Last week, we provided an update on The Green Organic Dutchman (TGOD) after the company announced its final pre-IPO private placement.

If you woud like to request access to this offering, please reach out to financing@tgod.ca

The market has responded very favorably to this offering and like its previous offerings, we expect this one to be extremely oversubscribed.

Yesterday, TGOD released a corporate update that highlighted several important aspects of the business (i.e. sales license, new hires, acquisition/expansion) and we have provided a recap below:

Sales License: Wholesale and Extraction

On August 11 th , TGOD received its sales license from Health Canada. The license will allow the company to sell into the wholesale market to other Licensed Producers. TGOD has been approached be numerous firms over the past few months, but has not made any commitments as it works to find the best possible partners and pricing.

, TGOD received its sales license from Health Canada. The license will allow the company to sell into the wholesale market to other Licensed Producers. TGOD has been approached be numerous firms over the past few months, but has not made any commitments as it works to find the best possible partners and pricing. TGOD has applied for an oil extraction license and has ordered a commercial scale CO2 unit for the extraction of organic cannabis. The construction of a fully customized, purpose-built extraction laboratory will begin shortly and the extraction unit is expected to arrive on-site in the fourth quarter. This lab will have the capacity to process up to 12,000 kg of raw material per year and produce approximately $170 million worth of organic cannabis oils for sale into the Canadian market.

New Management and Board of Directors Additions

TGOD hired Amy Stephenson as its CFO. She has over 20 years of capital markets experience, having managed public companies by providing strategic advice related to finance and compliance. Prior to joining TGOD, Amy was the CFO of Aurora Cannabis (ACB.TO) (ACBFF) and Bedrocan Cannabis. She was also a controller at Canopy Growth (WEED.TO) (TWMJF). Amy obtained her MBA in Finance and she is a Board member of CFA Society Toronto. The previous CFO, Jim Shone will now serve as EVP & General Manager of Operations.

TGOD hired David Perron as Vice President of Growing Operations. He is one of the most sought-after organic cannabis growers in the Canada, having spent three years as Lead Agrologist & Head Grower at Whistler Medical in British Colombia, five years at McGill’s Greenhouse & Horticulture Research Centre, and graduating with a master’s degree in Agronomy from McGill. David’s experience growing organic, pesticide-free cannabis is second to none as Whistler Medical has the reputation of being one of the highest quality organic growers in the industry.

Marc Bertrand initially joined the TGOD team as a Strategic Advisor and will now be taking on a more active role as a Director. He is a seasoned consumer products executive with nearly three decades of success in brand building, strategic licensing, international markets and manufacturing. Marc participated in the launch of the MEGA BLOKS brand and under his leadership, the company grew from $2 million in sales to upwards of $500 million before it was acquired by Mattel in 2014.

Ontario Expansion Update

TGOD is awaiting final permitting for its 150,000-sq. ft. Hamilton expansion. After recent meetings with the City of Hamilton, the company expects to receive its final construction permit in the coming weeks. All the necessary planning and engineering are complete and construction crews are ready to mobilize immediately.

Hamilton Utility Corporation Alliance

When it comes to growing marijuana, power costs become quite significant for large scale operations. TGOD is focused on reducing these costs through a strategic relationship with Hamilton Utility Corp (HUC) as an alliance partner. The firm is the city of Hamilton’s electrical and owns 79% of Horizon Utilities, making it one of the largest municipally owned electrical distribution companies in Ontario.

Through HUC and TGOD’s other project alliance partner Eaton, the second largest power company in the world, the company has figured out a way to outsource its power, heating, cooling & C02 production via a scalable six-megawatt co-gen natural gas micro-grid power plant.

TGOD expects to reduce its cost per kWh from upwards of $0.13 to an estimated net cost of $0.045. This power solution, along with other advanced automation control systems, can make TGOD one of the lowest-cost cannabis producers in the world.

Quebec Acquisition and Expansion

Earlier this month, TGOD expanded its reach and entered the Quebec market. We are very favorable on this move due to the geographical benefits, the population, the potential cost savings, and the location of its new property. First, the Quebec province caters to 8.2 million people, second to only Ontario (where TGOD’s other facility is). These provinces account for more than 60% of Canada’s population.

This leverage will allow TGOD to reduce costs even further, simplify shipping and ordering logistics, and creates a higher level of patient and customer satisfaction based on same day or next day delivery.

This property has the potential to make TGOD the lowest cost marijuana producer in the country. There is data that supports Quebec having the cheapest power in all of Canada and it can be found here (compares the hydro costs across Canada).

TGOD acquired a 75-acre property (zoned 10% commercial and 90% agricultural) just outside of Montreal with services recently upgraded to industrial (meaning that it includes drainage, sewage, water, and gas). The property is located within 700 meters of a 50-megawatt substation and will provide all the power needed at $0.035 per kWh (more than 70% lower than the $0.13 average cost per kWh).

TGOD’s initial expansion into Quebec will total 820,000 sq. ft. (broken down into three phases) and will produce 102,000 kilograms (combined). The facility will consist of approximately 690,000 sq. ft. of dedicated grow space in a state-of-the-art, highly automated hybrid greenhouse facility, and a 130,000-sq. ft. connected two-story building for processing and support including trimming, drying, fulfillment, shipping and specialty production.

The local municipality has been very supportive in working with TGOD, indicating that permitting can be completed before year-end. Once permitted, TGOD plans to begin construction immediately.

Pre-IPO Financing

TGOD’s Phase 1 Hamilton expansion plan is fully funded and the 150,000 square-foot facility will be able to produce 14,000 kilograms per year. The company is currently funding its Valleyfield (Quebec) Phase 1 buildout which will increase production capacity by another 22,000 kilograms.

When TGOD commences trading, it will be able to fund its Valleyfield (Quebec) Phase 2 buildout which will increase production capacity by another 26,000 kilograms. During the first half of 2018, the company will fund its Valleyfield (Quebec) Phase 3 buildout which will increase production capacity by another 54,000 kilograms.

Once all these phases are completed, TGOD will be able to produce 116,000 kilograms per year.

Geographical Benefits

Soon, TGOD will be local producers for ⅔ of the entire population of Canada and has reduced shipping costs, access to all infrastructure and logistics, a wealth of talented universities and University students and the cheapest power in all of Canada.

Additionally, with six neighboring states to Ontario and Quebec (Michigan, New York, Vermont, New Hampshire, and Maine) all having legalized medical cannabis, a significant cannabis tourism industry may be around the corner.

Outlook

We are favorable on this update and believe that the company is executing on all cylinders ahead of its IPO in January. We are favorable on TGOD due to the following reasons: 1) It received its sales license and continues to execute on its business plan, 2) The company continues to add new major players to its already elite management team, 3) TGOD will be one of the largest and lowest cost producers of cannabis, 4) The balance sheet is strong and TGOD secured a $5 million credit line to support growth initiatives, and 5) The company is focused on the cannabis oil market and will offer a differentiated and organic product.

Last week, TGOD announced its final pre-IPO financing and is offering units for $1.65. Each unit is comprised of one common share and one-half of a share purchase warrant ($3 for 36 months). The shares will have a 6 month hold period from the day of the IPO (planned for January 2018) and the warrants will be tradeable on TGOD’s first day of trading.

If you would like to request access to this offering, please reach out to financing@tgod.ca