There’s likely upside to cannabis investment platform Canopy Rivers (Canopy Rivers Stock Quote, Chart, News TSX:RIV) over the next 12 months but investors would be best served by staying out until the company figures out what to do with a troubled joint venture. That’s the scoop according to PI Financial analyst Devin Schilling who reviewed Canopy Rivers’ recent quarterly numbers in an update to clients Friday. Schilling dropped his rating from “Buy” to “Neutral” while lowering his target from $2.50 per share to $1.50, which at press time represented a projected one-year return of 95 per cent. Toronto-headquartered Canopy Rivers, a venture capital firm with a current portfolio of 18 companies operating in the cannabis space, posted on August 14 its fiscal first quarter 2021 results. RIV had Q1 operating income from royalties, interest income and lease payments of $2.7 million compared to $2.1 million a year earlier, while generating an adjusted EBITDA loss of $3.0 million, according to Schilling’s figures. Canopy Rivers said its basic earnings per share loss was $0.02 per share versus the same a year earlier. “This quarter, we made a strategic investment in Dynaleo, a cannabis gummies manufacturer that we believe is well-positioned to help Canada’s licensed producers and brands catch up to consumer demand for the gummy product format,” said Narbé Alexandrian, President and CEO, in a press release. “We also continued to work closely with our portfolio companies to help resolve some of the unique macroeconomic challenges that emerged inside and outside of the cannabis sector. While PharmHouse faces some immediate challenges, we continue to believe that it has the potential to become a key component of the Canadian supply chain for low-cost, high-quality cannabis, especially as the value segment of dry flower becomes more prominent,” Alexandrian said. The financial challenges currently being faced by PharmHouse —RIV said the business may have insufficient liquidity and capital resources to meet its financial obligations— are a focus of concern to RIV, which has set up a special committee of independent directors to look into how to move forward with the business. PharmHouse, a flagship company for RIV, is 49 per cent owned by RIV and received its cultivation license last July with an amendment from Health Canada this past quarter allowing cultivation on its entire greenhouse space in Leamington, Ontario. For the Q1, PharmHouse generated a loss of $4.4 million. The special committee is expected to file a report in a month’s time. In his commentary, Schilling said his NAV per share estimate for Canopy Rivers has now dropped by 32 per cent, largely due to uncertainties surrounding PharmHouse. Overall, the analyst judged quarterly financials as having a negative impact on the company and stock. Schilling pointed out that RIV is a guarantor on the PharmHouse credit facility for $90 million and may be liable for its 49 per cent ownership interest in this debt if a default occurs. “RIV’s current market cap of $153 million (basic) is comprised of ~$44 million of cash and ~$100 million from the exchangeable shares in TerrAscend, indicating that investors are essentially receiving free exposure to the remainder of RIV’s investment portfolio. With that being said, we believe investors should remain on the side-line while the special committee completes its review process,” said Schilling in his report.