Canopy Rivers (RIV-TSX-V) is a Marijuana Bank
What Canopy Rivers Has In Store For 2019 Cash Flow, Cash Flow and More Cash Flow! There is a lot to the Canopy Rivers Story, but I’m going to focus in on what I believe to be the main driver of growing cash flows – a joint venture called PharmHouse. PharmHouse combines the marijuana expertise of Canopy Rivers and a large, seasoned North American greenhouse operator. The greenhouse partner is one of the world’s leading commercial agriculture and produce companies. This partnership will be huge – it already has a long growth runway. PharmHouse is retrofitting a massive, 1.3 million square foot greenhouse for cannabis production in Canada…and there are already plans to build another one of comparable size. And then another, and another and another…. This is a brand-new, top-of-the-line production facility built by North America’s top greenhouse operator. Comparing this to other, older facilities that many peers are using to grow marijuana – this is like comparing an iPhone with a 1980s mobile phone that was the size of an encyclopedia. Production from this facility should be very profitable. The anticipated selling price in 2019 will be $3.75 per gram, and management has been rightly basing all decisions on profit margins of just $1 per gram – and even that shows PharmHouse’s first facility generating $100 million of annualized free cash flow by the end of 2019. Half of that production belongs to Canopy Rivers – which equals a run-rate of $50 million in cash flow from just this one asset by Year End 2019. And PharmHouse is just one asset out of the 12 that Canopy Rivers has to offer!
This Is The Lowest Risk Lottery Ticket You Will Ever Find In Marijuana After PharmHouse, Canopy Rivers has 11 other marijuana projects underway. That means that Canopy Rivers’ shares come with free huge upside optionality… multi-bagger potential, lottery ticket winning type returns. Canopy Rivers is an incredibly advantaged merchant bank. As a publicly traded sub of Canopy Growth, “Rivers” gets best-in-the-world-deal-flow… Canopy Rivers gets to put seed capital into the best marijuana start-up companies at incredibly favorable terms. It’s like being in Silicon Valley and getting acccess to the seed financing of the Facebooks and Googles of the tech world. Canopy Rivers can see huge increases in its share price as its investments go from millions to tens of millions or hundreds of millions of dollars… those returns would be lost on the balance sheet of the $12 b-b-b-illion market cap of Canopy Growth – which is why the deals are pushed to Canopy Rivers. At least, that’s the way it’s supposed to work. It makes sense to me. Canopy Growth CEO Bruce Linton is the acting CEO/Chairman here, working for $1/yr and a whack of stock. That means that you have… 1. The best and most experienced management team in the marijuana world 2. Giving “Rivers” the best deal flow they come across 3. And they’re completely aligned with shareholders Like I said, they already have a minimum $8 million in investment income for 2019 and easy-to-achieve milestones that pushes it to over $15 million – against cash G&A cost for the business of just over $7 million per year. All 35 employees at Canopy Growth also have equity linked exposure which incentivizes them to push top investment opportunities to Canopy Rivers. In 2019, Year One of this business model, I’m really invested in Canopy Rivers because of the cash flow growth that PharmHouse could/should crank out by year end… it could be as much as $50 million net cash flow to Canopy Rivers by year-end and growing from there. In a perfect world, Rivers is at an $84 million run rate this time next year – against an Enterprise Value today of some $520 million–about 6x EBITDA. Like every other management team in a public company, they must execute flawlessly for that valuation to make sense. But it’s certainly one the institutions could understand – and buy. DISCLOSURE: I am long Canopy Rivers. Keith Schaefer