Canopy Rivers to Provide $7.2MM in DIP Financing for PharmHouse

Canopy Rivers will act as a debtor-in-possession lender and provide up to $7.2 million in DIP financing to PharmHouse, which obtained an order from the Ontario Superior Court of Justice granting it creditor protection under the Companies’ Creditors Arrangement Act. The court appointed Ernst & Young to act as the monitor of PharmHouse in the CCAA proceedings while PharmHouse explores a restructuring of its business and operations._x000D_
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PharmHouse is a 49%-owned joint venture of Canopy Rivers. Pursuant to the initial order, the statement of claim initiated by Canopy Rivers’ joint venture partner against PharmHouse has been stayed._x000D_
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PharmHouse was formed in May 2018 as a joint venture between Canopy Rivers and the principals of an agriculture and produce company (the joint venture partner). Offtake partnerships with Canopy Growth Corporation and TerrAscend Canada provided support for Canopy Rivers’ investment in PharmHouse’s automated production facility, as well as its guarantee of the PharmHouse credit facility. However, the previously anticipated timeline for PharmHouse to generate cash flows from the offtake agreements was not met, and the ultimate timing and receipt of cash flows became uncertain, creating liquidity and capital resource issues at PharmHouse. Discussions between PharmHouse and the counterparties to the offtake agreements regarding the potential renegotiation of the offtake agreements have been unsuccessful and have led to a deterioration in the relationship between the parties._x000D_
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The joint venture partner has indicated that it will not contribute financially to address PharmHouse’s near-term liquidity issues._x000D_
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In connection with the restructuring, Canopy Rivers expects to record certain adjustments on its statement of financial position for its upcoming fiscal quarter ending Sept. 30, 2020. The company expects to record a full impairment charge on its investment in PharmHouse common shares, which had a carrying value of $32.6 million at June 30, 2020. The carrying value at June 30, 2020 reflected the cash investment of $11 million made by Canopy Rivers in July 2018 and January 2019, the value of non-cash consideration paid to the joint venture partner upon the formation of PharmHouse, and Canopy Rivers’ cumulative share of PharmHouse’s comprehensive loss, as required by International Financial Reporting Standards. In addition, Canopy Rivers may recognize impairment charges in respect of all or a portion of the balances relating to shareholder loans advanced by Canopy Rivers to PharmHouse, which were recorded at $50.2 million at June 30, 2020 (inclusive of interest receivable of $7.7 million)._x000D_
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Furthermore, Canopy Rivers is a guarantor on PharmHouse’s syndicated credit agreement, which provided PharmHouse with a non-revolving credit facility of $90 million. If PharmHouse is unable to service its obligations pursuant to the facility, Canopy Rivers may be required to recognize a financial liability relating to its guarantee._x000D_
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Canopy Rivers is a venture capital firm specializing in cannabis with a portfolio of 18 companies across various segments of the cannabis value chain.