So you missed Canopy/Tweed coming to the market. You stood back and watched Supreme blast off. You missed Aurora popping, and the Emblem financing and CannaRoyalty deal, those were too hard to get a piece of.
You’re standing there watching all these chumps having gotten rich while you stood idly by, thinking, “The next one… I’ll get on the next one..”
Hey. Here’s the next one. If you’ve never participated in a financing before, this is your chance to get in the program. I’m going to walk you though the process of taking part in a private placement financing, and one of the bigger pre-listing financings for some time, as things stand.
Just to be clear: I’m not telling you to invest, nor promising riches for anyone who does. That’s not my job; I’m just going to walk you through the process of how you’d do so, if you decide that’d be a good use of your time and money.
PRIVATE PLACEMENT 101: ANALYZING THE DEAL
If collecting retail investors was an Olympic event, The Green Organic Dutchman (TGOD) team would be taking gold for Canada. The plan here, as I understand it, is to gather 3,000+ smaller (accredited) investors, to help form a base that will be tough to shake, as TGOD rolls out with a grand plan.
That strategy worked nicely for Emblem (EMC.V), which went to market with around 1,400 investors, rather than the usual round of banks and brokers and old rich. It’s a strategy also working in the gold sector for Nexus Gold (NXS.V), which has a chart that looks like a skateboard ramp right about now because they went for a stack of small investors rather than a handful of institutionals that will take their profits at their leisure and kill a stock’s value in doing so.
TGOD is going to run that strategy to the next level. I’ve seen the battery of dealmakers lined up to get this thing over the line, and if there’s a mover-shaker in Canada who isn’t a part of this deal, they ought to check them for a pulse.
It’s the big one. You thought Emblem was big? This is The Emblem Strikes Back.
And that’s no idle boast: The financiers behind Emblem, several of the execs behind the creation of Organigram, and assorted VPs, directors, and the President of Saber, the company which became Emblem, are all behind this deal.
In fact, between Rob Anderson, Dave Doherty, Marc Cernovitch, Brett Allan, and Danny Brody, you’re looking at $3 million of personal investment in TGOD as things stand. Anderson is the financier who brought in $47 million in Emblem financing, taking it to a $450 million valuation since it debuted in early December. I’ve got issues with how Organigram is run (no secret), but there’s no denying that, between the work these guys did in setting up that company and Emblem, this team has created just shy of a billion dollars in wealth – so far.
And that’s not the first billion Anderson has brought to the table in the smallcap space. He’s been around for a long time, and it might be an easier task to list the smallcap companies he hasn’t raised money for, rather than those he has.
Anderson, however, isn’t just raising money here. He’s decided to step into the CEO role. This deal is his legacy project.
So what’s in the deal? Here’s what you get.
The existing asset received its production license in August of last year, with a 1,000 kg production capacity and a 100% fully organic product. They’ve recently acquired another 75 acres to add to the existing 25 acre plot. Solid, and in this market, probably worth $40 million.
The previous financing for TGOD, which was solidly oversubscribed, financed a 20,000 sq. ft expansion. This round will finance a 125,000 sq. ft expansion, which it plans to utilize to sell mainly to other LPs early on, fulfilling what’s looming as an incredible undersupply of product through 2017 – especially if recreational lands.
Following that, the company will shift to a retail model, while putting its back into JV deals with large retailers, such as pharma companies, pharmacies, liquor stores and whatever retail form the industry takes post-recreational shift.
Let’s be clear: 125,000 sq. ft is a lot of canopy space, and brings them some 14,000 kg of production capacity. It puts TGOD firmly into the nine-figure value club, and ranks it in the top five of LPs. Sure, others are making their own expansion plans, but they have to raise the money first, and nobody has raised money as quickly, efficiently, and often as this crew of late.
In terms of comparables, the closest to the fundamentals of the TGOD plan is Cronos, which has 90 acres currently at hand and 170,000 sq. ft of expansion planned, which will take them to 18,000 + kgs of capacity. They’re valued right now at $222 million, or basically double TGOD’s post-financing value.
Cronos had also suffered from internal struggles and in-fighting before it finally kicked on, having sunk some $50 million into an outfit that hit as little as $10 million in value before the market sucked it up to safety. What took Cronos two years to do, the Emblem team did in two months.
When all is said and done, TGOD has $12.5 million at hand, and a pre-financing valuation of $106 million. There are 92 million shares out right now, and this financing will add 8.7 million shares to that.
You’ll get your shares at $1.15 per, and you’ll get a full warrant at $2.15 for 24 months, or until the stock hits $2.80 for ten trading days.
PRIVATE PLACEMENT 101: SO WHAT DOES ALL THIS MEAN?
Okay, let’s strip this back to its bare bones.
TGOD already raised a bunch of money from deal guys. They got it cheaper than you. That’s okay, because they have to sit on it for longer than you. The founders, who own 12.4%, have their shares escrowed for 36 months. The management team have a shorter hold on their stock but they’re planning to stick around to run it all.
There are 92.8 million shares out as things stand. They’re selling another 8.7 million to you.
You’ll pay $1.15 per share in the financing, should you decide to play. Normally, you’ll have a four-month hold on that stock, because no company wants you to blast out your paper as soon as you’ve turned a 10% profit. In this case, however, it’s a six-month hold. Part of that is because it’s not public yet and sometimes it takes time for that process to roll out fully. Part of it is, screw you, this thing is in hot demand and if you want it, you’re gonna hold it for a bit. Fair.
Even fairer: You’ll also get a full warrant priced at $2.15 for each share you purchase. This is also different from usual, because you normally get a half warrant for each share, not a full one.
A warrant is an agreement that you can buy shares from the company in the future for the agreed upon price. This means, if the stock rolls to $3, you can sell your current stake, and use the cash to buy more for that $2.15 warrant price. The money goes to the company to help it fuel its ambitions, and you’re in the green again.
If the price goes down, the warrant eventually dies off and is never spoken of again.
Warrants are a big reason why insiders are attracted to PP financings. It’s a bonus for betting early on the company, and it’s a good way for the company to finance future growth without diluting the market.
PRIVATE PLACEMENT 101: HOW DO I DO IT?
Well, first you talk to a financial advisor and figure out if you can afford to. Because I’m not your dad and not telling you to invest in anything, ever.
Assuming you can, and that you’ve decided you’d like to, you fill out a document provided by the company, or a broker, that outlines what you’re buying. These documents are long and full of dire warnings that you should probably not do this and you might never see a return and you might never hear from anyone about what happened to your money and the sky will fall and dogs and cats will live together.
The first page will ask you how many shares you’re buying and for how much, and where the company should send your stock certificates. The following pages will ask you why you think you’re an accredited investor.
Are you? Well, that’s tough to say.
There are many ways you could be considered accredited on one deal and not the next. If you’re friends and family of the guys behind the deal, or you’ve already got stock in the deal, or you’ve gone to school and become all certified as a financial advisor and such, you’re probably good. More often than not, people are accredited because they have mucho dinero.
If you have a million bucks in liquid assets, you’re good to go.
If you earned $200k per year over the last few years? Good to go. If you didn’t hit the $200k but your partner’s income took you to $300k combined? That’s good enough too.
There are many other ways, too numerous to list here, but Sprott Asset Management has a nice list.
If you qualify under these rules, now you got to the company and say “Sup, company? I’d like to take part in the PP, fam.”
The company, or a broker, will then run you through the remainder of the documentation (and make sure you’re qualified), accept your cheque or wire, and send you your shares.
The process is not as arduous as you may think, and the rules as to who qualifies as accredited are changing quickly to include more and more people who aren’t old rich dudes. The thinking used to be, if you weren’t rich, you weren’t clever enough to do this kind of thing so you should just get to the back of the queue and buy your shares for whatever the insiders went public at.
This is, of course, insane thinking. If you’re smart enough to have run your own portfolio for a few years and you’ve put some runs on the board, you should be able to get in on the deal earlier because you’re clearly every bit as smart as someone who was born with a silver spoon up his jacksie.
How do you contact the company? It’s all here.
Tell them you came from Equity.Guru, so they know where the cool kids are, if you wouldn’t mind.
WILL I MAKE MONEY?
Damn, bro, I can’t hang an answer on that one. I’ll say this: The folks who took Organigram public sure did. And when they took Emblem public, they sure did. And this thing they’re taking public now?
Your chances are better to make money if you’re in early than they are if you’re buying at market prices in three months. But there’s always risk in this business and you should consider that risk carefully before you get in on anything, TGOD or otherwise.
But hey, it’s likely time that you took the step from retail investor to early financier, if not with this deal, with some other deal, because the markets are hot right now and there are some serious deals being done. Don’t be scared of the brokers – they haven’t talked to a new investor in years, so they sure as hell won’t hang up on you.
— Chris Parry
FULL DISCLOSURE: Equity.Guru has no commercial arrangement with TGOD at this time, but Emblem Cannabis is an Equity.Guru marketing client.