Maple Leaf Green World (MGW.E): Is it possible to have negative market cap?

For a few years now, I’ve been writing about Maple Leaf Green World (MGW.E), a bad company that has long attempted to look like a cannabis company, in the same way your drunk uncle thinks he does a great Austin Powers impression.

It’s been genuinely easy to write about them, because all I usually need to do is find new words for ‘terrible’ and ‘fake’ and the rest writes itself.

But this time I’m going to let their auditors do the work for me, starting with the first page of their financials, released yesterday:

We draw attention to Note 2 in the consolidated financial statements, which indicates that the Company incurred a comprehensive loss of $11,038,777 during the year ended December 31, 2018 and, as of that date, the Company had a accumulated deficit of $28,898,188 and negative working capital of $4,672,048.

As stated in Note 2, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Buy! Buy!

Negative working capital is new. But there are other alarming things in the numbers, like these:

Cash, beginning of year: $3,411,778
Cash, end of year: $574,242

Accounts payable and accrued liabilities $4,452,200

Dear god.

And these:

Share-based compensation, 2017: $85,324

Share-based compensation, 2018: $6,933,834

Woof!

And these:

Loss for the year: 2017: $1,805,837

Loss for the year, 2018: $11,281,911 

And we’re not done yet:

Management has forecasted the expected expenditure levels and contracted commitments will exceed the Company’s net cash inflows and working capital during the first quarter of fiscal 2019 unless further financing is obtained. Additional sources of funding will be required during fiscal 2019 to carry on operations…

This is a fuct company. But how did they get in such deep crap?

Well, the best way to figure that out is to look at the ‘deposits’ section of their financials, which reveals such alarming ineptitude, you have to wonder how these guys find their way to the bathroom in the morning.

Holy moses, nothing this company has done, paid for, or attempted, has come off.

And it’s all been written off to zero dollars.

The Henderson Nevada clanger:

On January 23, 2018, the Company completed the purchase of all of the ownership interests in BioNeva and all of the ownership interest in the Nevada Medical Marijuana Registration Certificate C115 for $613,830 ($450,000 USD).

But then…

On December 31, 2018, Permit 115 expired as the cultivation facility had not been completed. The Company appealed this decision but in March 2019 was informed that the appeal had been denied. For this reason, the deposit on BioNeva has been impaired for the full amount of $682,100 ($500,000 USD). 

Half a million dollars: Wiped out.

The Teikwa Construction dispute:

On May 24, 2017, the Company announced it engaged an independent contractor as the procurement, engineering, and construction manager for its cannabis cultivation facilities at Telkwa, British Columbia (the “BC Facility”) and Henderson, Nevada.

In June of 2017, Maple Leaf provided a deposit of $1,102,500 for this work so that it could contract with construction partners and move the projects forward.

In January of 2018, a dispute arose between the contractor and Maple Leaf which is currently in litigation.

Sad trombone.

Back to Henderson:

On August 17, 2017, the Company entered into an agreement with an engineering firm to construct its cannabis cultivation facility in Henderson, Nevada. Maple Leaf provided deposits of $900,000 USD, of which $535,000 USD had been recorded as development of the project and $365,000 USD was recorded as a deposit.

On June 20, 2018, the Company terminated the contract with the engineering firm. After review by the new architect and project manager it was determined that work claimed by the previous engineering firm could not be utilized, therefore, the assets under construction incurred of $535,000 USD (see note 7) and deposit of $497,933 ($365,000 USD) have been impaired to $nil.

Boy oh boy.

Oh, there’s more:

Subsequent to year end, the Company learned that an appeal to extend the deadline to complete the Henderson facility had been denied (see Note 5), therefore an additional $225,821 ($165,534 USD) allocated to project development costs was also impaired.

To borrow from my Australian ancestral parlance, “these fucking idiots couldn’t run a choko vine over a shithouse.”

I mean, I thought they were terrible when they posted pictures of their California grow operation and it looked like someone had built it with $250 of Home Depot gift cards.

I thought they were idiots when they chose to list on the Neo Aequitas exchange, home of one other listed company and a handful of ETFs.

I thought they were idiots when every single news release they posted over the last several years seemed to end up not happening in reality.

Today:

Construction at the Telkwa facility is 75 per cent complete and work is still going on at the site. Maple Leaf continues its efforts to obtain financing for completion of the facility. Previously announced financing from Silver Arch could not materialize as Silver Arch could not arrange funds for the financing.

Bullshit. Silver Arch is providing financing for projects all over the place. If they couldn’t provide funding for Maple Leaf Grow World, it’s because the projects in question were write-offs.

Couldn’t? Wouldn’t? Pick your preferred word, it’s all terrible for MGW.

The company is actively seeking new real estate zoned for cannabis cultivation both in the city of North Las Vegas and in Clark county. The company is also presently in preliminary negotiations with three potential groups offering their Nevada cultivation certificates and businesses.

With what money, MGW?

Oh – this money?

DHC will introduce persons and entities that might be interested in participating in one or more share, preferred share or other share debt or convertible debt financing(s) of Maple Leaf of $10-million.

What’s that going to cost you?

Upon successful closing of the financing, Maple Leaf has agreed to issue five million shares of Maple Leaf’s capital to DHC at a fixed price of 20 cents per share in the proportionate share of the amount of funds received by Maple Leaf.

A million bucks in stock. Yikes.

Last year, the company announced a $5 million financing. They only ever managed to raise $2.9m of it in the end, so they looked to Silver Arch Capital, out of New Jersey, which offered them $5.25m at the credit card-like rate of 12% interest.

According to MGW, all they needed to get the money was some pretty basic stuff:

Collateral for the loan consists of the real property and improvements thereon located at the Telkwa facility. The loan shall be evidenced by a full set of loan documentation, first mortgage or deed of trust covering the Telkwa facility, granting the lender a first priority security interest in the Telkwa facility.

This loan was, quite honestly, pretty extortionate; you’d really only take such a loan if you were desperate, and Silver Arch regularly lends amounts with an extra digit over what MGW was offered so it’s not like they had to struggle to make such a deal happen.

But the loan money never came. I’m guessing, when they looked at the Tiekwa facility and MGW’s paperwork, they figured the assets weren’t worth the loan amount and backed away.

Investors should consider doing likewise. With a massive cash drain, no likelihood of financing going forward, a history of missed milestones, the complete wipe out of their Nevada asset, and a BC asset that appears not to be worth enough to get a predatory loan on, the $27 million market cap of MGW looks to be about $28 million more than it should be.

— Chris Parry

FULL DISCLOSURE: No commercial involvement with Maple Leaf Grow World, nor do we own stock, nor have we shorted it. But BOY are we tempted.

 

 

 

 

 

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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