RIV Capital, the cannabis-investing company backed by Scotts Miracle-Gro Co., has cited regulatory uncertainty and market dynamics in New York in a big impairment on its pending acquisition of Etain.
RIV Capital
CNPOF,
RIV,
said Tuesday that regulatory uncertainty and other factors caused a drop in the estimated fair value of Etain by about $139 million, which it took as a goodwill impairment in its second-quarter results.
RIV Capital agreed to pay $247 million for Etain in a deal announced in March, when the mergers and acquisitions market in New York was much more bullish. The deal is expected to close by the end of the year.
“The company recognizes that the current market in New York faces operational challenges, many of which result from the uncertainty created by the prolonged roll-out of regulations for the adult-use market,” RIV Capital said Tuesday.
Despite this challenge, RIV Capital said it continues to “strongly believe in the significant market opportunity in New York.”
RIV Capital said the state’s social-equity retail-license program presents a “particularly attractive opportunity” for its future wholesale business.
While New York state breaks ground in the cannabis industry by awarding its first adult-use cannabis business licenses to business operators who were incarcerated in the U.S. war on drugs, it continues to make big incumbents behind the state’s existing medical programs wait for their licenses.
On Nov. 21, New York State released draft regulations for cannabis licenses outside its social-equity program to eventually gain permits to operate. The rules are under a 60-day comment period, with final rules to be codified by the New York State Cannabis Control Board and the Office of Cannabis Management.
RIV Capital reported a second-quarter loss of $141.9 million, or 84 cents a share, up from a loss of $7.79 million, or a penny a share, in the year-ago quarter. Revenue increased to just under $2 million from zero revenue in the year-ago period.
RIV Capital, which was formerly called Canopy Rivers when it was part of Canopy Growth Corp.
CGC,
WEED,
ended the quarter with $165 million in cash.
The company plans to invest in growth at Etain, as well as target other potential acquisitions as well as investments such as its lease agreement with Zephyr, a California-based developer, for the development and operation of a new flagship facility for cannabis cultivation and processing in Buffalo, N.Y.
In March, the Scotts Miracle-Gro Co.
SMG,
-backed RIV Capital Inc. first aired plans to acquire Etain LLC and Etain IP LLC in a deal for the New York cannabis market’s only woman-owned and -operated business and one of 10 approved vertically integrated medical-cannabis operators in the state.
At the time, prices for New York assets were much higher on enthusiasm around the New York market.
But as the regulatory picture in New York grew more uncertain, both Verano Holdings Corp.
VRNOF,
VRNO,
and Ascend Wellness Holdings Inc.
AAWH,
scrapped acquisitions.
Verano in October said it would no longer acquire Goodness Growth Holdings
GDNSF,
a cannabis company in New York, New Mexico and Minnesota, for $413 million in stock.
Ascend Wellness in August scrapped its $88 million acquisition of MedMen’s
MMNFF,
MMEN,
New York business. MedMen then put the business back on the selling block.
Also read: Cannabis M&A cools but deals remain on the table despite scuttled Verano acquisition, analyst says
Among the regulatory uncertainty in New York, U.S. District Judge Gary Sharpe this month temporarily blocked the state from issuing 63 of the 150 licenses in Brooklyn and parts of upstate New York, citing a lawsuit by Variscite NY.
The suit alleges that New York state’s plan — to award the first 150 licenses for business applications to state residents affected by the war on drugs — breaches the state constitution’s dormant commerce clause that protects interstate commerce.
New York officials last week awarded licenses to regions not affected by the federal ban.
Operators with exposure to the New York market include Acreage Holdings
ACRHF,
Columbia Care
CCHWF,
Cresco Labs
CRLBF,
Curaleaf
CURLF,
and Green Thumb Industries
GTBIF,
Over-the-counter shares of RIV Capital are down 81% in 2022, compared with a loss of 56.8% by the AdvisorShares Pure U.S. Cannabis ETF
MSOS,
and a 29.4% drop by the Nasdaq
COMP,
