Tricho-Med receives Health Canada cultivation license. On July 15, 2019, Health Canada awarded Tricho-Med a cultivation license at its recently-built facility in Brownsburg, Quebec. According to the terms of the original agreement with Tricho-Med approved by the TSXV on December 18, 2017, LGC Capital Ltd. (TSXV:LG) (OTCQB:LGGCF) is now entitled to convert its convertible debenture for 49% of the asset, including a 5% royalty. For reference, the debenture agreement was for $4M at 10% interest (payable from cash flow). Proceeds were used by Tricho-Med to build its current 34,000 sq. ft facility.

Tricho-Med is attempting to cancel the debenture agreement. On July 12, 2019, Tricho-Med served LGC Capital Ltd. with a motion for a declaratory judgment to cancel the convertible debenture and instead repay LGC the owed funds plus accrued interest. Declaratory judgement is generally used in common law to declare the rights of parties who are in a disagreement about respective obligations of a contract and would like arbitration by the court. Tricho-Med is attempting to have the court cancel the equity convertibility of its debenture with LGC Capital. The Company believes the motion is without merit and that the matter should be resolved as quickly as possible, allowing LGC Capital to convert its debenture into an equity position. We note that in a worst-case scenario, if Tricho-Med successfully cancels the debenture agreement, then LGC is likely justified a higher payment price than $4M plus interest, as the cost of capital for the Company should be considered much higher. We estimate LGC’s stake in Tricho-Med is worth considerably more at $11.7M, or $0.018/share.

Tricho-Med is on pace to capitalize on the shortage of cannabis supply shortages in Quebec, as the Quebec government has a history of supporting local companies. In May 2018, Gatineau, Quebec’s HEXO Corp. (TSX:HEXO, $6.33 | N/R) received the largest supply deal of all Canadian LPs from the Quebec government for ~100,000 kg over three years. Terranueva Corp. (CSE:TEQ, $0.70 | N/R), a Laval-based cultivator, announced on May 22, 2019, it has signed a letter of intent with the SQDC, under which Terranueva will supply the SQDC with recreational cannabis for distribution and sale in the province of Quebec. Under this agreement, Terranueva will supply 128 kg of product with the potential for additional supply agreements once TEQ increases its capacity. In our view, as a Montreal-based cultivator, Tricho-Med should also receive a favourable supply agreement from the SQDC.