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The

Green Organic Dutchman: The Cannabis IPO Everyone is Talking About is


Here

To get a brief understanding of the growth projections for the burgeoning cannabis
industry, you can take your pick of analysts and their forecasts for the exploding
space. Growing from about $8 billion in 2017, Grand View Research is calling for
the global market to reach $55.8 billion by 2025. The Brightfield Group predicts
$31.4 billion by 2021. Arcview Market Research and its partner BDS Analytics think
spending on cannabis worldwide will reach $57 billion by 2027, with $47.3 billion of
that generated in North America.

That type of growth is underpinned by the public shift towards supporting
legalization of marijuana in the United States and the pledge of Canadian Prime
Minister Justin Trudeau to make adult-use of marijuana legal, which is expected in
the second half of the year. This has set the stage for perhaps the most anticipated
initial public offering in the industry, as The Green Organic Dutchman (TGOD) joins
the Toronto markets next week.

When Canada becomes only the second country in the world to legalize recreational
cannabis, the market is expected to surge and rival the country’s beer industry.
According to Deloitte, the retail Canadian cannabis market will reach $8.7 billion
when full legalization takes effect, putting it nearly on par with the $9.2 billion
Canadians spent on beer in the 12 months ended March 31, 2017.

The IPO also comes as Canada’s Bill C-45 is being reviewed and the celebrated
cannabis culture day of 4-20 is upon us.

TGOD has reportedly already topped it targeted range of raising C$75 million –
C$100 million in an oversubscribed raise, indicating investors are keen on getting a
piece of the cannabis grower. In fact, TGOD has raised more than $160 million and
now has over 4,000 shareholders and it’s not even public yet. As it built its name as
a private entity, TGOD structured itself with leadership seasoned in cannabis and
the capital markets and a clear business model that attracted one of the biggest
names in the business as an investor.

There’s More to a Name

“Green” and “Organic” are not just part of TGOD’s name, they’re part of the
company’s culture. TGOD, a licensed cultivator under Canada’s Access to Cannabis
for Medical Purposes Regulations (ACMPR), prides itself on producing high quality,
pharma-grade, organic cannabis with sustainable, all natural principles.

Organic means TGOD will grow all its cannabis in soil without using pesticides,
herbicides or synthetic fertilizers. The marijuana will be grown at TGOD’s two
hybrid facilities, one in Hamilton, Ontario and the other, much larger facility in
Valleyfield, Quebec. Once construction of the fully funded facilities is complete,
TGOD will have 970,000 square feet under roof with a capacity of 116,000
kilograms (255,736 pounds) of high-grade cannabis per annum, easily making it the
biggest in producer of organic cannabis in North America.

The facilities have other “green” qualities with respect to building standards,
primarily being LEED certified, which typically costs more but delivers benefits on
the back end, including energy savings, environmental sustainability, superior
building products and fewer emissions. Aurora Larssen Projects, a unit of industry
giant Aurora Cannabis (TSX: ACB) and world-renown greenhouse engineering and
design firm, and Ledcor Group, a multi-faceted construction firm with over $3
billion in annual revenue, are handling oversight and construction of the facilities.

This is all great, but this isn’t philanthropy. Investors will be glad to know that
cannabis consumers are open to paying higher prices for an organic product. Page 4
of TGOD’s March corporate presentation shows premium organic cannabis to
demand a 26% premium over non-organic at C$11.40 per gram.

That’s particularly relevant when considering that at 116,000 kilograms capacity
the 26% premium works out to C$1.3 billion in sales.

Aurora Larssen is also overseeing the construction of Aurora Cannabis’ vaunted
800,000 square-foot grow facility at the Edmonton International Airport. The
project is heralded as the most advanced cannabis facility on the planet and surely
will provide some experience for TGOD to lean on in the future, as it only makes
sense that TGOD and Aurora will continue to work together (more on that
relationship in a bit).

High-Grade, Low-Cost Cannabis

The location of the facilities isn’t haphazard. Cumulatively, Ontario (13.4 million)
and Quebec (8.1 million) are home to over 60 percent of the 36 million people in
Canada. Ontario, the home province for Mississauga-based TGOD, is the most
populated province in Canada. Growers have flocked to Ontario to have access to
the dense population, but will face a common challenge in the high cost of
electricity.

TGOD has overcome this obstacle at its 150,000 square-foot Ontario plant by
partnering with Eaton Corp., a $34 billion NYSE-listed power management company.
Through Eaton and an agreement with Hamilton Utility Corp., a 6 megawatt
combined heat and power, or co-generation, system will be used to capture and
recycle carbon dioxide. The partnership and CHP system drove TGOD’s cost of
electricity down by more than half, from about 13 cents per kilowatt hour to around
5 cents per kWh, paralleling some of the cheapest electricity in the country.

The Ontario facility, which received its cultivation license in August 2016 and sales
license in August 2017, sits on 100 acres and is currently undergoing a 143,000
square-foot expansion to build upon a 7,000 square-foot beta test. When
construction is completed in the fourth quarter, capacity will be set at 14,000
kilograms.

The monstrous 820,000 square-foot facility built on 72 acres outside of Montreal
has a completion target for the second quarter of 2019. Quebec is one of the lowest
power rates in Canada, also coming in around 5 cents per kWh for TGOD thanks to
an economic development rate with Hydro Quebec.

The energy consumption of the locations go hand-in-hand with reduce costs and a
logistical advantage, not to mention an improved customer experience with same-
day or next-day delivery. Nothing is coincidental; it is years of experience from the
leadership team at TGOD to meticulously develop a high-quality, low-cost cannabis
producer.

To wit, infrastructure has already been, or is being, built or acquired for TGOD to
expand from exclusively a plant grower into other high-growth markets, such as oil
extraction (in Ontario) and genetics and breeding (in Quebec). These initiatives
further embody the company’s mantra of “organic in + organic processes = organic
output” and their desire to be the go-to brand for not simply the plant, but oils,
pharmaceuticals, edibles, beverages, a robust patent estate for licensing and other
high-margin revenue channels.

The Aurora Connection

Aurora Cannabis’ unit working on the design of the cutting-edge TGOD facilities is
only a sampling of the relationship between TGOD and ACB. Aurora, a $5 billion
company by market cap, made a $55 million investment in TGOD in January, taking
its 17.6% ownership of TGOD via the purchase of 33.33 million shares at a price of
$1.65 each. Aurora didn’t participate in earlier TGOD private placements, instead
waiting to pay a higher price once the company was more developed, an interesting
decision that lends a great deal of validation towards the direction and management
of the company.

A company like Aurora is moving with a purpose when it makes the type of
investment like it did in TGOD. For starters, the deal is structured so TGOD received
a purchase order from Aurora for 20 percent of future sales. With Canada expected
to face a supply shortfall initially with adult-use legalization (production will
eventually catch up), Aurora is making sure it locks down a high-grade cannabis
supply chain. This works both ways as TGOD has a well-heeled customer helping
fund opex and potential access to important distribution and sales channels. The
investment agreement also makes consideration for Aurora in other important
facets, including giving Aurora the right to participate in future financings to
maintain its percentage ownership and options to acquire more of TGOD at a 10
percent discount to market upon meeting certain milestones and potentially even
take a board seat.

Add it Up and IPO was Never a Prettier Acronym

There will certainly be comparisons made to TGOD and the initial public offering of
MedReleaf Corp (TSX: LEAF), which previously was the biggest marijuana IPO in
history when it came public last June. Shares of LEAF stumbled initially, causing
some to ridicule the industry and its valuations, but have recovered to more than
double from the $9.50 IPO price since and a $2.0 billion valuation.

TGOD has done everything right when it comes to preparing for the IPO. Every
round of financing has come at higher valuations and every share sold has a six-
month restriction upon it. The only free trading stock will be the shares issued for
the IPO with a $3.65 cost basis. This is a blue chip type strategy that means there’s
no threat of early investors dumping stock on IPO day or for 180 days after it for
that matter. TGOD will have at least six months to build its public identity, which
happens to dovetail perfectly with the value-adds of meeting construction targets
for it facilities.

As heavily anticipated as the LEAF IPO was, the going public of TGOD has investors
talking even louder about the potential of the company. Perhaps it’s the regulatory
landscape and timing with legalization sweeping across North America. Maybe it’s
the incredible retail shareholder support already. It could also be the facilities
under construction, or the management or even the large investment by Aurora
Cannabis.

More than likely, it’s the combination of all of these things that have led to The
Green Organic Dutchman capturing the attention of investors of all sizes that are
living and investing in the dissolving of prohibition, an opportunity that will never
come around again.