Investment addresses company's expectation that gummies will become a top selling product in Canadian edibles market
TORONTO, May 4, 2020 /CNW/ - Canopy Rivers Inc. ("Canopy Rivers" or the "Company") (TSX: RIV, OTC: CNPOF) today announced a C$2 million investment in Dynaleo Inc. ("Dynaleo"), an Edmonton-based company focused on white-label manufacturing edible cannabis gummies for the Canadian market. Through this investment in what the Company anticipates may become a leading industrial scale Canadian gummies manufacturer, Canopy Rivers believes it is capitalizing on a significant opportunity in what is currently an underserved and underdeveloped segment of the cannabis market. Once Dynaleo receives the required licencing from Health Canada, it expects to begin operating its 27,000 sq. ft. purpose-built facility with the goal of producing enough gummies to take a sizable bite out of the projected edibles market.
"We believe that Dynaleo is positioned to become a market leader in cannabis edibles manufacturing in Canada," said Narbé Alexandrian, President & CEO, Canopy Rivers. "In the gummies market specifically, we see a significant supply and demand imbalance and a move towards outsourcing products to leading manufacturers. We think Dynaleo's manufacturing capabilities, combined with its capable management team, position it to help close this supply gap in the short term and become a trusted manufacturer of cannabis edibles in the long term."
When Cannabis 2.0 launched in Canada, regulatory uncertainties around the gummy format led many license holders to focus on other edible cannabis formats, with only some licensed producers investing in the infrastructure to produce gummies. As a result of this, initial market observations suggest that the demand for edibles is significantly ahead of supply, with limited product availability and consistently high out-of-stock rates relative to other products.
Headset data from mature U.S. markets, combined with Deloitte's projection that Canada's edibles market could be worth $1.6 billion annually, indicates that there is an opportunity for increased gummy production in Canada. In Colorado and California, Headset reports that gummies were the top selling edible product, accounting for 55% and 56% of edible cannabis sales respectively in 2019. Assuming that Canadians emulate these consumption habits, Canadian licensed producers may not yet have the production capacity or partnerships to fulfill this demand.
"On top of helping Canada's licensed producers close the supply gap, we also believe that Dynaleo will play a role in expanding the total addressable market for cannabis products, with market research indicating that new consumers are more likely to enter the cannabis market through edibles than other products," added Alexandrian.
"I am extremely proud of the Dynaleo team, our manufacturing facility, and the path that is ahead of us," said Michael Krestell, Executive Chairman, Dynaleo. "We welcome Canopy Rivers' investment, and the expertise and relationships with established industry players that comes with it."
Dynaleo has completed construction of its purpose-built facility and has submitted all supporting documentation for a standard processing licence to Health Canada. Once licensed, Dynaleo expects it will develop a customer pipeline that includes both licensed producers as well as traditional consumer packaged goods companies.
Canopy Rivers' investment is part of a larger C$7 million round. Canopy Rivers' investment in Dynaleo is structured as a C$2 million unsecured convertible debenture (the "Debenture") with additional warrant coverage (the "Warrants"). The Debenture is convertible at the Company's option into common shares of Dynaleo. Upon conversion of the Debenture and exercise of the Warrants, and assuming no further changes in Dynaleo's capitalization table, Canopy Rivers' ownership interest will be 12.2%.
About Canopy Rivers
Canopy Rivers is a venture capital firm specializing in cannabis. Its unique investment and operating platform is structured to pursue investment opportunities in the emerging global cannabis sector. Canopy Rivers identifies strategic counterparties seeking financial and/or operating support. Canopy Rivers has developed an investment ecosystem of complementary cannabis operating companies that represent various segments of the value chain across the emerging cannabis sector. As the portfolio continues to develop, constituents will be provided with opportunities to work with Canopy Growth Corporation (TSX: WEED, NYSE: CGC) and collaborate among themselves, which Canopy Rivers believes will maximize value for its shareholders and foster an environment of innovation, synergy and value creation for the entire portfolio.
Dynaleo is an Edmonton, Alberta-based licence applicant that is focused on manufacturing cannabis-infused adult chews. Dynaleo's purpose-built manufacturing plant contains specialized production equipment that it intends to use to produce CBD and THC edibles for the Canadian market that can be customized in a wide range of flavours, textures, colours, shapes and sizes to meet customer's needs and regulatory requirements.
Forward Looking Statements
This news release contains statements which constitute "forward-looking information" within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of Canopy Rivers and its portfolio companies with respect to future business activities and operating performance. Forward-looking information is often identified by the words "may", "would", "could", "should", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" or similar expressions and includes information regarding: the expectation that gummies will become a top selling product in Canada; the expected size of the Canadian edibles and gummies markets; management's belief that the Company's investment in Dynaleo capitalizes on a significant opportunity; Dynaleo's manufacturing plans and expected production capacity; management's belief that Dynaleo may become a leading industrial scale gummies manufacturer and a market leader in cannabis edibles manufacturing in Canada; management's belief that there is a significant supply and demand imbalance and their expectation that there will be a move towards outsourcing products to manufacturers and that Dynaleo is positioned to help close this gap and become a trusted manufacturer of cannabis edibles; management's belief that Dynaleo will play a role in expanding the total addressable market for cannabis products; the assumption that Canadians will emulate the consumption habits of consumers in Colorado and California; Dynaleo's expected customer pipeline; Canopy Rivers' ownership interest in Dynaleo; and expectations for other economic, regulatory, business, and/or competitive factors.
Investors are cautioned that forward-looking information is not based on historical fact but instead reflects management's expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although Canopy Rivers believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of Canopy Rivers. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: regulatory and licensing risks; Dynaleo's ability to obtain a licence from Health Canada in a timely manner or at all; changes in Dynaleo's plans and its actual production capacity and ability to build and maintain a customer pipeline; changes in cannabis industry growth and trends; changes in the anticipated or actual market size for cannabis products, edibles and gummies; changes in consumer preferences and demands; varying consumption habits between U.S. and Canadian cannabis consumers; changes in general economic, business and political conditions, including changes in the financial markets; the global regulatory landscape and enforcement related to cannabis, including political risks and risks relating to regulatory change; risks relating to anti-money laundering laws; compliance with extensive government regulation, including Canopy Rivers' interpretation of such regulation; public opinion and perception of the cannabis industry; divestiture risks; competition risks; and the risk factors set out in Canopy Rivers' annual information form dated July 15, 2019, filed with the Canadian securities regulators and available on Canopy Rivers' profile on SEDAR at www.sedar.com.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although Canopy Rivers has attempted to identify important risks, uncertainties and factors that could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. Canopy Rivers does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
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SOURCE Canopy Rivers Inc.
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