The Green Organic Dutchman, better known as TGOD, is a story our readers know very well since we have not only followed the company’s development since its inception, Gecko Research’s readers have also helped finance the company.
Gecko Research has been a part of the story since the 50 cent seed financing in 2016 and we have continued to finance TGOD in the rounds thereafter ($1.15 and $1.65). Out of the current >4,000 shareholders, a large number of those originates from the Gecko Investor Group (GIG).
When we started this “TGOD journey”, we could never imagine where it would take us in terms of how the company evolved, as well as the return on our own investment. TGOD will IPO in March, just 6-8 weeks away. Although the IPO price is yet to be determined, we are 100% convinced that TGOD will trade >$10 this spring, assuming that current market conditions stays about the same.
Our share price estimates have increased over time as so many great things has happened, hence TGOD simply had to be re-valued. TGOD is set to become the world’s largest organic marijuana producer and we think TGOD is bound to become the 3rd largest Canadian Licensed Producer in terms of market cap and valuation.
We are personally looking to make a good deal of money on our investment in TGOD, but what truly gives us more joy, is the fact that so many GIG & Gecko readers are making what must be most people’s best investment ever. Truly amazing and 100% happiness on our part.
On January 5th, Aurora Cannabis announced their move to invest $55 Mn to become a 17% owner of TGOD. Today we will let you know our thoughts on the deal and we will point out some of the large benefits.
The Green Organic Dutchman –
Becoming A Multi-Billion Dollar Company
Today is a great day to be a shareholder of TGOD, mark our words. We will give you our thoughts on the major announcement and highlight the important details.
We have said it before and we don’t mind saying it again – TGOD is by far the best Canadian licensed marijuana producer in the space and it makes us extremely happy to have had so many Gecko Research readers invested in TGOD alongside with us.
After markets closed on Tuesday, January 16, TGOD released the closing of the latest financing as well as sending out a shareholder update letter. Bringing in Aurora as the largest shareholder is in our view a win-win for both companies, with TGOD benefitting the most.
This will have a huge impact on
1) TGOD itself of course, now fully funded for its ongoing 116 Mn grams production expansion.
2) TGOD shareholders. All of a sudden, a lot of potential risk is off the table = value creation
3) M&A. Aurora is setting the stage for what we believe is the major starting point of M&A in the sector.
4) The Aurora investment validates TGOD’s business plan and accomplishments. Aurora has a tremendous number of shareholders and supporters which has given Aurora a very high valuation. This will automatically trickle down on TGOD as a large number of Aurora shareholders will move their investment over to where they see the most value (–> TGOD).
5) When Aurora bought Larssen (world leader in building greenhouses), existing Larssen clients were at risk but instead TGOD is now in a better position than ever. This deal will ensure acceleration of the construction = limiting costs and reducing risks.
The Press Release
You can off course go and read the Aurora release from Jan 5th yourself, but here are the major points and take-aways.
• Aurora Cannabis have, through the latest financing, taken a 15% ownership of TGOD on a fully diluted basis.
• Aurora have an option to acquire, through an equity financing 90 days post-IPO, another 8% of TGOD
• Aurora have an option to acquire, through an equity financing, another 8% of TGOD once the cultivational license has been awarded in both Ontario (already in place) & Québec (pending)
• Aurora have an option to acquire, through an equity financing, another 8% of TGOD once the build is 50% completed in Québec (expected summer -18)
• Aurora have an option to acquire, through an equity financing, another 12% of TGOD if TGOD meets certain revenue milestones
Should all of the above options be exercised by Aurora, they would increase their ownership in TGOD to 51%.
Explaining The Points
Let’s go through each and every point in the agreement between TGOD and Aurora and what it means for all parties involved.
Point one isn’t brain surgery, we can all clearly see the obvious, TGOD is such a great company that Aurora want to be a major shareholder. From our standpoint, this is the greatest thing with the whole release and for TWO reasons.
The obvious one is already pointed out, TGOD is fully funded for their ongoing expansion. Although we see a marijuana sector which is very strong and flooded with capital, things can change and it makes all the sense in the world to secure the funds as soon as possible. Analysts and investors will give TGOD a higher valuation on this fact alone.
The second one, and for us equally obvious, is the fact that TGOD will continue to have Larssen as a partner. For those of you who don’t know, Larssen is the industry leader in high-tech, automated, environmentally controlled greenhouses since over 30 years and they have been involved with over 1,000 projects around the globe.
Aurora just recently acquired Larssen and that could have been used as leverage on the LP’s using Larssen to build their facilities. This is now a non-issue for TGOD and extremely important. Through this deal, TGOD has removed the risk of losing Larsson as a partner which would have caused delays and cost overruns. We are extremely pleased that TGOD will continue to use the industry leader to build their greenhouses.
Moving on to the three 8% options and what they mean. The key word here is ‘option’, it’s Aurora’s choice to go ahead with these additional investments. Assuming they will go through with all three of them, it will take Aurora’s ownership to 39%. But it would also make TGOD the most well-funded company in the entire space.
If Aurora during 2019* will execute on the 12% option, that will take them to a 51% owner of TGOD and we suspect it will be everyone’s conclusion that Aurora will take out TGOD completely. There’s is however an 18-month standstill clause which prohibits Aurora to make any such move within a year and a half from TGOD’s IPO date. That will take us to September 2019.
* Our own assumption
Aurora may look like the winner here but after reading the press releases and TGOD’s letter to its shareholders, dissecting and analysing it all, it’s very clear to us that there are two big winners here, TGOD the company and us as shareholders. Let us elaborate on how we see things.
First off, let’s forget about the last 12% for a while, we don’t see why Aurora would ever execute that option, it would make more sense for them to stay at 39% or simply make a complete take-over at that point.
Instead, let’s talk about the 3 x 8% options. They are all looking to be triggered within six months of the IPO. Here lies the very interesting part.
Since the only free trading paper will be from the IPO, the share price of TGOD will be so high that we are not sure Aurora even realize what kind of sums they have to come up with. Remember, they have to put up cash to increase ownership, cash that TGOD can put to good use through expansions and M&A.
TGOD’s share structure is unique. First of all, the company is all owned by retail investors and this is a very well executed plan since the beginning. Besides management’s 42-month voluntary escrow, all shares (besides IPO) are restricted for 6 months.
We want you to imagine what will happen when a billion-dollar company only has 5-10%* of its shares free trading for 6 months. On top of that you have to consider the fact that TGOD will be the hottest IPO in the cannabis sector, probably ever. The demand among investors will be insane. Then you have to also consider the ETF’s, pension funds and other institutions who are simply forced to buy TGOD to their portfolio to comply with their by-laws.
(* We assume 5-10% for the sake of argument, but it won’t be far from the true number)
Let’s pretend that TGOD after 90 days will have a market cap of $2.5-3 Bn (fully diluted), that means Aurora have to come up with $200-250 Mn. And that’s just for the initial 8%. Soon after that there will be another ~$250 Mn. And soon after that another ~$300 Mn.
TGOD is on its way to become one of the largest licensed producers in Canada. As investors we have learned the hard way how important it is to invest in the right people and the terms of this deal just proves that point even more. So far, management of TGOD have exceeded our expectations and we are quite happy to have TGOD as our largest holding.
We are also so overwhelmingly pleased to have been able to offer our readers the chance to become shareholders of TGOD. All the way from the seed round at 50 cents to the $1.65 round that just closed.
If you would like to take advantage of investing in seed and pre-IPO financings, consider joining Gecko Investor Group (GIG). If you are interested in the Canadian juniors and sectors like marijuana, metals & mining, blockchain, lithium, cobalt and more, sign up for our free newsletter.
This article is the view of the team behind Gecko Research. If you want to contact us, send an email and we will try to respond as soon as we can. We are not investment advisors, we suggest you go and read our disclaimer.