Next week, Canopy Rivers Corp. is coming to market riding a wave of elevated investor enthusiasm. The cannabis investment and operating platform promises to be, in our view, among the most exciting and best-structured RTOs or IPOs to list in 2018. We dive further into what makes Canopy Rivers such an appealing value proposition for investors, and provide other pertinent details.
Unlike most cannabis listings, Canopy River is not a licensed producer, biotech or ancillary device maker. The company works collaboratively with Canopy Growth to identify strategic affiliations seeking financial and/or operating support within the Canopy Growth group of companies. The net result is an ecosystem of complementary entities operating throughout the cannabis value chain.
Canopy Rivers current roster contains eleven members at various stages of corporate development. Most are private, and not necessarily recognizable to many cannabis investors. Others, like TerrAscend Corp. (CNSX:TER) and James E. Wagner Corp. (CVE:JWCA) already trade publicly on Canadian exchanges. Overall, the comprised portfolio strikes a purposeful balance between equity, debt, royalty, joint ventures, and profit sharing agreements which aren’t limited to a specific sector genre. To date, industry assets include craft LPs, media platforms, and distribution agents.
Canopy Growth CEO Bruce Linton talks about Canopy Rivers’ investment platform, which has attracted significant institutional investment in its last round of financing
Further investment and diversification in on the way. Canopy Rivers is currently sitting on approximately $104 million worth of cash, which it’s looking to deploy into various deals—mainly ranging from $250,000 all the way up to $10 million. Investors can expect a steady drumbeat of incubator investments in everything from extraction technologies to data analytics.
Certainly, angel investor Canopy Growth receives no shortage of amazing opportunities to pass along at any given time.
What Makes Canopy Rivers An Exciting Investment Proposition
In a nutshell, it’s all about access to superior deal flow. While the top licensed producers are on the receiving end of countless pitches and proposals, Canopy Growth’s dominant market position acts as a giant magnet to attract the very best incubator investments Rivers’ way.
This is not simply about dominant market position based on market cap: it’s about WEED’s world-leading production expertise, regulatory maneuverability, lengthy operating history, and quality personnel. Every Canopy River client will have access—either directly or indirectly—to the same management team which fostered the world’s greatest cannabis LP. This includes Bruce Linton himself, who is Acting CEO, Director and Chairman. That’s a large carrot few other competitors can dangle.
So is the promise of much larger capital injections and expanded partnership opportunities down the line. While Canopy Rivers funds and structures its own deals directly, the possibility of tapping into Canopy Growth’s five billion cash hoard is a powerful incentive to get early-stage operators to sign on Rivers’ dotted line.
In layman’s terms, think of Canopy Rivers as the Toronto Venture Exchange (TSX-V) and Canopy Growth as the Toronto Stock Exchange (TSX). While most corporate entities strive for Big Board listing, they may not meet exchange or performance requirements for immediate listing. Companies requiring more seasoning often elect to list on the TSX-V, where regulatory standards are less rigorous. In time, companies that grow their balance sheets and improve liquidity conditions may graduate to the TSX, opening up greater capital access and investor pools.
Canopy Rivers are the facilitators, junior capital providers, and Rolodex masters making up-listing to the Canopy Growth portfolio a distinct possibility for overachieving companies over time. When that happens, it means that Rivers’ initial investment has grown in multiples of ‘X’, along with corresponding enterprise value (which theoretically be reflected in the stock price). This should allow the company to raise ever more capital and partner-into more expansive sector opportunities over time. A virtuous cycle is born.
But it all starts with procuring the best early-stage companies with the greatest potential for long term capital appreciation. With Canopy Growth at its side, Rivers will have no shortage of 5-star opportunities falling on its lap.
Canopy Rivers Share Structure
Once complete, Canopy Growth will own just under 25% of the fully-diluted equity, but control almost 90% of the votes due to a dual-class, multi-voting share structure. Purchasers of the $3.50 go-public round—announced on June 18th—is freely trading on Day 1. For previous rounds, any shareholder with greater than 0.5% of the basic shares outstanding is subject to 80% lockout restriction based on equal amounts at 60, 90, and 120 day intervals. Insiders are initially 100% locked up, and subject to the timing release described in the previous sentence.
Total shares outstanding is approximately 171 million and change. Because of the early round and insider lockup period, ‘RIV’ will trade much tighter than its s/o suggests. We’re not looking at anything resembling TLRY here, but price action won’t be clogged either. Fully-diluted, Canopy Rivers share structure rises to approximately 197 million.
Keep in mind, the $3.50 RTO price was decided in mid-June, when sector values were diminished. As a rough proxy, the Horizons Marijuana Life Sciences Index ETF (HMMJ) closed at $18.40 on June 15th, versus a $22.34 (↑21.34%) close on September 14th (today). If the market ascribes RIV a proximal shift in value, the stock could quickly trade above its implied RTO starting price—perhaps in the $4.25 range. Add in the still-pervasive FOMO mentality driving the market—irrespective of Thursday’s harrowing price drop—$5.00 is not out of the question on opening day.
If you love Canopy Growth, it’s hard not to love Canopy Rivers by proxy. Much like the Constellation Brands Inc. deal, both companies are structured to propel mutually beneficial growth drivers towards one another. WEED helps provide the deal pipeline, technical/operational know-how and promise of Canopy Growth group of companies ‘up-listing’; Canopy Rivers provides the capital and grassroots attention early-stage companies require preventing them from getting lost in the shuffle.
It’s similar in format to what Google Ventures—the venture capital investment arm of Alphabet Inc.—provides to its parent company. Because why have Larry Page or Bruce Linton take calls from some seed venture CEO directly? Canopy Rivers is the necessary intermediary keeping incubator companies aligned and focused on executing business agendas. It’s a model that, in our view, carries a high probability of self-perpetuating growth.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
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