Now this really is a game-changer.
In one of the most-anticipated public listings ever in Canadian history, The Green Organic Dutchman(TSX: TGOD, Forum) just commenced trading amid considerable fanfare.
Also known as “TGOD”, the Ontario-based company is on-track to become the world’s largest grower of pharmaceutical-grade, premium-quality organic cannabis.
TGOD’s debut on the capital markets is also the world’s largest IPO for a cannabis company to date. It completed a cash raise of $115 million at $3.65 a share.
This comes in addition to the very sizeable war chest of around $130 million in working capital that TGOD had already raised while on its way to accumulating approximately 4,400 investors (many of whom are already medicinal cannabis patients).
An Unassailable Value Proposition?
What makes TGOD different from all of Canada’s other expansion-minded industrial-scale cannabis growers is that its products are exclusively organic.
This focus on organic output extends from dried flower (cannabis buds) to a diversity of lucrative downstream products, such as organic oils, which are ideally suited to a diversity of delivery methods, including the use of vape pens and ingestible extractions.
Most importantly, organic cannabis represents the ultimate gold standard for quality and safety. I will delve more into this later in this article.
Furthermore, TGOD is dedicated to growing pharmaceutical-grade, premium-quality organic cannabis on a massive scale. It is also committed to being one of the lowest cost growers in the industry, even when compared to non-organic cannabis cultivators.
So how does TGOD intend to achieve superior cost containment to most large-scale cannabis growers without compromising on the quality of the end products?
Simply stated, TGOD is fast becoming one of the most technologically-advanced growers in the industry, especially due to its implementation of leading-edge robotics and other forms of automation.
Beyond this, the company is embarking upon a number of “green” energy-saving initiatives that promise to significantly lower operational costs for many years to come. (These “green” innovations warrant a whole article in themselves -- which I will publish at a later date -- as they validate TGOD’s credentials as a forward-thinking, environmentally-conscious company.)
Additionally, the company’s adoption of cutting-edge “lean manufacturing” processes should help further streamline the production process -- making for further cost-cutting synergies
With a looming glut of cannabis on the markets, the advent of a price crunch for raw cannabis threatens to put the industry’s high-cost operators out of business. This is why TGOD aims to eventually drive its production costs below CDN $1.00 per gram, which would make it one Canada’s lowest cost growers.
On the marketing front, TGOD has already established the right strategic partnerships and alliances to ensure a robust international market for its future sales. In other words, it should not have any difficulty in finding buyers for a top-of-the-line range of cannabis products (including extractions) that sell for a premium price. More on this in a moment.
A Trailblazing Industry Innovator
TGOD has two state-of-the-art growing facilities under construction that will encompass nearly 1,000,000 square feet of growing space. This amounts to a growing capacity of 116,000 kilograms of dried flower cannabis per annum.
Significantly, these two build-outs are now fully financed. They are also incorporating leading-edge technological innovations to optimize the company’s production profile.
To accelerate the development of these flagship facilities, TGOD has entered into joint venture partnerships with the construction industry titan Ledcor Group, as well as Eaton Canada, which is a world leader in green power innovations.
Image: Courtesy of David Bernard-Perron, TGOD’s VP, Growing Operations, who previously managed the large-scale organic growing operation pictured above.
Additionally, TGOD is harnessing the greenhouse growing expertise of Larssen Ltd. -- a world-renowned designer of state-of-the-art greenhouses. Larssen is nearing the completion of its build-out of the approximately 800,000-square-feet showcase “Aurora Sky” growing facility in Edmonton for Aurora Cannabis (TSX: ACB).
Larssen has also built 15 other cannabis cultivation facilities in Canada and has more than 25 years of experience specializing in the design of sophisticated, automated greenhouses.
Leveraging the “Aurora Advantage”
Earlier this year, TGOD closed a $112 million financing at $1.65 a share. This included a $55 million investment by Aurora -- which is Canada’s second largest cannabis grower in terms of market capitalization.
By taking a 17.6% stake in TGOD, Aurora not only validated TGOD’s business model but it also committed to buying 20% of all of TGOD’s future organic output at wholesale prices.
In a letter to shareholders, here’s how TGOD’s CEO Rob Anderson explains the benefits of teaming-up with Aurora Cannabis, as well as accepting such a large cash infusion from its new strategic partner:
“The Board of Directors elected to fully fund our entire 116,000 kg expansion for several key reasons. This decision:
- Removes financing risk
- Adds significant shareholder value by increasing our valuation on a fully funded basis
- Ranks TGOD in the top 5 of all Canadian LPs based on a fully funded capacity
- Makes TGOD the dominant player in ‘Organic Cannabis’
- Increases our IPO value and interest from institutions
- Positions TGOD to mirror Aurora’s rapid growth trajectory.”
Not only does this supply agreement give TGOD peer-to-peer validation for its business model, but it also offers to accelerate TGOD’s construction time-line and time to market for its product line.
To this point, Anderson adds: “This is a synergistic partnership that will help TGOD reach an international audience with its premium products and rapidly capture market share in this incredibly dynamic market.”
Image: Courtesy of David Bernard-Perron, TGOD’s VP, Growing Operations
Ingestible Oils: A Hidden Risk?
The one potential downside to the concentration of cannabinoids, such as CBD and THC, into oil-based extractions is that pesticide chemicals also tend to become concentrated.
It’s a systemic, industry-wide problem all across North America. In spite of Canada’s strict regulations for legally growing medicinal cannabis on an industrial scale, there have been several well-publicized product recalls involving big-league cannabis growers over the past couple of years.
Even though it’s only trace amounts of pesticide residues that can sometimes be present, this can still be potentially harmful to people with weakened immune systems, such as cancer patients.
However, certain controversial pesticides can be particularly problematic for medical cannabis patients. They include myclobutanil, which turns into cyanide when it is heated up in a cannabis “joint” or in the cannabis oils inhaled with vape pens.
With this in mind, TGOD has a clear competitive advantage over growers who are not certified organic -- which constitutes over 90% of the cannabis growing industry. And TGOD’s several smaller rivals simply cannot compete with the company’s ability to achieve virtually insurmountable economies of scale.
Investment Summary
It should also be noted that the company boasts a world-class management team (which will be discussed in future articles). In essence, it is a balanced blend of highly successful financiers from the capital markets and experts in international sales and marketing, especially in brand building and in the consumer packaged goods markets.
Management also includes a world-class master grower who already has extensive experience in growing pharmaceutical grade organic cannabis on an industrialized scale.
So all the right dynamics are in place for the company to execute on its vision -- and on schedule. Additionally, this disruptive industry innovator benefits from a fully-funded, large-scale expansion profile. This represents a major de-risking event.
On an operational level, the company has also demonstrated that it has the technical expertise to both grow organically and on a huge scale.
Here is the big takeaway for investors: TGOD is on-target to become the dominant player in North America’s fast-growing cannabis sector -- organic products, especially oils and other value-added cannabis products.
Indeed, TGOD seems destined to earn the lion’s share of both the medicinal and looming recreational markets for premium-grade organic cannabis -- markets that will be worth billions of dollars of combined value each year.
Balance sheet metrics should therefore become the ultimate testament to TGOD’s strategic vision and high-level execution within the next 12-24 months. Until then, the advent of plenty of positive news flow in the coming months should build considerable intrinsic value into the company’s stock market valuation. In turn, TGOD’s share price promises to become a powerful proxy for the company’s rising fortunes.
About the Author: Marc Davis has a deep background in the capital markets spanning 30 years. He is also a longstanding financial journalist, having worked for leading digital financial news agencies in North America and in London’s financial centre. He is also a former business reporter for CBC Television.
Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.
Disclaimer: The principals of M. Davis & Associates Capital Inc. own shares in The Green Organic Dutchman and some of the costs of researching this Company on an ongoing basis are defrayed by nominal payments from the Company.
FULL DISCLOSURE: The Green Organic Dutchman is a paid client of Stockhouse Publishing.