RE:RE:Danny Deadlock Gromax (GRO:TSXV 11 cents)
The past several years I have watched a frustrating trend in Canada from investors who gain control of public companies with large bank accounts. They alter course and instead of targeting a high-quality merger or acquisition, they turn the company into a "merchant bank" - in one fashion or another. And I know from experience, this never benefits shareholders outside of the senior management team(wages, bonuses, etc.).
Nine times out of ten, the stock eventually trades in a range of about HALF the net asset value (NAV). For example, if it held cash and investments worth $20 million, the market cap continually floats around $10M. It is a model that does NOT work for microcap stocks and is geared towards private companies.
I cannot say definitively this is the route GRO is headed, but their news release Tuesday would strongly indicate this is their proposed path.
"GrowMax Resources Corp. is currently considering investments in the legal cannabis, hemp and related sectors with a focus on advance-stage licensed producers in North America. We intend to leverage the company's strong cash position of approximately $30-million to make investments primarily in the legal cannabis and hemp sectors," says Kal Malhi, chairman and chief executive officer. "
I am not sure what happened to the cash dividend Bullrun Capital (Kal Malhi) promised when they were organizing an overthrow of the old management / directors, but we have seen no further mention of this. And if they now plan on investing in various Cannabis companies, the following risks exist (aside from the inherent risks of many expensive Cannabis companies):
1) Growmax would likely settle out near half the NAV of underlying investments.
2) If the exchange sees this as their primary business, the stock will get halted and they will be forced to go through a "change of business". Typically the stock is halted for six months or more.
Maybe this will work out different (better), but this is the current path I see them on. If it is, I won't be following GRO and will put the money to use elsewhere. We are up about 50%, but this was not the outcome I was hoping for.