Canopy Rivers Discounted 50% Off Its Post-RTO Trading Highs

Benjamin A. Smith
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If there was such thing as a fall cannabis sale, Canopy Rivers Corp (CVE:RIV) would be a prime candidate. The company is trading approximately fifty percent under its post-RTO trading high, over just a few inopportune sessions. We attempt to make sense of the moribund price action, and what may lie ahead.

The picture-perfect market conditions we spoke about regarding Canopy Rivers were indeed just that. The day of Rivers inaugural session on September 20th, the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) reached a record closing high of $25.95/share, while RIV itself finished its successful opening at $8.75/share. The latter represented a ↑250% increase over its implied price of $3.50—the final go-public financing round in June.

Investor interest in Canopy Rivers was exceedingly robust. At 18.33 million shares traded, RIV easily became the most active major exchange-listed cannabis RTO or IPO this year. Its volume total doubled the likes of the well-hyped Green Organic Dutch Holdings Ltd. (TGOD – 9.03 million), Australis Capital Inc. (AUSA – 10.33 million), even Tilray Inc. (TLRY – 11.93 million). Needless to say, Canopy Rivers was among—if not the—most anticipated cannabis public offering on the markets this year; certainly north of the border.

Co-founder, chairman, and acting CEO Bruce Linton introduces viewers to Canopy Rivers, a development of Canopy Growth

Unfortunately for Canopy Rivers, the “picture perfect” market conditions from which it entered evaporated in a hurry.

Since its post-RTO trading session on September 20th. sector benchmark HMMJ has lost ↓11.21% of its value, as the market exited consolidation mode and entered into broad-based erosion. The Fear of Missing Out (FOMO) mentality formerly permeating the market shifted into profit taking, and the overhang of Rivers’ $3.50 go-public round is likely still influencing prices. Even at $6.00/share (RIV closed the day at $5.84/share), early investors have made a ↑71.42% return on investment in four months—a return too tempting to pass up for many. Thus, a steady drumbeat of selling in likely emanating from unrestricted shareholders who are accepting the windfall before locked out investors have their bite of the apple.

Another likely reason for the lackluster post-RTO trade stems from initial valuations that could be construed as frothy. While Canopy Rivers has a tremendous portfolio of burgeoning assets, its initial $1.75 billion-plus valuation (now $1.146 billion fully-diluted) may have been rich.

The crown jewel of Canopy Rivers public portfolio holdings—11,285,456 common shares of TerrAscend Corp. along with 9,545,456 warrants (exercise price $1.10)—is worth about $148.52 million dollars at TerrAscend’s closing price of $7.14/share, assuming all warrants are exercised. Canopy Rivers also has $104 million in cash and some lesser-valued public holdings/warrants (JWAC, LVWL) and private incubator investments. While its beyond the article’s scope to determine the exact enterprise value of River’s complete portfolio, its initial valuation was aggressive. The resulting downward price action has largely mitigated the gap, however.

I would also posit that Canopy Rivers up-and-coming asset portfolio may be acting as a highly leveraged conductor in today’s sector environment. That is, RIV may be prone to making outsized moves, in either direction, due to the speculative and volatile nature of its junior/incubator assets. If my theory is correct, this will work in the company’s advantage as the market rises, but to its detriment during bearish impulses. Unfortunately, the latter has predominated since the company’s public listing, perhaps exacerbating declines.

Final Thoughts

For investors thinking about staking a position in RIV, the stock is entering interesting territory. If we account for the proximal shift in value from where the market (as represented by HMMJ) is trading vis-à-vis its last go-public round, the stock should be trading well above its $3.50 pre-RTO implied value. We also note Rivers biggest holding, TerrAscend, is currently undergoing a blue sky breakout, closing at $7.13/share today (record high). Despite the bout of sector ugliness, it’s not like the entirety of the company’s balance sheet is getting taken to the woodshed.

Finally, all the reasons why investors were excited about Canopy Rivers to begin with are still present: Canopy Growth backing and personnel, access to premier early-stage partnerships, diversified revenue streams, and international exposure. How much of a premium can be ascribed with being associated with the industry’s premier licensed producer? How many more TerrAscends are just waiting to be realized?

Whether the market has fully remedied existing or perceived valuation imbalances remains to be seen. This article is not necessarily a call-for-action, rather, a reminder that all the exciting attributes in Canopy Rivers’ possession have not gone away. They’ve simply gone into hibernation. Investors with intermediate to long-term time horizons may be wise to consider Canopy Rivers aggregate value proposition, as prices edge closer to the happy zone.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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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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