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August 11, 2022


Investment information for the new generation

Green Organic Dutchman (TGOD.T) & MedMen (MMEN.C) have big days, but only one is smiling

The Green Organic Dutchman (TGOD.T) is nearing being a billion dollar company, after its stock ran up 13.9% today on news that it would license soluble cannabinoid tech from Stillwater Foods.

The Green Organic Dutchman Holdings Ltd. has entered into an exclusive agreement with Stillwater Brands to license Ripple SC (soluble cannabinoids) ingredient technology, and other proprietary beverage and food technologies and formulations related to cannabinoid-infused consumer packaged goods, including microdose and full-dose tea sticks within Canada and certain international jurisdictions outside of the United States.

Why is this important? Because soluble cannabinoids bring CBDs to EVERY grocery product, from nutraceuticals to breads to juices to dairy to cereals to.. you name it.

And that’s the market TGOD wants.

So it was a good day for the TGOD team, which has hauled over 4,000 pre-listing investors (many of them first time private placement participants) along for the ride, from their $1 financing a year and a half ago, and their $1.65 financing six months ago, to the $4.67 closing price today.

That’s a beautiful thing, because it means all participants, including those who bought in on opening day, have had a chance to make money.

And that was a stated aim of management before they debuted on the TSX.

You get some corn, we get some corn. Corn for everyone.

In contrast, if you want some corn from MedMen (MMEN.C), you’re going to have to pick it out of the executive shitter.

MMEN came out today at a $1.65 billion valuation with a deal that pays the three top execs some $65 million in their first year, and loads them up with untold bonuses that they can decide on for themselves, an ‘executive protection’ policy that makes them largely impossible to remove, and full voting control of everything, leaving only 0.7% of voting power for bagholders – I mean investors.

[UPDATE: Lawyers for MedMen would like us to note that the three execs in question may not receive their full bonuses in the first year, because they’ve now agreed to a change in their compensation plan that makes 75% of the LTIP payments tied to share price. They also note that there’s an executive compensation committee at MedMen, so the execs in question can’t necessarily vote themselves more money directly, though they designed their own compensation structure when going public] 

They also make millions in bonuses should the market cap ever hit $2 billion, something that became less likely the longer today wore on, as the opening price was kicked to the shit, all the way from $5.73 down to $4.95.

MedMen needs to make $65m in profits – not sales – to just cover its’ top three executives for the next year [update: $30m under the newly revised compensation plan]. In fact, the $3m the company made in sales over six months in 2017 would only cover the first two months of the CFO’s long term incentive plan.

Not his salary, not the many million dollar vested bonus he just received, only his incentive payments for June and July.

Yes, the CFO has retention incentives. Because god knows, you couldn’t function if you lost a CFO.

The MedMen deals makes the founders beyond wealthy, which is right and fine, but it does so at the expense of everyone else. There’s no ‘nice ride’ on the way up. You were either in their inner circle, in which case everything this company ever makes and raises is basically yours [I’m being flip here, not literal], or you’re on the outside hoping for them to do so much business that it doubles despite the internal larceny afoot.

Hell, even the CSE lists the stock as “MedMen Enterprises Inc. Class B Subordinate Voting Shares (MMEN).

That’s you, baggies, you’re ‘subordinates.’ You’re class B.

That happens sometimes, usually with huge ass companies that make a serious load of revenue and profit and move sectors, and you don’t mind that they get paid a fortune and loaded up on options because they’re delivering dividends.

It doesn’t happen on the CS fucking E.

This is MedMen’s attitude toward the retail markets:

This is MedMen’s execs, offering wealth to you:

This is MedMen’s execs, to the market:

Now, we like retail distribution plays. Roll up a bunch of dispensaries and I’ll give you a good long look. Growing weed has decent margins, for now, but selling it to the consumer at retail prices is margin aplenty.

And MedMen is a retail dispensary play worth a billion dollars plus.

Why are they worth a billion? Because ‘Apple Stores!’

Every thing you ever see an exec of this company talk about will mention the phrase ‘Apple stores’.

This is the Apple store for weed from CNBC.

I have been talking about dispensaries that should look like Apple stores since 2014. It’s the obvious direction of an industry that needs to shake its connection with guys selling chron behind the dumpster at The Cambie.

But how hard is it to turn a dispensary into an Apple store?

Well, not incredibly. It’s not like there’s a patent involved.

Hell, if I take a walk though a six square block area around my office, I’ll find a dozen independent dispensaries that look, feel, and run like Apple Stores because EVERY RETAIL ORGANIZATION IN THE WORLD USES THE APPLE STORE AS A MODERN RETAIL BASE.

David’s Tea? Apple Store for tea.

Chipotle? Apple store for burritos.

Freshii? Apple store for terrible salads made by grumpy teenagers.

McDonalds? Apple store for fat people.

An Apple store basically means there’s probably a lot of wood interior, some ambient lighting and at least one wall painted an absurd colour, some iPads lying about for you to place an order on, a dude with sleeve tattoos and an ironic t-shirt serving you, some large posters of people happily using the product while hiking, and there’ll be Imagine Dragons playing in the background.

If you’re a dispensary and you’re not following the Apple store model, what sort of freshly minted fuckwubble are you? Ditch the Ikea card table and the mason jars and get a damned designer in.

Here’s our note on Invictus MD Strategies (GENE.V) from May 18, on a similar topic:

The company says it has plans to own dispensaries all over BC and the prairies, complete with “open floor plans, tasteful lighting, and iPad-wielding sales associates deeply trained in cannabis,” to help slang the dope.

Meanwhile, MedMen is taking their Apple store vibe back to the head office, with a lovely hipster floorplan and, of course, a gym.

Yes, that’s a beer tap. Natch.

And look! Wood! Ambient lights! An absurdly painted wall!

Weird! It’s almost like an Apple store!

Now, I’ll grant you that, ever since DOJA/Hiku Brands (HIKU.C) spent nutty money buying Tokyo Smoke, another hipster Apple store brand that reeks of style over profits and, like MedMen, doesn’t make any, the markets have been eyeing dispensaries in a way they used to eye lithium.

But I’ll tell you a story about Hiku – back when they were coming public as DOJA, they backed out of their initial go-public deal at the zero hour.

Why? Because it was too inflated. Because the average investor wouldn’t have made money on it.

That team backed out and retooled, costing themselves a little time and money, and came out at a later date with a more reasonable cap – and with news they’d got their grow license.

Anyone who bought DOJA over their first year, from before the public listing until the Tokyo Smoke deal, made serious bank along the way. *I* made serious bank along the way.

And the executives? They bought into their own stock, at market prices, when it was down. When YOU made money, THEY made money. That’s how it should be.

Not impenetrable executive protection and wealth creation deals, not absolution from ever being able to be fired, not hoarding of all voting power from all others – but an executive team who’s in there with you, and gets wealthy as you do.

Hey, there’s nothing illegal about a company’s founders squeezing the financiers for everything they can get in order to bring their deal public.

Usually, the financiers will reach a point where they will pull back and tell these douchelords to go F themselves for being so damn greedy but, in this case, the financiers gave up everything to get the deal, made their 7% finders fee, and could care less if it sinks or swims after the fact. That’s now on you and your due diligence.

“Hey, we just filled the room with lions and put a ‘free hookers and blow’ sign out front, it’s not our fault if you ran in and got your face chewed off. But thanks for buying a ticket.”

The object of the public markets is for your company to become a bloated, overblown, overvalued monster. We all want our deals to hit such a chord with investors that we can’t possibly justify where it’s gone.

But we need those deals to not start at that point, but finish there. If there’s only wealth creation for enough people to fit in a 2003 Miata, it should be shunned by others.

MedMen, today, was shunned by the market. May that continue and serve as a warning for future greedheads that we’re either in this together, company and execs and investors in the same rowboat, or we’ll drag you under.

— Chris Parry

FULL DISCLOSURE: TGOD, GENE, and HIKU are Equity.Guru marketing clients. MMEN is not. We’re good with that mix.

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