RIV Capital Inc.

For your convenience, the press release, MD&A and consolidated financial statements for the 3 months ended June 30, 2023, are available on the Investors section of the company's website at www.rivcapital.com, as well as on SEDAR.

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 operation may differ materially from management's current expectations. As a result, RIV Capital cannot guarantee that any forward-looking statements will materialize, and you're 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 August 28, 2023, and the risk factors referenced in the MD&A for the 3 months ended June 30, 2023, 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. Mike Totzke, Chief Operating Officer and Interim Chief Executive Officer of RIV Capital.

Thank you. You may begin.

Thank you, operator, and welcome, everyone, to our earnings conference call for the 3 months ended June 30, 2023, otherwise known as the second calendar quarter of 2023.

Over the quarter, we significantly advanced our core strategy of deepening our operations in New York ahead of the anticipated expansion of the adult-use market. We are excited to establish and accelerate our movement towards a safe, accessible and fair adult-use cannabis market.

With this in mind, we have been working hard this quarter to continue to drive our growth plans in the state.

I'll begin by providing an update on our cultivation and processing operations in New York. During the quarter, our Chestertown facility expansion became operational.

With 5 of the total of 8 greenhouses now fully planted, we are well on our way to introducing products directly from this facility to medical patients over the next 3 months, and we are on pace to enter the adult-use wholesale market before the end of the year. Once all 8 greenhouses are online, which is anticipated in October, Etain's cultivation capacity will be tripled, positioning us strongly to serve the evolving wholesale channel in a new demographic of consumers upon our entry into the adult-use market.

Our product innovation pipeline continues to grow, having benefited from recent operational enhancements made over the last few quarters at the Chestertown facility. This includes increased yields, THC potency improvements and the deployment of various new technologies to produce a wider breadth of products across a variety of form factors.

With these new advancements, we expect to launch several new and innovative products over the coming months for both medical patients and adult-use consumers. Most recently, we debuted a new 7g Smalls flower offering from Etain, available in a variety of our best-selling strains.

Subsequent to the quarter end, as we previously disclosed, we achieved a significant milestone when we received OCM approval for our indoor flagship facility in Buffalo. The new technologically-advanced indoor facility, which will double Etain's total New York cannabis footprint, will focus on the production of high-quality flower, enabling Etain to develop our presence as a top-tier wholesaler in the state.

Construction, which is well underway, is expected to be completed in mid-2024, with cultivation and manufacturing anticipated to commence shortly thereafter, subject to the receipt of the certificate of occupancy, which must be reported to the OCM before operations can begin.

Next, at the retail level. As of June 30, 2023, Etain products are now in 34 of 38 of the state's medical dispensaries, which represents nearly 90% of medical dispensaries across the state.

Our retail expansion plan remains on track, and we expect to be ready to open Etain's first co-located adult-use dispensary by the end of the year, followed by 2 additional co-located adult-use dispensaries around July 1, 2024. These dates are based on the time line set out in CCB and OCM's latest round of the adult-use regulations, which are not yet finalized.

Finally, I would like to provide a progress update on our strategic growth committee. As previously disclosed, we have commenced a due diligence process to identify a small subset of counterparties that are ideally situated for a potential M&A transaction, and the committee continues its work in that regard.

Specifically, the committee has advanced discussions with a small list of counterparties that it believes will best enhance our strategic goals, which is to expand our geographic footprint while unlocking the value of New York assets. We look forward to providing updates on this initiative as they become available.

With that, I will now turn the call over to Matt Mundy, Chief Strategy Officer and General Counsel, for regulatory outlook on the New York market, followed by a review of our financial results with our CFO, Eddie Lucarelli. Matt?

Thanks, Mike.

First, I'd like to commend New York regulators for implementing further measures to curb the thriving illicit market in the state, which has resulted in unsafe conditions for both patients and consumers. We are hopeful that these overdue but necessary initiatives to displace the illicit market will better position legal cannabis operators for their eventual entry into the adult-use market and create a safer and fairer industry for the state's consumers.

Elsewhere on the regulatory front, we continue to cooperate and engage in progressive dialogue with other stakeholders, the New York Cannabis Control Board and the Office of Cannabis Management, as market developments continue following the revised provisional regulations for the state's cannabis program that were published on May 11 of this year. The most recent indications are that the draft regulations will be adopted in the early fall, and the licensing windows will open in October.

We look forward to progress on this front and continue to anticipate entering the adult-use market in the coming months.

In summary, gradual progression is being made in New York. And while it hasn't been met without sizable hurdles, we remain focused on fostering the development of a safe and equitable cannabis market that will best serve patients and consumers.

We will continue to keep everyone apprized of our expected entry into the market, and we will continue to work alongside all of New York stakeholders to accelerate the opening of what we believe will be an expansive, dynamic and thriving market for years to come.

I'll now hand the line to Eddie, who will walk us through our financial results. Eddie?

Thank you, Mike and Matt, for those updates. I will now review our financial results for the 3 months ended June 30, 2023.

For the second calendar quarter of 2023, we reported revenue net of excise taxes of $1.8 million, compared with $1.3 million for the same period last year. This included a retail revenue of $1.7 million, which was generated from Etain's 4 medical cannabis dispensaries, and wholesale revenue of $0.2 million, which was generated from sales of Etain branded products to other registered organizations in the medical cannabis market in New York.

The year-over-year increase in revenue was primarily attributable to the recognition of a full quarter of revenue contribution from Etain in the current June quarter compared to the same quarter last year.

Cost of goods sold was $1.6 million for the quarter, and the effect of fair value items on gross profit was a positive $0.2 million, resulting in a gross profit of $0.4 million for the quarter compared with gross profit of $0.5 million for the same period last year. The decrease in gross profit as a percentage of revenue on a year-over-year basis was primarily attributable to underutilization of Etain's expanded cultivation and production assets, as the recently-completed Chestertown expansion continues to ramp up in preparation to begin supplying the wholesale adult-use market in New York in the fourth calendar quarter of 2023.

Selling, general and administrative expenses were $5.3 million for the 3 months ended June 30, 2023, compared with $5.5 million for the same period last year. We continue to employ a strong focus on maintaining effective operating expense controls to prudently manage the expansion of the business.

Other loss was $4.3 million for the quarter compared with other income of $2.2 million for the same period last year. The most significant component of other loss was noncash accretion and interest expense of $3.5 million, which was primarily related to the convertible notes issued to the Hawthorne Collective and is a recurring noncash item in our financial results each period.

Based on the foregoing, we reported a net loss of $9.1 million for the second calendar quarter of 2023 compared with a net loss of $3.5 million for the second calendar quarter of 2022.

Other comprehensive loss was $0.6 million for the quarter compared with $4.5 million for the same period last year and total comprehensive loss was $9.7 million for the quarter, compared with a total comprehensive loss of $8 million for the same period last year. As at June 30, 2023, RIV reported $90.7 million of cash on hand which, as previously stated, we believe provides us with sufficient capital to continue the expansion and optimization of Etain's business in New York and its impending entry into the adult-use market over the coming years, as well as capture new growth opportunities in other jurisdictions.

I will now pass it over to Mike for closing remarks.

Thank you, Eddie.

It remains our firm belief that the New York cannabis market is a largely untapped growth opportunity. The continued progress we have made strengthening and expanding our footprint in anticipation of our entry into the adult-use market has primed us to capitalize on the greenfield opportunity ahead of us.

Our first-mover advantage in New York and track record of thoughtful yet strategic capital deployment provides us with a competitive edge to strengthen our presence as a leading operator in the state. Additionally, our robust liquidity position has enabled us to seek opportunities outside state lines, which we anticipate will further our core goal of driving long-term value for our shareholders.

We are excited for what the near future holds as regulatory developments unfold, and we look forward to providing progress updates as we enter the second half of the year.

Thank you to all for joining us today.