferred vehicle will accelerate the success of our U.S.

strategy. This transaction is one of a kind.

While many companies in this sector struggle to find mutually beneficial financing, the convertible debt investment received from Scotts has a 0.7% effective interest rate over its entire lifespan, decreasing from 2% for the first two years to zero percent thereafter. This will provide us with additional capital and a strong balance sheet of approximately $400 million of cash on a pro forma basis to execute on our strategy going forward.

Even though there are restrictions tied to how we can use the case, we believe that there remains ample legal uses that will continue to contribute to our growth strategy. I will now turn it over to our Chief Strategy Officer, Matt, to talk more about that strategy.

Thanks Narbé, and good morning everyone. First off, I’d like to reiterate Narbé’s excitement for the Hawthorne Collective’s strategic investment in RIV Capital.

As we enter the U.S. market, one of our goals has been to create a differentiated platform, and we believe that this transaction offers that possibility.

An investment from the Hawthorne Collective as a subsidiary of one of the largest and most successful companies serving both the CPG and cannabis sectors enables us to leverage our cannabis domain knowledge with ScottsMiracle-Gro’s expertise and operations, R&D, sales and distribution to create a truly unique value proposition in the market. On top of the unique benefits that we believe this platform offers from a structural and skill set perspective, I would also like to highlight the three new board members nominated by Scotts.

First is Chris Hagedorn, who currently serves as Executive Vice President of ScottsMiracle-Gro and Division President of Hawthorne Gardening. He has led Hawthorne Gardening for six years and has been instrumental to its success since joining in October 2014.

We also look forward to welcoming Mark Sims, who leads ScottsMiracle-Gro’s corporate strategy department, providing comprehensive support for strategic intelligence, mergers and acquisitions, strategic planning, and internal consulting. Finally, we will also welcome Gary Vaynerchuk to the board.

Gary is an established and successful entrepreneur who, through VaynerX and Vayner Media, assists Fortune 1000 brands leverage emerging platforms to attain and retain consumer attention. He is also an accomplished investor with a track record of guiding businesses to successful .

We believe that expanding the board will introduce new insights and experience to RIV Capital and bolster our governance as we launch into a new market. The breadth of expertise brought by Chris, Mark and Gary will be integral to progressing our strategy.

With respect to our go-forward strategy, it remains the same as the one we introduced earlier this year: to acquire, invest in, launch and/or develop U.S. assets to build a multi-state operating and brand platform.

In terms of our strategic focus, we continue to primarily target limited license states where we can focus on license holders in these states and inject capital to ensure they can scale and win in their respective markets over the coming years. Geographically, we’re keeping an open mind but continue to focus our efforts on more populous states in the northeast where there is still considerable opportunity for operators to attract a loyal customer base and capture significant market share.

This isn’t to say that we aren’t also looking are more mature markets as well, but limited license states remain a priority for us due to their inherently attractive supply-demand dynamics. Following an initial transaction, we plan to expand our geographic footprint and our strategic scope through follow-on transactions with operators and brands.

What we will look for in these acquisitions remains a common question. While we look at a variety of factors in assessing M&A opportunities, in particular we look at the four following elements.

First, we look at geographic presence. As I mentioned before, we are looking at companies operating in strategically attractive geographies with regulatory environments and total addressable markets that provide the groundwork for a solid return on investment in the years ahead.

Second, we look at the quality of the management team. We want to be confident that the management team can scale and build market share while RIV also continues to focus on expanding the strategic and geographic scope of the platform.

Third, we look at the future prospects of the opportunity. In such a dynamic and fast moving industry, it is important that the companies we look at be flexible, adaptable and ready to pivot as the industry expands and changes over the coming years.

Accordingly, we will be focused on macro and micro market trends, both near term and long term, and how those will impact our acquisition thesis. Finally, we are laser focused on the economics of the opportunity.

Whether opportunities are earlier stage or more mature, the economics of any potential acquisition and how those economics translate into delivering value to our shareholders and key stakeholders will be front of mind. The last point I want to touch on is the timing of the U.S.

transaction. We continue to progress our strategy with respect to an initial transaction and, further to that, we expect to announce a deal before the end of this calendar year.

I’ll now hand it over to Eddie to discuss our first quarter financial results.

Thank you Matt, and thank you again to everyone who’s dialed into the call this morning. Today I will report on our financial results for the quarter ended June 30, which represents the first quarter of our fiscal year ending March 31, 2022.

Before I review our operating results in a typical fashion, I’d like to highlight that there was one item this period that had an outsized impact on the financial results we reported today, and that was our disposition of the Canopy Growth shares. As you will recall, the consideration we received pursuant to our milestone transaction with Canopy Growth included approximately 3.6 million shares of Canopy Growth.

One of our primary objectives during this quarter was to optimize our balance sheet for our strategic shift to the U.S., and monetizing those Canopy Growth shares was a key part of that optimization. As we’ve previously disclosed, between April 1 and June 2 we sold all of our remaining Canopy Growth shares for total net proceeds of approximately $106.7 million.

Now, given that these Canopy Growth shares had a fair value on our March 31 statement of financial position of $143.9 million based on Canopy’s Growth March 31 share price, the disposition of these shares for the proceeds I just mentioned translated to a negative fair value change of $37.1 million during the quarter, which is presented on our statement of comprehensive loss. Excluding the impact of this item, we would not have reported a net loss for the period.

It is also worth noting that these Canopy Growth shares were disposed of at an average price that was below the tax basis of these shares. As such, we anticipate that the disposition of these shares generated a capital loss that we can use to either reduce taxable income in the current taxation year or carry back to claim a refund in expected taxes paid for historical taxation years.

This is represented by the income tax receivable that we recognized on our June 30 statement of financial position. I will now summarize our operating results for the quarter.

Net operating loss before consideration of equity method investees and fair value changes was $2.1 million for the quarter compared to a nominal loss for the same period last year. Operating income before consideration of equity method investees and fair value changes was $0.4 million for the quarter compared to income of $2.7 million for the same period last year.

This includes the company’s royalty, interest and lease income net of the change in provision for such credit losses. On a gross basis, this income was primarily generated by the company’s royalty interest in Agripharm and NOYA, which was formerly known as Radical, secured debenture investment in Greenhouse Juice, and finance lease with Tweed Tree Lot, and was offset by an increase in the provision for expected credit losses on interest and royalty receivables of $0.1 million.

Operating expenses were $2.5 million for the quarter compared to $2.7 million for the same period last year. Excluding share-based compensation, operating expenses were $2.1 million for the quarter compared to $1.8 million for the same period last year.

Our share of loss from equity method investees was $0.3 million for the quarter compared to a share of loss of $4 million for the same period last year. The primary driver of the year-over-year decrease was that the comparative figure included our share of loss from FarmHouse which, as you know, was written off during our 2021 fiscal year.

Our remaining equity method investees include Greenhouse Juice, High Beauty, LeafLink International, and NOYA. As a reminder, pursuant to an election available under the relevant accounting standards, 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 reported for our quarter ended June 30 related to their financial results for their quarter ended March 31, adjusted for any significant events that occurred up to our reporting date.

The net change in fair value of financial assets with fair value through profit or loss was a decrease of $36.2 million for the quarter compared with an increase of $1.6 million for the same period last year. As I stated at the beginning of my remarks, the decrease in this quarter was primarily driven by a $37.1 million negative change in the fair value of the Canopy Growth shares that we held at March 31, which was realized upon our disposition of these shares during the quarter.

There are several financial instruments in our portfolio 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 7 to our consolidated financial statements, and descriptions of the related valuation methodologies and key inputs and assumptions are presented in Note 12.

I would like to provide a brief update on FarmHouse which includes some information that we’ve previously disclosed. As you know, in May, FarmHouse through its sale and investor solicitation process closed the sale of its greenhouse facility.

Concurrent with the closing of this sale, we made a $7.5 million payment to lenders of the FarmHouse credit facility, which is presented in the Investing section of our statement of cash flows for the quarter. The net proceeds received from the FarmHouse sale when combined with this $7.5 million payment and the $25 million payment that we’d previously disclosed from March of this year satisfied all obligations outstanding pursuant to the FarmHouse credit facility.

The FarmHouse credit facility was terminated and RIV Capital is now entitled to the cash available for distribution upon the termination of FarmHouse’s CCAA proceedings. As disclosed in Note 4 of our consolidated financial statement, we expect this distribution to be approximately $6.5 million and we expect to receive it in the coming weeks.

I will note that this expected distribution is recognized in our statement of financial position as at June 30 as a financial asset at fair value for profit or loss. During the quarter, we also completed the sale of the property we owned in Fredericton, New Brunswick to the lessee of that property, Tweed Tree Lot.

We received net proceeds of approximately $4 million from that sale and recognized the gain on disposition of $1.1 million. Income tax recovery was $4.9 million for the quarter compared to nominal income tax for the same period last year.

Income tax recovery for the quarter was driven mainly by a current income tax recovery of $6.8 million related to net capital losses and non-capital losses generated in the quarter, including from the disposition of the Canopy Growth shares at a price that was below their fair value from our previous reporting period. This current income tax recovery was partially offset by deferred income tax expense of $1.9 million related to the reversal of certain deductible temporary differences that we anticipated at the end of the last fiscal quarter.

After consideration of operating income, operating expenses, equity method investees, fair value changes, other gain and loss items, and income taxes, RIV Capital reported a net loss of $30.4 million for the quarter compared to a loss of $3.4 million for the same period last year. Below the net loss line, we captured the impact of net changes in fair value of financial assets at fair value through other comprehensive income, which is presented net of tax.

On a net of tax basis, the net change in fair value was a decrease of $0.5 million for the quarter compared to an increase of $10.7 million for the same period last year. Historically, this line item generated volatility in our financial results due to significant fair value changes in the tariffs on exchangeable shares and Vert Mirabel common shares, both of which were disposed during our last fiscal year.

A detailed breakdown of the fair value changes in our remaining instruments is included in Note 8 to our consolidated financial statements and descriptions of the related valuation methodologies and key inputs and assumptions are presented in Note 12. Overall, comprehensive loss for the quarter was $30.9 million, which compared to comprehensive income of $7.3 million for the same period last year.

Moving onto cash flows, cash used in operating activities was $20.2 million for the quarter compared to $0.8 million for the same period last year. The primary driver of the significant outflow this quarter was the $17.6 million corporate income tax payment we made during the quarter, which was primarily driven by the capital gains we realized in connection with our milestone transaction with Canopy Growth that closed during our taxation year ended March 31, 2021.

Excluding this one-time payment, net cash used in operating activities was $2.6 million for the quarter. Cash provided by investing activities was $104.8 million for the quarter compared to cash used in investment activities of $1.9 million for the same period last year.

The primary drivers of this net cash inflow were the dispositions of the Canopy Growth shares for $106.8 million, Nova Cannabis shares for $1.5 million, and New Brunswick property for $4 million, partially offset by the $7.5 million payment made to the lenders of the FarmHouse credit facility. Finally, total assets as at June 30 amounted to $283.1 million, which included $212.5 million of cash.

With minimal liabilities, net book value for accounting purposes was $281 million as at June 30, or approximately $1.97 per share outstanding as compared to our closing share price on August 13 of $1.53. I will now turn it back over to Narbé to conclude today’s call.

Thanks Eddie. I will now go over some corporate and portfolio updates for and subsequent to the quarter before beginning the Q&A period.

First, a couple of updates from the consumer product section of our portfolio. Greenhouse Juice announced a new retail location at stakt market in Toronto and began distribution its products at Costco locations in Manitoba, Saskatchewan, Alberta, and British Columbia.

Subsequent to quarter, Greenhouse announced a partnership with Too Good to Go to combat food waste. Overall, we’ve been thrilled to watch Greenhouse’s remarkable journey and growth from a regional brand to creating a national CPG presence amidst the pandemic.

Dynaleo continues to expand its product availability as well, launching their Sunshower and DynaThrive CBD brands in Alberta. In the previous quarter, Dynaleo had launched these products in British Columba, Ontario and Saskatchewan.

Dynaleo also completed an over-subscribed $9.7 million financing in Q1, and we’re excited to hear what’s next. Moving to the technology portion of our portfolio, Headset launched its Insights premium platform in Pennsylvania, marking the first time a full market read of consumer insights has been available for the state.

As part of this launch, Headset noted that Pennsylvania’s medical-only market brought in approximately USD $909 million between April 2020 and March 2021. Headset also released several reports highlighting trends and growth in the broader U.S.

market. In April, it projected that cannabis sales in the U.S.

will reach approximately USD $23 billion in 2022. These projections echo our own estimates for the U.S.

market and underscore that our strategic pivot is happening ahead of when a significant amount of value will be unlocked in the U.S. In the plant sciences part of the portfolio, ZeaKal released groundbreaking results from its trials applying its novel Photoseed trait to hemp.

Photoseed, a trait technology that increases the plant’s ability to capture carbon and sunlight, translating into additional energy and therefore better nutritional composition, increased oil composition in hemp biomass by up to 50% relative to controls. ZeaKal anticipates that Photoseed hemp could produce approximately 800 pounds of oil per acre, nearly triple that of soybeans, the largest oilseed crop in North America.

This new data validates our initial investment thesis that Photoseed could be transformational for the hemp sector and eventually the cannabis sector. I’d like to end today’s call by reiterating management’s excitement for the next phase of the company as we explore acquisition opportunities in the U.S.

market. With roughly $212 million in cash on our balance sheet and approximately $188 million expected upon close of the Scotts investment, we believe that we are in an optimal position to execute on our strategy.

We will also add expertise to our board that builds on the cannabis domain expertise our team has cultivated over the past several years, and we have a strong pipeline that we believe will result in a transaction that launches RIV into the U.S. and creates long term, sustainable value for our shareholders.

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

Operator, please begin the question period.

Hi, good morning, and thank you very much for taking my questions here. Very much appreciated the comments at the top of the call here with respect to granularity on the strategy for making an investment.

Wanted to follow up with that. Based on the comments you made on your last earnings call, you discussed having an eye to making investments for where the cannabis industry ultimately will be in the future, and I was curious with the drop of the draft legislation, the CAOA Schumer bill just a couple weeks back here, I was wondering how that came in relative to your expectations and whether you’ve looked at that draft language and that’s changed your investment thesis or some of the parameters that you’re assessing these various opportunities with.

Thank you very much.

Thanks for your question, Graeme. I do think that the draft legislation that came about was a strong marking of a potential catalyst that can change the way the U.S.

cannabis environment looks as it does right now. We do believe that although the draft legislation that did come out had a lot of promising notes that push for cannabis legislation across the U.S, these things do take time and it doesn’t happen overnight, and while the draft was helpful, we do think that the major catalysts for the U.S.

market will be what the states continue to do with cannabis, which is legalize it for medical and recreational use. These things, as you know, they are incremental in nature and not radical, so it will take time to work through the issues and work through the changes, but we are eager and anticipating that federal legalization is inevitable and will happen, but the question is when.

Okay, understood. Appreciate that, Narbé.

To follow up here, you mentioned that the target is to have a transaction identified here by the end of the year and announced. Can you discuss how the funnel has narrowed over the past couple months here now that the company’s reached a couple milestones with respect to bolstering its balance sheet and anticipating a switch on the exchange listing towards the end of the month here.

How has that funnel narrowed, and are there any sort of near term goals or timelines you’ve set out as you continue to narrow down that process there and ultimately pull the trigger on a transaction? Thank you very much.

Yes, I think it’s a great question, and what we can disclose is that our strategy is the same at this point in time. We have an extensive acquisition and deal pipeline with some near term prospects that we’ve been working on for some time, so we’ll continue to focus our efforts on those prospects and believe that this will contribute to building a leading multi-state operator.

Once more details are available, we’ll make sure to disclose them.

Okay, understood. Thanks for that.

Then just last one here with respect to the announced investment from Hawthorne, how does that change the potential size, scale or parameters in which you’re making these investment decisions based on the bolstered balance sheet, and then based on the other intangibles in terms of knowledge sharing, other synergies that you get from expertise from different board members? Just wondering how that impacts the investment process moving forward.

Thank you.

Yes, while we don’t have a specific transaction size that we’re looking at, we do believe that with this recent announcement, we do have a wide range of options available to us, given that we can both use our strong cash position and/or shares and currency for any of the acquisitions that we’re contemplating. In terms of our partnership moving forward, it does leverage our cannabis domain knowledge with Scotts’ expertise and operations, R&D, sales and distribution for having built a successful cannabis-related business in Hawthorne Gardening.

They do have a substantial network and relationships that we can leverage as we explore acquisition opportunities in the U.S. Our position as the Hawthorne Collective’s preferred vehicle for U.S.

investment will give us a first look at opportunities that aren’t currently under their purview at Hawthorne Gardening. To that end, we do expect that the relationship will be more active than you typically see between a debt investor and its investee; however, Scotts or the Hawthorne Collective will not have any day-to-day role in our operations or the operations of any of the companies that we invest in.

Okay, thank you very much for that. That’s it for me.

Thank you, good morning. I wanted to get a sense of the valuations you’re seeing in the private market versus the public.

Obviously public companies in the U.S. have seen declining valuations even amid increasing sales and profitability, so I’m curious is this what you’re also seeing on the private side, and can you just walk through some of the pros and cons of acquiring public versus private?

Thanks for your question, John. I do agree that we are seeing public company decline in terms of multiples and valuations across the sector, both in Canada and the U.S.

We typically do see private lag behind public whenever there is a decline, and it’s quite the opposite when there’s an increase, where the private starts to catch up very quickly. That said, there are considerable amounts of opportunities in this space that will be accretive to what the public companies trade at from an EBITDA and a revenue multiple perspective.

The multiples do range depending on what states you’re looking at, so there are some states that are highly competitive with a number of assets that are up for acquisition that might look for a lower multiple, and then there’s other states that have limited licenses, not many options that are out there for acquisition, and those transactions are companies that come at higher multiples. Then I guess if you blend them out across the U.S.

market, you would still see some accretive acquisition opportunities, many accretive acquisition opportunities across the U.S. cannabis market.

Okay, thanks. It does seem like there’s an increasing level of competition when it comes to buyers for U.S.

assets. Several large producers have publicly said they’re looking for increased exposure on the U.S.

side. I’m wondering, have you noticed this level of competition increase since you first started this process back in March?

Is this what you’re hearing from the targets you’re talking to? Just would like to get a sense of how you feel competition is faring on the M&A side.

Yes, I’d say over the last three years, we have noticed there has been a general increase in competition just across the board, not only for acquisitions and investments but just generally across companies, as this industry progresses into more of a mature state. However, on the U.S.

side we’re not seeing any of the discussion around some of the larger players, particularly on the Canadian side which has signaled that they have intentions to come into the U.S. The Canadian LPs looking for U.S.

assets comes as no surprise. It’s been in the news and discussed for years now; however, the potential to do a deal where you have such high growth in the U.S.

market and the potential for unlocking so much more value for a lot of these companies, to think that they would want to lock in at a certain price with an exotic structure, it does--we haven’t really seen many companies open to that or excited for that type of opportunity. What we like about our vehicle is that it’s simple.

We can invest directly into U.S. companies, we can acquire U.S.

companies without any exotic structures, so we’re excited for our strategy and we do think that we have a very unique opportunity here with the amount of cash we have on our balance sheet, as well as the ability to use shares as currency in the transaction.

Got it, thanks. One more on M&A, and then I want to ask a question on Hawthorne afterwards.

You initially had the timeline set of, I think you said six months from the Canopy deal closing - that would place it into September, and it’s not a meaningful extension of that deadline or expectation that you’re doing today, but I’m curious, is the reason for that extension, is it more that you have not seen the optimal quality of assets you’re looking for, or is it that terms are not quite to your liking at this point?

Thanks John, Matt here. I would say the slight pushing of that deadline is more so given the fact that obviously we’ve been, I think, refining and optimizing our platform with this Hawthorne investment, so we have seen a lot of good opportunities out there.

As mentioned, we are in discussions with a lot of really interesting targets. I think from our perspective on this initial transaction, we’re really happy to be in the situation we are and we really think that we’re creating a really unique and differentiated platform with this Hawthorne investment.

We just want to make sure that we have this initial transaction right and that we’re going to launch the platform in a way that’s best for shareholders and the longer term value creation for our shareholders. I wouldn’t say it’s relating to terms or not the right targets out there or anything like that, it’s just taking the right steps on our end and, as mentioned with this announcement with Hawthorne, really creating, I think, a unique and differentiated platform that I think sets us apart from a lot of the other players in the field right now.

Understood, and then last one from me on the board members that you’ve added through the Hawthorne deal, and in particular Gary Vaynerchuk, he’s somewhat of a unique presence in this space, certainly with some media pull. I’m wondering how did it come about that he got added to the board, what is it you feel that he brings to the table, how can he help you achieve M&A, any conversations you’ve had with him so far would be helpful.

Yes, I think that’s a great question. Gary Vaynerchuk is a very established, successful entrepreneur through what he’s done with VaynerX and Vayner Media.

He’s helped Fortune 1000 brands leverage platforms and build consumer attention as well, so with this--as being an accomplished investor with a track record of building businesses to successful exits, we’re really happy to have him on board. He did come as a Hawthorne or a ScottsMiracle-Gro nominee to our board, and we plan to use his guidance to not only bolster our governance but help us launch into a new market.

Okay, thank you very much.