Canopy Rivers Inc. couldn’t have asked for better conditions in which to begin trading tomorrow. The cannabis investment and operating platform is coming to market in a peak market environment, where market technicals, public portfolio investments, and investor sentiment are cresting at the same time. Under such auspices, Canopy Rivers (RIV) might just surprise a few folks with the voracity of the bid tomorrow. We explore further.
In an article disseminated last Friday, we made the case that Canopy Rivers is among the most exciting and best-structured RTOs or IPOs to list in 2018. While that would have remained true irrespective of market conditions, the bull perspective for Canopy Rivers has only been enhanced since then.
The most overt sign relates to investor sentiment, which has only picked up speed lately. Just yesterday, cannabis market proxy Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) obtained a record closing high (ex-rebalancing), and followed-up today by surging to new all-time highs. Naturally, angel investor Canopy Growth Corp.—owner of approximately 25% equity in Canopy Rivers—has also participated in the sector upswing. WEED has appreciated ↑114.24% since the $5 billion direct-equity investment into Canopy Growth announced August 15th, and ↑11.96% since we wrote our original analysis last Friday.
Obviously, Canopy Rivers is coming to market on near-peak investor sentiment, from a sector and prominent stakeholder perspective. The tide of indiscriminate and targeted inflows is still rolling in.
The impressive inaugural performance of Australis Capital Inc. (AUSA) also gives us good indication that Canopy Rivers will be exceedingly well received tomorrow. Shares of the Aurora Cannabis Inc. spin-out have traded 50 times higher than their Private Placement round, according to respected New Cannabis Ventures founder Alan Brochstein. As of this publishing ($7.90/share), Australis Caiptal had a total fully-diluted market capitalization of approximately $1.15 billion dollars—or about forty percent greater than Canopy Rivers fully-diluted RTO implied price of $3.50, the final go-public financing round in June. A quick glance at both prospectuses quickly reveals that RIV has infinitely more balance sheet assets than AUSA at the present time. Both companies are incubator and early-stage holding/investment entities.
— Alan Brochstein, CFA (@Invest420) September 19, 2018
Investors should also keep in mind that the enterprise value of certain Canopy Rivers publicly-listed assets have increased since mid-June. Portfolio staples TerrAscend Corp. (CNSX:TER) and James E. Wagner Cultivation Corp. (CVE:JWCA) have appreciated ↑20.47% and ↑32.98%, respectively, since the go-public round was announced. The company’s other publicly-traded asset—Livewell Canada Inc. (LVWL)—hasn’t done quite as well (↓12.75), although it begun trading after the go-public round was announced.
As per mid-June press release, Canopy Rivers owns at least 12,513,041 common shares and and 2,347,826 common share purchase warrants of James E. Wagner, representing approximately 14.2% of the issued and outstanding common shares on a non-diluted basis. Canopy Rivers owns 11,285,456 common shares and 9,545,456 warrants Of TerrAscend, representing approximately 14% ownership on a fully-diluted basis.
The above equity value increases are small relative to Canopy Rivers expected market capitalization. But if we extrapolate the same approximate valuation increases to Canopy Rivers private holdings—which admittedly, is subjective and unknown—real value has been realized since the final go-public financing round.
In this type of market, it won’t take much convincing for investors to bid prices up quite strongly—assuming RIV begins trade anywhere near the implied post-RTO trading price of $3.50/share. The performance of Australis Capital has provided a real eye-opening of expected investor demand, however misunderstood it may be. While I will not delve into predictions, investors should prepare for the train to leave quite early from the get-go. The size of the gap-up will dictate to what extent.
Update (4:32 pm)
It appears this article is the victim of inopportune timing. Multiple trading halts in Tilray Inc. set off a sector-wide chain reaction selling event late in the session. While the tenets of the article stand, there will perhaps be a little less euphoria heading into tomorrow’s trading session.
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