RIV Capital Inc.

Before we start, please note that remarks on this conference call may contain forward-looking information within the meaning of applicable securities laws about RIV Capital, its investees and Etain, current and future plans, expectations, intentions, financial results, levels of activity, performance, goals or achievements or any other future events, trends or developments. To the extent any forward-looking information contained in the remarks constitutes financial outlook, this information may not be appropriate for any other purpose, and you should not place undue reliance on such financial outlook.

Forward-looking statements are made as of the date hereof based on information currently available to management and on estimates and assumptions based on factors that management believes are appropriate and reasonable in these circumstances. However, there can be no assurance that some 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. Financial outlooks are also based on assumptions and subject to various risks, and the company's actual financial position and results of operations may differ materially from management's current expectations.

As a result, RIV Capital 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 may be required by law.

RIV Capital undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. For additional information on these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in the company's financial results.

Press release dated March 1, 2023, and the risk factors referenced in the Q3 2023, MD&A and RIV Capital's annual information form.

In addition, this call may contain certain market and industry data obtained from various publicly available sources. Although the company believes that these independent sources are generally reliable, the accuracy and completeness of such information is not guaranteed and has not been verified due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and the limitations and uncertainty inherent in any statistical survey of market size, conditions and prospects.

The company does not make any representation as to the accuracy of such information. All dollar amounts expressed today, unless otherwise stated, are in U.S.

currency.

I would now like to turn the conference over to your host, Mr. Chris Hagedorn, Board Member and President of The Hawthorne Collective Inc.

Thank you. You may begin.

Good morning, everyone. I'm happy to speak on behalf of the entire Board of Directors and the RIV Capital team.

That's because we have a good story to share. Things are happening in this company, bold and decisive moves have been made to maximize value for all stakeholders and sees in the company's untapped potential.

This has us excited for the next chapter. RIV has a fabulous asset in attain in the New York operations.

The balance sheet and cash positions are strong or stronger than any other regulated cannabis business out there.

Hawthorne is a committed creditor and future equity partner that's in it for the long haul. And work is being done by the Board right now to lay the groundwork for growth in strategically attractive states much sooner than later.

I'll put it this way. RIV Capital is in a better place.

And there's more to come. The company is transforming and is ready to make bigger things happen.

It starts with changes at the executive leadership and Board levels. RIV has done a reset.

The company has enhanced its ability to execute with greater speed and precision. It's a transition in culture and management that will open more doors, unlock more value, and get the company where it needs to be at a faster pace.

You all know by now that Mark Sims has departed as CEO and President. Taking his place as Interim CEO, his Chief Operating Officer, Mike Totzke, who brings action-oriented leadership into the role.

I've worked with Mike through the years and our shared tenure at Scotts Miracle-Gro and Hawthorne. He has leadership experience in sales and operations.

He knows the cannabis industry from every angle, and he delivers results.

Mike has a rock-solid team around him. They know what they're doing.

They have industry experience and most importantly, they know the importance of urgency. While Mike and the team will bring focus on operationalizing and maximizing the New York strategy, the Board is taking a more proactive approach in working with the management team.

A new strategic growth committee is being formed by the Board to provide oversight and guidance to management on new and exciting growth strategies, including potential M&A.

I've been asked by the RIV Board to chair this committee and will be joined by Board members, Dawn Sweeney, Amy Peckham and Rick Mavrinac, the ultimate vision for RIV is to be a leading multistate operator with leading brands, and this must happen sooner rather than later, and here's why. Never have the opportunity has been better.

The unique strength of RIV Capital put it in a stronger position than ever and the current state of the cannabis industry plays those strengths.

Consolidation is happening with more key players deciding to exit or being more open to partnerships, ranging from growers and retailers to vertically integrated operators. This creates the potential for lower cost, higher value opportunities that we believe would position the company well for the future.

The growth strategies could include a range of potential transactions, acquisitions, mergers, partnerships with existing operators and popular West Coast brands. The point is we need to be moving more quickly and decisively to capitalize on these opportunities.

Nothing is off the table.

To assist in this process, the board has retained an investment bank as a financial adviser. Now think about this, too.

RIV can move forward with a twin focus on both the New York operations and the expansion strategy. In recent weeks, the company has settled the legal dispute with former shareholder JW Asset Management, LLC and its affiliates.

Now RIV Capital's management and Board can be singularly focused on unlocking the tremendous value of this company. With the completion of the Etain acquisition as of the third quarter, RIV is going all in on continuing to build the Etain brand and enhancing product development and innovation.

This is critical to maximizing the full potential of the New York market.

Mike Totzke will explain shortly about the strategy that is being executed to improve and expand RIV's cultivation, dispensary and sales operations in New York State. This includes investments to bring scale and operational efficiencies, along with the new wholesale model to augment retail sales.

The Etain brand will be in more stores and develop new products for consumers, all aimed at further differentiating Etain from other brands.

As for CEO, the Board will conduct a comprehensive search. We do not have a timetable for the selection.

It's not a rush job. It's about finding the right person for the business and the shareholders.

I'd be remiss if I didn't address the regulatory environment in New York State that as proposed, would create a 3-year delay in allowing operators such as RIV to co-locate medical dispensaries with adult-use sales.

In our view, this will negatively impact tax revenue for the state and limit consumer access, encouraging rather than discouraging the illicit market. So RIV is not taking a wait-and-see approach here.

First, the company is on a dual path. The wholesale program will run in parallel to the eventual transition to adult use.

RIV is in a great spot with one of 10 medical licenses in the state and 4 dispensaries. The adult-use market is the crown jewel, and it will come.

It's just a matter of timing. The wholesale program is a strategic pivot to seize in the short-term potential of the current market dynamic.

It's already having an impact, as Mike will explain.

Second, RIV is working proactively with state regulators and industry stakeholders to offer regulatory solutions that would serve as a compromise, enabling social equity licenses to participate and prosper alongside such operators as RIV. We all want a market that is mutually beneficial to the state, consumers and all players in the industry.

RIV continues to monitor the development of the regulations and will work toward a beneficial outcome.

Look, I think I speak for everyone when I say the current market capitalization of the company is not an indicator of the company's true value. The Board believes things are changing, and that's got us excited.

We believe that RIV Capital is more capable than any other vertically integrated operator of navigating the challenging New York regulatory environment while unlocking growth in other states. It has money in the bank and it's doing what's necessary on every front to bring value.

The board and management together will take this very unique asset and figure out how to best exploit it. The business will be driven in a decisive and aggressive manner and we're all ready for the ride.

Thank you.

I'll now turn it over to Mike Totzke.

Thanks, Chris. I appreciate the opportunity to share what's happening in New York, where our approach is twofold: one, to produce the highest quality product; two, to maximize the sale of our products through multiple retail channels.

I'll address product first. The brand equity in Etain is strong.

To remain competitive in the cannabis market, especially as New York expands from medical to adult use, it is imperative that we continue to innovate our products, both in terms of quality and breadth of our offering.

To this end, we are investing in our infrastructure, starting with the Etain cultivation and manufacturing operation in Cestertown, New York. We will complete an expansion project this spring that will increase the existing 15,000 square foot facility to over 75,000 square feet.

In addition to increasing scale to meet anticipated demand, it will help us bring down the operating costs and enable us to bolster our R&D activities to develop and launch new product formats. It will also bring new jobs.

We also took the next step in our planned flagship facility in Buffalo, where we advanced the design for premier cultivation and production infrastructure.

This state-of-the-art facility will be focused on producing the best flower products in the New York market, supporting the growth of Etain and other premium brands. The lease is contingent on regulatory and other necessary approvals, and we look forward to sharing our progress in the coming months.

As for maximizing the sales of our products in retail channels, this is where our new wholesale program comes into play. We are aggressively expanding the availability of our Etain products beyond our 4 licensed retail locations.

We have increased our retail channels from 50% to 75% of New York's medical dispensaries over the past quarter.

We are also building relationships with recently licensed conditional adult-use retail dispensaries to allow for rapid expansion and distribution points upon regulatory approval. We already had a solid foundation in New York with Etain.

The initiatives we have in motion, combined with more investments to come will ensure that we remain among the leading vertically integrated operators moving this industry forward to New York. Thank you.

I will give the floor to Eddie Lucarelli to discuss our financials.

Thank you, Mike. I'll now review our financial results for the third quarter of our fiscal 2023.

As you are aware, during our third quarter, we completed the final closing of the Etain acquisition on December 15. In connection with this, we paid the remaining purchase price through a combination of approximately $42.4 million in cash and the issuance of approximately 5.3 million Class A common shares.

As the financial results of Etain have been consolidated into our financial results since the first closing that occurred in April. This final closing did not have much impact on our financial results, aside from the payment of the remaining consideration and the derecognition of the deferred consideration.

For the third quarter ended December 31, 2022, we reported revenue net of excise taxes of $1.9 million, comprising retail revenue generated from Etains' dispensaries and wholesale revenue generated from sales of Etain branded products to other registered organizations in New York.

Cost of goods sold, excluding nominal unrealized fair value changes included in biological assets and realized fair value changes included in inventory sold, was $1.1 million for the quarter, and gross profit was $0.8 million, representing a gross margin of approximately 42%. Operating expenses during the quarter were $4.8 million compared with operating expenses of $2 million for the same period last year.

Similar to previous quarters this fiscal year, the increase in operating expenses compared to the same period last year was primarily due to the significant increase in the size and scope of the company's general and administrative functions to support our strategic shift to the U.S. cannabis market through the Etain acquisition.

Other loss was $6.3 million for the quarter compared with other loss of $1.7 million for the same period last year.

The primary factor contributing to the other loss for the quarter was accretion and interest expense of $5.9 million, which included an accelerated accretion expense of $1.7 million that was recognized upon the settlement of the deferred cash consideration paid upon the final closing of the Etain acquisition.

Income tax recovery for the quarter was $0.4 million compared with an income tax recovery of $0.8 million for the same period last year. Based on the foregoing items, we reported a net loss of $9.9 million for Q3 2023 compared with a net loss of $2.8 million for the same period last year.

The net change in fair value of financial assets at fair value through other comprehensive income, net of tax expense or recovery was a net decrease of $3.1 million for the quarter compared with a net increase of $0.3 million for the same period last year. The net decrease this quarter was primarily driven by a negative change in the estimated fair value of the company's investment in headset.

In total, the company reported a total comprehensive loss of $12.7 million for the quarter compared with a total comprehensive loss of $1.1 million for the same period last year. We ended the quarter with $125.6 million of cash on hand.

As noted, we recently paid approximately $20 million in aggregate in connection with the company's repurchase and cancellation of shares previously held by JW Asset Management. We continue to firmly believe that our cash position leaves us in an enviable situation relative to other cannabis operators, and we'll continue to evaluate paths to unlock the true value of that liquidity.

We continue to be confident in the opportunities presented by the developing New York market, even amidst regulatory uncertainty. We are in a unique position in New York and are strategically investing in high-quality cultivation and manufacturing capacity where others may not be or may not be able to, all with the intention of leading the market as a top-tier wholesaler in addition to our retail capabilities.

This strategy is gaining traction and will be further solidified as we build our sales pipeline and open the expanded Chestertown facility. And of course, we continue to explore avenues for value optimization beyond New York.

We look forward to sharing our progress during our next call. Thank you for joining us.