Loblaws Reports Earningzzzzzzz, The Pot Sector Gets Chatty, Cuz It’s TGOD IPO Day, Which Is A Funny Time For A Blockchain Company To Do An RTO unles… Do they WANT to be Ignored?

Here’s What Happened May 2nd

The Globe’s business pages practically had to cover Loblaws earnings, because it’s a $24 billion dollar grocery chain dedicated to keeping our nation’s supermarkets boring and terrible. Loblaw Companies Inc. (L.T) did $337 million in earnings on $10 billion in sales and said a bunch of empty things about the growth they’re going to deliver when they practically become the Canadian Amazon of groceries while simultaneously bumping their dividend by 2 and a half cents and implementing cost-cutting initiatives that are going to come from adding self-checkout machines, which are “really about improving customer satisfaction.” Before you roll your eyes at that one, consider how satisfied Loblaw president Sarah Davis would feel if she never had to interact with a member of the cashier class ever again.

Loblaw was down $0.11 on 642k shares (-0.2%), which was as boring as it sounds, and all anyone wanted to talk about was TGOD.


The most anticipated IPO in or out of the pot space needs no introduction because The Green Organic Dutchman has been the talk of the street since roughly Christmas time 2016, despite having never sold an ounce (as far as we can tell) and, until today, having never traded a share. TGOD.T made up for it out of the gate, doing just shy of 13 million shares worth of volume to close at $3.89, up $0.29 (+8%), as a million and one Facebook and Reddit posters finally got theirs. The cool kids were in on one of the $1.65 rounds (before it was cool), the trend riders bought theirs at the IPO price of $3.65, and today’s IPO was the beginning of the countdown clock on their 6 month lockup period.

About half of TGOD’s 252 million outstanding shares are subject to lockup agreements, and another quarter of them don’t exist until the warrants are exercised. The IPO warrants trade and are in the money above $7.

Meanwhile, there were 19 million warrants issued in February, which are in the money at $2.15, 13.5 million warrants issued in November in the money at $3, and an aggregate total of 46 million shares that those warrants were issued on the back of that also come trading November first. The $3-strike November warrants are fully transferable, and the company agreed at the time of their sale to use their best efforts to list them, so look for another ‘nother TGOD warrant listing. (To the best of our understanding, TGOD.WT.T is a listing of the $7 strike IPO warrants.)

Between now and then, TGOD will have to somehow settle into their valuation, which we’re ballparking at $884 million (counting the lockup stock and in-the-money warrants, but not the out-of-the-money warrants). The company is building almost a million square feet of growing facility, presently reports that 7,000 square feet of it is active, and do not report having ever sold any marijuana, though they do have a license to sell it to other licensed producers. TGOD’s cash balance is somewhere around $170 million. They report zero revenue.

A googleing of “TGOD warrants” brought up questions on r/weedstocks about TGOD’s outstanding warrants and how one goes about transferring those into their brokerage account, which gives an indication of one of the species of fish involved in this particular feeding frenzy, but not a numerical split on the various types of fish and sharks.

The Action Spreads

Perhaps worried about being upstaged, MedreLEAF (LEAF.T) was reported in the late edition of the Globe and Mail to be in friendly talks with Aurora (ACB.T). LEAF CEO Neil Closner was a no-show for his keynote address at the Arcview investment conference on Tuesday.

Our calculations have LEAF as a top-efficiency producer, third in active production square feet at 265,000. That’s just behind Aphria and about half of Canopy. LEAF and Aurora both sold  about 1 million grams of product last quarter, but as our spreadsheet-obsessed data correspondent is fond of pointing out, about 35% of Aurora’s sales are outsourced. The market is giving MedreLEAF a $2.4 billion enterprise value, which is about half of Aurora’s $4B EV. Closner and the LEAF board may well have surmised that, like Cannimed before them, building a tight-as-a-drum cultivator has taken them as far as it’s going to, and it might be better to leave the valuation creation to the ranking champ.

Medreleaf is far and away the most efficient cultivator we track. Their dip in grams per square foot in Q3 2017 is a function of LEAF adding 210,000 square feet of production space.

Ever Heard of Delphx?

Us neither, but DELX.V completed an RTO today under the cover of the Dutchman IPO, and did 2 million shares in volume. Turns out they’re yet another blockchain deal, the difference being a pitch that makes sense. Delphx claims to be setting up a blockchain to handle transactions in the credit market, and that has floated them to the top of our very very short list of sensible blockchain ideas.

When the unstoppable human compulsion to securitize everything hit the bond market in the 2000s, and traders started writing insurance contracts to back housing bonds, then infamously lost track of what was backing what and sent the economy into a tailspin from which it (naturally) recovered by issuing more securitized debt, part of the problem is that nobody knew what was in the housing bonds. There was a similar opacity to the credit default swaps that were underpinning housing bonds, and when it came time to get a hold of them, nobody could tell where they were held, how to find them, what their owners would take for them, etc., and the whole economy was in a fine mess.

Eventually Michael Lewis wrote a book called The Big Short that explained it to everyone, and they made that into a movie to explain it to everyone who can’t read using celebrities to keep our attention with clever metaphors (our favourite part was the Anthony Bourdain seafood stew bond explanation.)


DELX.V plans to create a blockchain that keeps track of that market, and it’s a fine idea. We’ve long felt that the trading of securities is the only thing blockchain is proven to be good for, and may well be the only thing it’s actually good for for quite some time. Important markets that don’t have the full transparency necessary for liquidity, but are still enormous and structurally vital are a fine place to start. DELX.V was up $0.38 to $0.50 (+76%) on the 2 million shares.

Look for more on this in-flux commercial pot space tomorrow.

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