For around two years now, I’ve given Tweed (
TSXV:TWD,
Forum) a hard time in these pages.
They’ve had problems galore, some admitted, some not. They’ve stumbled and tripped and caught themselves and stumbled again.
Pioneers will do that sometimes. It’s always tough to chart a new course, but doing so in a new sector with changing rules and legacy issues and restrictions on marketing and a government actively telling people that your product is going to kill their children or turn them into drooling idiots. That’s particularly tough running, especially when everyone you talk to about fixing your problems comes away from your chocolate factory with stories they’ll use to get free beers from competitors going forward.
But with almost every article I’ve written hinting at what troubles Tweed, I’ve ended with some sort of variation on the line, “but they have so much money, they’ll likely be able to buy their way out of trouble.”
And they have. Several times.
But there’s buying to keep afloat and there’s buying to dominate. With yesterday’s news that Bedrocan (
TSXV:BED,
Forum) had accepted an offer from Tweed to take over their company for some $61m, Tweed turned the corner from stumbly bumbly rich kid into the one most feared.
There have been other companies that Tweed has tapped on the shoulder recently. I heard a lot of talk about an Organigram (
TSXV:OGI,
Forum) move a few months back, and it’s said that Peace Naturals met a term sheet reportedly for some half of the Bedrocan offer with a ‘thanks but no thanks’ as that company makes a big push forward.
Each of those would have been nice pickups, but Bedrocan is a white whale deal.
Bedrocan are the most serious people in the Canadian weed business. They’ve got an eye firmly fixed on big pharma, and though they’ve ramped up production and got good patient numbers, they’re almost militant in their belief that what you see in the business now is a mere blip when compared to what will follow in three, five, ten years’ time, when nobody cares much about getting high and CBDs are incorporated in most everything you stick in your body.
The market did not appreciate that, but Tweed sure did. So much so that they’ve offered nearly twice Bedrocan’s market cap from a week ago to bring them in.
And that ‘bringing them in’ aspect is important. Tweed is not looking to swallow up Bedrocan and buy market share. They’re keeping that brand, and their own, as separate bodies and forming a larger parent company to make use of those (and potentially other) brands.
Book it: There will be an extracts division in quick time, and the power of Tweed and Bedrocan together will force Health Canada into bringing that about sooner rather than later.
Recently, Tilray decided to break away from the representative body that Tweed, Bedrocan and Organigram had started last year, much to the chagrin of many LPs. I’m told execs from Aurora Cannabis (
CSE:ACB,
Forum) were particularly loud in their objections to that move at the Jacob Securities weed summit earlier this week.
But I get it. Tilray was the monster of the business, at least on the private side, for most of the last year. If they’d caught wind Tweed and Bedrocan were getting into bed together, I can totally see why they’d jet.
New Tweed, Tweed 2.0, Tweedrocan – whatever they decide to call themselves going forward – is going to be a moose. And if they keep the acquisitions up, hygiene standards at the chocolate factory will have exactly zero effect on the share price going forward.
Phase one of the weed rush was the hype spike. Phase two was the trough of reality. Phase three was value-added growth. Now we’re in phase four: the merging.
Every LP in the Canadian market place is, as of now, either hunting or being hunted. Whistler has had its tires kicked more than anyone. T-Bird (
TSXV:TPI,
Forum) has been in a holding pattern for some time. Pharmacan is looking to flip, Enertopia just divested some of its grow assets, Lexaria ditto, Invictus is prowling around looking for value and streamlineable pickups, Naturally Splendid (
TSXV:NSP,
Forum) is locking in big processing facilities that could bring in big bucks when extracts are unlocked, Nutritional High (
CSE:NHL,
Forum) has swung its edibles knowledge around to Canada and is looking for a place to lock in, Organigram has cranked up its grow space well beyond its patient number needs, and that big fat Supreme Pharmaceuticals 360k sq. ft. grow facility is just sitting, waiting for either a Health Canada inspection so it can get moving – or maybe an existing LP to come grab it, plug in a license (like Tweed did with its greenhouse acquisition) and go.
The entire Canadian LP space is undervalued right now; even Tweed itself only moved back up to where it had hovered for most of 2015 on the news.
Remember back when Organigram debuted at $1.97 after an $0.84 raise? Now it’s at $0.40 with a market cap just a few million bucks away from that of Creative Edge Nutrition (
OTO:FITX,
Forum), which has been denied a license, has no zoning, has a CEO that has been selling stock hand over fist, is under investigation by the OSC, is trading under a half penny on the OTC, and has now decided it’s an energy drink company.
If that doesn’t make OGI an acquisition target, I’m Charlize Theron’s favourite bedtime plaything.
One company not waiting for a bigger fish to come get them is Invictus MD Strategies (
CSE:IMH,
Forum).
Regular readers know how I feel about this outfit; CEO Dan Kriznic, CPA/CA, is the guy you want dating your sister so you can make him do your taxes each year (tough break, ladies – just married). He’s vacuuming up an array of medical marijuana services companies that he then sends his financial ninjas out to turn said companies into the best they can be.
As an example, Future Harvest: This is a 20+ year old company that was run out of a tiny Edmonton retail store, selling hydroponic equipment, lights, fertilizers and the like across the world, bringing almost $5m in revenues annually. When Kriznic’s team moved in, that store quickly had a record month and is looking like it’s going to really start turning the crank going forward. I’ve talked to Mike Blady, the Director of Business Development looking over that operation, and he’s real bullish.
So much so that
Invictus has ramped up its ownership stake and now has a controlling interest, with the potential to take out more going forward as the company hits milestones (something it has done twice in the last few months).
Now, imagine what happens when Invictus’ other verticals start buying Future Harvest products, or advertising them. Imagine what happens if Kriznic walks their products into some large grows being constructed. Imagine if they flip some of the IP the company has developed over 20 years, such as Sun Blaster Lighting, Plantlife Products, and NutraDip Monitoring..
And that’s just one of the six companies they have a chunk of.
Invictus recently secured a US listing, and an AGM a few days ago approved a plan to
cancel some 16.4 million shares in the company and bringing the shares outstanding number to a tight 35 million.
Real business. And it’s about to get realer.
Other business:
I hear a west coast LP just laid off half their staff. No names until I can confirm.
News is coming from Wildflower (
CSE:SUN,
Forum) in the next few days that will further position them in the thick of the value-add space. If they can make it happen, it’ll be a really interesting play and maybe set of a string of imitators.
The recent Lifestyle Delivery Systems (
CSE:LDS,
Forum) LOI looks set to flip to definitive soon, likely shortly after month’s end. Expect first revenue numbers shortly thereafter.
Affinor (
CSE:AFI,
Forum) boss Nick Brusatore was happy to see the Tweed/Bedrocan deal, and tweeted that Affinor is “poised and waiting” for a takeover offer of its own.
Who indeed.
Credit where it’s due, it appears Affinor has one of the few grow facilities actually getting herb out the door. The downside:
The herb is basil.
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: Invictus MD Strategies, Wildflower, Naturally Splendid, and Nutritional High are Stockhouse Publishing marketing clients. The author holds stock in Invictus, Naturally splendid, Nutritional High and Lifestyle Delivery Systems.