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The Green Organic Dutchman (TSX: TGOD) is offering investors a “must-have” dividend of sorts – shares in a spin-off company that has a very large war chest and is hungry to make significant acquisitions in the North American cannabis industry.
Where will the newly-minted “TGOD Acquisitions Corp.” make a big splash? All eyes are on the US. After all it is very telling that TGOD’s management opted for a listing on the Canadian Stock Exchange (CSE), which is a far less prestigious bourse than the Toronto Stock Exchange (TSX) where TGOD trades. Yet it has its advantages.
Truth be told, the CSE is known for being welcoming of Canadian companies that have assets in the US, whereas the TSX is definitely not. This is why a handful of high-profile Canadian cannabis companies have already opted for CSE listings. It therefore makes good sense for TGOD Acquisitions to follow suit.
TGOD CEO Brian Athaide says this is a great way for TGOD’s investors to leverage their exposure to the TGOD brand.
“We have developed a significant amount of intrinsic value from years of corporate development at TGOD. The launch of TGOD Acquisitions Corp. has the ability to add tremendous value to both TGOD’s balance sheet as well as the investment portfolios of our shareholders.”
In the company’s July 19, 2018 news release, Athaide elaborates: “This is an incredible opportunity for TGOD to transfer expertise and monetize our proprietary knowledge from the Canadian marketplace. We will partner with innovative and disruptive companies that we can assist with capital market knowledge and unique retail-exclusive financing methods.”
He adds: “The intention is to raise additional capital and list TGOD Acquisitions on the Canadian Securities Exchange. We are excited about this unique opportunity to reward our investors and provide additional value to TGOD shareholders.”
A Value-Added Proposition: The Metrics of the Spin-Off
Here’s how it all breaks down. TGOD shareholders will have the right to acquire Units of TGOD Acquisitions on a basis of 0.15 units for each share of TGOD held on the record date.
- Shareholder Benefits
- Opportunity to invest at the same level as management and the earliest share issuance in TGOD Acquisition Corp (an opportunity that is typically reserved for management, friends and family)
- Access years of intrinsic value developed by TGOD’s management and TGOD’s corporate development team
- TGOD Acquisitions may acquire a “pure play” company that could be vertically integrated or a disruptive ancillary cannabis business with proprietary IP
- TGOD Acquisitions’ Financing Plan:
- $0.50 Dividend Share.
- $TBD (to be decided) Dividend Warrant. $TBD IPO Target – Q4, 2018.
- Capital Structure of TGOD Acquisitions:
- 34,361,526 Shares Outstanding (From 229,076,844 TGOD Shares x 0.15).
- $17,180,763 being raised into TGOD Acquisitions (From 34,361,526 x $0.50).
- Note: Any Units NOT purchased by existing shareholders WILL BE backstopped by TGOD’s management.
Following the completion of the spin out, TGOD Acquisitions will be arm’s length to TGOD and will have an independent board of directors and management.
Accordingly, TGOD and TGOD Acquisitions will enter into a repayable funding agreement, whereby TGOD will provide $25 million of working capital to TGOD Acquisitions. This will be repayable prior to completion of any investments. In return, TGOD Acquisitions will issue a restricted warrant to purchase 50 million common shares for a period of 25 years.
Most notably, there is no cost to the parent company other than the repayable loan which has to be repaid in full.
The Big Picture
The parent company, TGOD, brands itself as a cultivator of high-quality, organic cannabis that is grown using sustainable, all-natural principles. Additionally, TGOD's products are laboratory-tested to ensure patients have access to a standardized, safe and consistent product.
All told, the company has a funded capacity of 170,000 kilograms and is building 1,382,000 square feet of cultivation facilities in Ontario, Quebec, and Jamaica. This will make TGOD the fourth largest licensed producer in Canada and the only one among top-tier companies that grows organic – which retails at a premium to non-organic, irradiated cannabis.
Additionally, the company has a mandate to become a vertically integrated producer of various strains of high-end organic cannabis to be used in a diversity of TGOD-branded consumer packaged goods, including beverages.
In fact, a future multi-billion-dollar marketplace for cannabis-infused beverages has the potential to become one of the industry’s most lucrative sectors. To this end, TGOD has entered into an exclusive agreement with Colorado-based Stillwater Brands to license RIPPLE SC (soluble cannabinoids) ingredient technology for food technologies and formulations related to cannabinoid-infused consumer packaged goods. This includes micro-dose and full-dose tea sticks within North America and certain international jurisdictions.
In essence, TGOD is highly focused on its various core business verticals. To this point, Athaide explains:
“The Green Organic Dutchman has identified numerous opportunities of deep value touching on all aspects of the cannabis industry. But these assets would never qualify as core assets within TGOD’s strict and disciplined business plan. Accordingly, we have not pursued these opportunities to date.
However, the creation of this spin-off company, in which TGOD has the right to become a major shareholder, will allow us to now monetize these untapped opportunities for the benefit of all shareholders.”
He is also putting his money where his mouth is. So is the rest of TGOD’s management in that they will be participating in the TGOD Acquisition financing on an equal footing to all other retail investors by paying the same price for their shares.
This is a big deal as company insiders normally purchase seed shares a at fraction of the price that retail investors for shares – both pre-IPO and at IPO prices.
What’s the Big Prize?
Athaide comments on the TGOD Acquisition’s corporate philosophy: “The spin-off company will partner with innovative and disruptive companies that we can assist with our capital markets knowledge and unique retail exclusive financing methods to raise additional growth capital and list on the Canadian Securities Exchange.”
In other words, it sounds like TGOD Acquisition is pursuing downstream emerging growth opportunities that generate considerable cash flow. The would equate to manufacturers of high-end extractions (think oils) and associated delivery devices, such as vaporization (vape) pens – which are hugely popular in the US.
Already, TGOD has signed a licensing deal with Evolab – the largest seller of high-end vape pens in cannabis-friendly Colorado. It has also signed a similar agreement with Ripple SC, which specializes in water-soluble cannabinoids for infused beverages. Last but not least, TGOD has a licensing deal with CBx Sciences, which specializes in the manufacturing of an array of proprietary cannabis-infused products, especially topical treatments.
This gives investors some insight into what types of opportunities TGOD Acquisition may be eyeing up south of the border.
All in all, TGOD Acquisition represents a great opportunity for TGOD shareholders to leverage the value of their investments dollars. In other words, they will get to participate on an equal footing with TGOD’s management in capitalizing in the US’s burgeoning, multi-billion-dollar cannabis industry.
In fact, it’s worth remembering that a $10,000 investment in TGOD at $0.50 is now worth around $120,000 today.
In summary, TGOD Acquisition is expected to invest in or acquire outright one or more dynamic and disruptive industry leaders in the world’s largest marketplace for both medicinal and recreational cannabis. It’s an exceptional opportunity and the author or this article is one cannabis industry analyst/commentator who does not plan to miss out.
About the Author: Marc Davis is the deputy chair of the leading index for Canada’s top-tier, blue chip cannabis stocks at www.3cindex.ca
He also has a deep background in the capital markets spanning 30 years. A longstanding financial journalist, he has 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 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 from time to time in companies under coverage. Some of the costs of researching these companies on an ongoing basis are therefore defrayed by nominal payments from these companies.