The Green Organic Dutchman (TGOD) In “Advanced” Negotiations With International Company

Benjamin A. Smith
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Shares of Green Organic Dutchman Holdings Ltd (TSE:TGOD) (MKTS:TGODF) (FRA: O1GA) were again bid up by investors—now into Day 5 of the rally. Although it was presumed technical buying was the reason behind the move, news has come to light suggesting there could be additional motives behind it. We scrutinize the press release details in search of additional answers.

With TGOD showing no signs of quit and continuous outsized momentum beyond sector norms, the Industry Regulatory Organization of Canada (IIROC) today asked TGOD to comment on the recent increase in the trading volume and price of the Company’s common shares. According to company officials, the company “is not aware of any material change in its business or affairs that has not been publicly disclosed and that would account for the recent increase in volume or price.”

While that may be true for the time being, the money line is found in the opening sentence on paragraph two. It was in this preamble that company officials—with a press release signed-off by the Board of Directors—declared the following:

“The Company is in advanced negotiations with multiple international companies, one of which is a completely vertically integrated company.”

Of course, we’ve seen this very scenario with MedReleaf Corp. recently. Just eleven days before their eventual buyout by Aurora Cannabis Inc. on May 14, the IIROC also requested the company to comment on their sector-defying share run-up. MedReleaf had appreciated almost fifty percent in the weeks leading up to the May 4 clarification statement. Here’s what they said:

“The Company confirms that it engages from time to time in discussions with other industry players, including Aurora Cannabis, regarding various alternatives. The Company has not entered into an agreement to effect any particular transaction, and there can be no assurance that such discussions will result in any such agreement.”

Unlike MedReleaf’s statement, TGOD’s position leaves much more room for analysis. With the former, it was clear “discussions” involved an acquisition of some magnitude; with the latter, what exactly entails “advanced negotiations” leaves ample room for interpretation. Does it mean The Green Organic Dutchman is in acquisition talks, or is it a significant partnership, minority ownership or offtake agreement of some kind?

With TGOD now ↑70.90% higher over the past five sessions, the natural assumption is that the market is pricing in an acquisition. However, there is precedent of other types of cannabis deals moving the needle precipitously.

Back in October 2017, Canopy Growth appreciated ↑59.49% over a seven day period after the Wall St. Journal broke the story on Constellation Brands 10% investment in WEED. With the stock trading at $12.79/share pre-announcement, percentage comps vis-à-vis TGOD’s starting point were harder to come by. Ultimately, the market loved the news and bid up prices accordingly.

We also note another takeaway from TGOD’s press release that could suggest a minority stake is involved versus a straight-up acquisition.

On their May 4 clarification statement, MedReleaf left no room to guess with whom negotiations entailed. The company stated that they were in “discussions with other industry players”, signaling their discussions were sector-related , and not associated with Big Pharma or other like entity.

However, TGOD made no such distinction. They vaguely eluded to being in “advanced negotiations with multiple international companies“, which opens the field to a plethora of non-industry suitors. As most cannabis companies are not international in nature, the statement provides another tell that interest may be coming from another undisclosed industry.

Final Thoughts

With the IIROC press release almost assuredly being scrutinized by Investor Relations and Board of Directors before being disseminated, it’s hard to believe the verbiage in the PR wasn’t telegraphed exactly how company officials wished it to be. If so, TGOD investors may be looking at some sort of significant minority stake with Big Pharma, or the food and beverage industry. This would make TGOD among the only companies to make such a move—assuming advanced talks proceed to the next level.

If TGOD is indeed engaged in acquisition talks, it would certainly be one of the fastest deals I’ve ever witnessed post-exchange listing. TGOD has barely been listed on the Toronto Stock Exchange for one month; usually companies are still trying to find their way as a public company. Most companies who list intend to build shareholder value first, even if selling out is on the longer term road map.

However, with the cannabis sector rife for consolidation before legalization ramps up worldwide, perhaps opportune timing is pushing timelines forward. In either scenario, the biggest winners are TGOD shareholders: reaping windfall investment gains without experiencing any downside pain is a rare occurrence indeed.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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