No company in the Canadian cannabis space polarizes people like Green Organic Dutchman (TGOD.T), which roared to the public markets on perhaps the biggest promote yet seen, raised nine-digit totals along the way, swept in more first time private placement participants than any company before them, and then did… well… nothing, for a long time.
With top brass having been walked recently and plans to super-size the company grow facilities shelved in the wake of underwhelming need for more weed, TGOD has made no secret it is at a moment of recalibration, but investors will have expected to see more than this.
- Posted quarterly revenue of $3.25 million ($11.16 million for the year) consisting of hemp-derived product sales in Europe of $2.56 million ($9.88 million for the year) and sales from cannabis products in Canada of $0.69 million ($1.28 million for the year).
- Quarterly sales in Canada increased marginally due to limited production from the Ancaster facility. TGOD initiated production in its hybrid greenhouse in November 2019, with an eight-week flowering cycle.
- Registered a net loss of $144.75 million in the quarter, ($195.75 million for the year) including non-cash impairment charges of $127.74 million ($127.74 million for the year) related to certain cash generating assets being built or used in Canada, and the Company’s investment in Epican Medicinals.
An utter clusterfuck.
Hubris has been at the heart of TGOD’s inability to get to a functioning business model, but so too has distraction. While the company was slow to move on expanding its grow footprint, a longer term strategy of wanting to focus on beverages relied on government regulators to actually allow that business model, which stalled thew evolution of the company while others clawed their way into market share.
Now TGOD is actually producing weed – and good organic weed at that – it’s playing catch-up, and writing off money spent on large grow facilities it turned out not to need.
These impairment charges are primarily due to market conditions, which have caused the Company to revise its near-term and long-term growth forecasts in the reduced operating facility footprint, and the strategic decision to forgo the expansion of its proposed cultivation activities for export in Jamaica in order to focus on its Canadian operations.
In essence, the company has decided to eat a fat impairment charge this quarter so as to have a hope of good numbers next quarter.
As market conditions improve, and should the Company decide to bring additional cultivation zones online which would increase the expected recoverable amount of future cashflows, the non-cash impairment charges may be reconsidered and be reversed as permitted by its accounting framework.
Or it may not.
Without the impairment cost, TGOD still lost $17 million this quarter, which means it’s likely to need a lot more money to carry it through to when it’s selling enough product to cover its costs.
“While 2019 was a challenging year for the entire sector, we have made significant progress on the operational front and adjusted our construction and operating plan to preserve shareholder capital and in light of changing market conditions,” commented Brian Athaide, CEO of TGOD. “Despite taking impairment charges this quarter, as we continue to evaluate financing options, we note that the value of our assets still far exceeds our liabilities. With our first 2.0 product, TGOD Infusers, now available, our teas and vapes launching next month, as well as additional launches planned later this year, we anticipate continued sales momentum for the rest of 2020,” continued Athaide.
TGOD did raise money last quarter, which was a necessary move considering how they’re spending it.
Closed a senior secured first lien credit facility with a commercial lender with the first tranche of the credit facility producing gross proceeds of $27.7 million with no principal repayments required for the first twelve months. The second tranche of the credit facility consisting of an additional $15 million may be advanced upon the achievement of certain operational milestones and approval from the lender’s credit committee.
Some of the folks who supplied TGOD with money this quarter will be alarmed to know they overpaid significantly for it.
Completed a bought deal financing of 36,800,000 units and 20,608,000 warrants at a price per unit of $0.75 for aggregate gross proceeds of $27.6 million.
TGOD currently trades at $0.44.
TGOD was a long time client of ours from the time before it landed on the markets. Our readers who qualified to do so got in on their initial private placement financing in big numbers, for $1.15, $1.65, and $3.65. The stock touched $9 before coming back to earth as those big financings unlocked, but our readers would have enjoyed their three-baggers if they took profits when suggested.
In the years since, TGOD has disappointed. A significant number of investors have maintained the faith, believing that organic product will win out, that TGOD’s war chest gave it an advantage over others, and that it’s wide shareholder base (even today the company enjoys a significant trading volume) was a plus for a young company finding its way.
Today, it must be said, TGOD needs to show its mantle and prove the naysayers wrong. The writeoffs this quarter should allow it to run cleanly into the next, where selling product in large numbers should be the only thing the company works at.
Should TGOD bring costs down significantly and ramp revenue to the point where its cannabis sales move higher than your average suburban laundromat’s annual revenues, it should come bursting out of the gate with victory trumpets blasting.
But should it eat through the money it just raised, and into the debt it just took out, TGOD may well find itself where the naysayers have long suggested it was headed.
Pick a side or do as I am – I’m sitting this one out.
— Chris Parry
FULL DISCLOSURE: TGOD was previously and Equity.Guru marketing client.