Cannabis venture capital firm Canopy Rivers Inc. (TSX: RIV)(OTC: CNPOF) reported its third-quarter financial results in Canadian Dollars for the three and nine months ending December 31, 2019. The operating income for the quarter was $1.8 million, a big drop from last year’s $8.3 million for the same time period.  The company also delivered a net loss of $2.6 million versus last year’s net income of $1.4 million. The earnings per share were a negative $0.01 versus last year’s earnings per share of $0.01.

“It was a challenging end to 2019 for the valuations of publicly-traded cannabis companies, which naturally impacted our results for the quarter,” said Eddie Lucarelli, CFO, Canopy Rivers. “However, we continue to believe that these headwinds for the cannabis sector are temporary and that the strength of our balance sheet positions us well to weather the storm. A strong pipeline of global investment opportunities, positive trends in supply chain and retail developments in Canada, and impending milestones at our portfolio companies truly excite us for what’s to come in 2020.”

Revenue Sources

The company’s revenue was primarily driven by royalty, interest, and lease income of $5.0 million from Agripharm Corp., 10831425 Canada Ltd. d/b/a/ Greenhouse Juice Company, James E. Wagner Cultivation Corporation, Radicle Medical Marijuana Inc., and The Tweed Tree Lot Inc. In addition to that, revenue came from a loan agreement with TerrAscend Canada Inc., a shareholder loan agreement with PharmHouse, Inc. and a lease agreement with Tweed Tree Lot.

The company noted that the income was partially offset by a $1.9 million net decrease in the fair value of certain financial assets that are reported at fair value through profit or loss. Operating income was further offset by a $1.3 million share of loss from the company’s equity method investees. This share of loss was recorded one quarter in arrears, which includes the company’s common equity positions in Canapar Corp., Herbert, High Beauty, Inc., LeafLink Services International ULC, PharmHouse, and Radicle. The company said that it expects these equity method investees to continue to generate net losses during the remainder of the fiscal year as the companies continue to ramp up operationally.

“In the third quarter, we continued pursuing our goal to become the leading venture capital firm building the cannabis industry of tomorrow,” said Narbé Alexandrian, President & CEO, Canopy Rivers. “We focused primarily on follow-on investments in our existing portfolio of innovative companies, further developing the Canopy Rivers ecosystem through collaborative partnerships, and evaluating where we think the next wave of disruption will come from as the global cannabis market continues to evolve and mature.”

Civilized

Canopy invested $5 million into cannabis media company Civilized and then this past October it gave the company an additional $120,000. This was after Civilized announced that it was being bought by New Frontier Data at the New West Media Summit in San Francisco and at a time when the company was cutting back. Now Canopy Rivers says its current ownership interest is zero. However, there is still a debt. Both the convertible debenture and warrants are currently exercisable and, if exercised, would together represent approximately 26% of the equity of Civilized on a fully diluted basis as of December 31, 2019.

Rivers also stated that it is now expected that the convertible debenture interest receivable will not be recovered until maturity or conversion. “The company no longer recognizes interest receivable on the instrument, which was reported at $629,000 as of March 31, 2019. ”

Even though Rivers says it has no current ownership interest, As of December 31, 2019, the company said it owned 221,239 common share purchase warrants of Civilized (March 31, 2019 – 221,239). The warrants represent a derivative financial instrument that is initially measured at fair value and is subsequently measured at FVTPL. As of December 31, 2019, the warrants were estimated to have a nominal value (March 31, 2019 – $760).

Civilized was recently called out on The Black List for not paying a writer. In the comment section Civilized’s Terri Riedle, the Co-founder & President allegedly wrote in an email,”Thank you for the patience you’ve afforded Civilized over the last few months. As you may be aware, Civilized is in the process of being acquired by New Frontier Data. As a follow-up to their October announcement to that effect, we’re continuing to work in partnership with them and other advisors on a shared strategic and capital plan for 2020. I wanted to give you a heads-up today that the acquisition due diligence process has led us to the joint conclusion that the best path forward is to suspend Civilized’s day-to-day operations until January 2020. This is news you may catch in the media in the coming weeks. By hitting pause, we’re minimizing costs while we work with New Frontier Data to move into the new year with the resources we need in order to achieve our goals, including honouring our commitments to you. We regret that our vendors are in a difficult position and want to assure you that despite the delays, New Frontier Data prioritizes these important relationships and will be in a position to remedy the situation with vendors as soon as possible. We expect to re-launch a stronger and more powerful media company in a few weeks and appreciate this is an uncomfortable, even if necessary, transition for all. If you have any questions or wish to get in touch with me or New Frontier Data to discuss, we’re available to you.”