VIDEO: The Green Organic Dutchman Holdings Ltd (TSE:TGOD) Acquisitions and Partnerships to Enter Canadian Cannabis Big Leagues

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Midas Letter
VIDEO: The Green Organic Dutchman Holdings Ltd (TSE:TGOD) Acquisitions and Partnerships to Enter Canadian Cannabis Big Leagues
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The Green Organic Dutchman Holdings Ltd (TSE:TGOD) (OTCMKTS:TGODF) (FRA:01GA) CEO Brian Athaide shares the company’s seed-to-sale vertical integration strategy. TGOD has already successfully vertically-integrated its operations in Jamaica, with its first retail store opening in July and plans to open 5 more locations across the country by the end of the year. Athaide reveals the company plans to take the same approach when its Canadian production begins in 2019. Funded for 170,000 kilograms of production and 1.4 million square feet of cultivation in Ontario, Quebec, and Jamaica, Green Organic Dutchman is positioned to be a major player in the cannabis industry. Athaide discusses how the company’s recent partnership with industry leader Aurora Cannabis (TSE:ACB) helping Green Organic Dutchman to learn and grow more efficiently.

Transcript:

James West:   Hi everybody, hello audience and everybody back there. Welcome back to Midas Letter Live. My guest in this segment, at long last, is the CEO of The Green Organic Dutchman, Brian Athaide.

Brian Athaide: Athaide.

[stock_chart symbol=”TGOD:TSX” align=”left” range=“1M”]

James West:   Athaide is CEO of The Green Organic Dutchman, he joins us today. Brian, how’s it going?

Brian Athaide: It’s going great, thank you very much.

James West:   Awesome. We’re going to start, for our own credibility’s sake, with the elephant in the room, and we’ve been having a bit of fun with this at your expense, because that’s what we do – what caused you to continue to build in Hamilton after the City of Hamilton reversed their permit?

Brian Athaide: Well, actually, we’ve been working with Hamilton for the past two years on getting the zoning done. We have the permits for what we’re building right now, so the indoor facility, 20,000 square feet, we have all of the permits. For our larger greenhouse facility we now have the foundation permit, and we are expecting to get the full permit in the coming weeks.

James West:   Okay. So it’s just one of those dust-ups with the locals, is it?

Brian Athaide: Well, it’s about zoning, in terms of what you can grow inside. So originally our plan, I mean, the zoning allows for building multiple 20,000 square foot facilities, so we could have built a dozen of them. And when we first went on that property, it was actually the City staff who advised us to build a bigger greenhouse instead, which is more efficient, better for production. And so we’ve been working down that path, and now really focusing on getting the zoning done. So it’s not about permits, it’s about zoning.

James West:   Oh, okay. A fart in the wind, basically.

Brian Athaide: Yeah, I mean, we’re on track for the construction, and we’re very confident we’ll get the zoning done as well in the appeal process.

James West:   Okay, onward: you’re now funded capacity of 170,000 kilograms and building, let’s call it, 1.4 million square feet of cultivation in Ontario, Quebec and Jamaica.

Brian Athaide: That’s right.

James West:   That kind of puts you in the big leagues out of the gate.

Brian Athaide: Yes, yeah, we’re in the top five or six in terms of funded capacity and market cap as well.

James West:   Great, well, that’s fantastic. So what is the timeline for all of these products to come onstream?

Brian Athaide: So it varies. Our Canadian production will be coming onstream in the first half of ’19; so it doesn’t all come in at one time, so I mean, the construction will take that first half to complete, but as we build each grow room, we’ll start growing in each room, and our production will ramp up over time, we’ll start expanding who and where we’re selling to.

James West:   Okay. And –

Brian Athaide: And then in Jamaica, we’ve already opened the first retail store last month; it’s going very successfully. We’ll have five stores open by the end of this year.

James West:   Oh, fantastic.

Brian Athaide: That’s a full, vertically integrated company, everything from seed through retail sale with consumers.

James West:   Cool. Back before you were CEO, there was an announcement about a relationship with a beverage company. That really intrigued me, because that is nothing but pure distribution, and that is the holy grail of every LP on the planet. So, is that moving forward? What’s happening there?

Brian Athaide: So we’re still in discussions with companies. I can’t really give you any details until we announce it, but I can tell you for us we see really the full vertical of different products, with beverages being at the top. So starting with, I mean, what’s going to be legal in October in the recreational market is dried bud, non-vapour oils, pre-rolls; but after that, you’re going to get into vapes, you’re going to get into pet health kind of products, you’re going to have edibles, and we see beverages at the top because it’s the easiest consumption format. Very familiar to people, right? If you think about beer, wine, spirits, all those types of products have very similar types of effects, but with cannabis-infused beverages, you don’t have any calories, you don’t have any risk of hangover, it’s better from a health standpoint, and once you get to have the right water-soluble type of technology, you can have faster onset, as well, versus edibles.

So edibles can have kind of four, five hours to be able to feel the effect, while the right water-soluble technology you can feel it in 20 minutes, and it goes offset within a couple of hours; all of a sudden, it’s very similar to a beer.

James West:   And do you have that technology?

Brian Athaide: We’re working on it right now. We’ve actually signed a licensing deal with Stillwater in the US, which has that technology. So as we’re expanding our products in Canada and other international markets, we actually just announced this morning an acquisition in Poland.

James West:   Yeah, I saw that. I was going to get to that.

Brian Athaide: And really, we’re going to take those best technologies. In the end, we see this as a consumer products business, and what’s going to be winning is the brands that have the best products, the best efficacy, the best product form that consumers want to consume or prefer to consume their products in. and so we’re investing a lot in R&D, we’ve talked about that before, and despite kind of if we can develop it ourselves or what’s available in the market, we want to have the best efficacy-type products and technologies and expand that to consumers globally with clean, organic product.

James West:   Sure. Certainly you’ve got the partnerships and the bankroll in place to do all that, don’t you. Your partnership with Aurora: how much of that is sort of like a partnership of equals versus a, you know, a major investment with an eye towards eventually acquiring the company?

Brian Athaide: You know, we couldn’t ask for a better partner. So you know, they invested with us very early; they have de-risked our business plan quite significantly, so we have a 20 percent offtake agreement which can go up to 30 percent if they increase their ownership. But then on top of that, we’ve had a lot of learning from them. So Aurora Larssen projects, which has built their new facility outside the Edmonton airport, state of the art facility, there isn’t anything that exists like that today globally – taking the best of all different technologies around the world and put it into that – first time for cannabis, purpose-built to make cannabis; now coming building our facility in Valleyfield, leveraging all those learnings is allowing us to go much faster, much more efficiently.

James West:   So is Larssen building that one as well?

Brian Athaide: Yes, yes.

James West:   Oh, very cool.

Brian Athaide: And then later he’ll go and build Aurora Sky in Medicine Hat, each time getting learnings from the previous. And so Aurora has had a couple years of head start versus where we are, but we’re learning from that and able to catch up much faster.

James West:   Interesting.

Brian Athaide: and that’s across – from an operating side as well, and then the funding, obviously, has helped us.

James West:   Yeah. I had – it seemed to me up until Jamaica that this was a Canadian play, and then I thought it was going to be Quebec-focused, and now it’s with the Polish acquisition, it becomes something completely different again. What is exactly your outlook for a global strategy?

Brian Athaide: So I mean, if you look at our mission statement, it’s about making life better, right? So it starts with all different products, from CBD products that help people with epilepsy to appetite for cancer patients to sleep helping, with pain – there’s all kinds of ways that we can help make people better. On the recreational side, I already talked about benefits versus beverage alcohol, right? So our goal is focused on organic cannabis, which is very different. There’s no other player who has the scale of certified organic that we do.

James West:   Certified.

Brian Athaide: There’s only two certified organic producers today; there’s one in BC and ourselves. We’re going to be the only one of scale with anything close to a million feet, and that’s in Canada alone, but our aspiration is to be the largest organic cannabis brand globally. So now you’re seeing the pieces fit together, right? So you’ve seen our two facilities in Canada being built; we’ve now bought a CBD company in Europe, which has distribution in 13 countries. We’re investing even more in that company to be able to expand much faster into more outlets and across more countries. In Jamaica, as well, we’ve opened the first retail store; we’re also looking to export from Jamaica into other countries in Latin America.

So right now, our focus is on Europe and Latin America; we’ll have revenue there before we do in Canada, in fact.

James West:   Wow.

Brian Athaide: So definitely it is a global play, focused on organic cannabis. And organic is important; I mean, organic is a brand, if you can think about it, it’s a lifestyle.

James West:   Oh, you don’t have to tell me. I buy nothing but organic at my house.

Brian Athaide: Amazon’s investment into Whole Foods, I mean, confirms it, right? So from a product segment standpoint, if you’re looking across different products, produce or granola bars, whatever, organic has anywhere from kind of 10 to 25 percent of the market, at a premium. And so for us, we’re not going after everyone; we’re going after that 25 percent of the market potential that is organic, and try to dominate that space. We’ll let Aurora battle it out for the rest with the others, but we’re the only certified organic player of scale. And even from a premium standpoint, I mean, organic, across different product categories, has anywhere from a 10 to 50 percent premium. In cannabis right now, it’s about 30 percent, which is important, because I mean, as you see all that production coming online, you will see margin compression, price compression; we’ll be able to maintain a premium versus that.

James West:   Okay. Fantastic. So the outlook for revenue, what does that look like in the next 12, 24, 36 months?

Brian Athaide: So we’re not giving guidance on revenue, but I can tell you in the first half of ’19, our production will be coming on in both Ancaster and in Valleyfield, which will allow us to gain a big chunk of that organic market and be able to dominate there. We’ve now announced Hemp Poland; we’re going to be expanding through all the countries in Europe, as well as in Latin America with a combination of product from Poland and from Jamaica. And there’s a couple of other projects which I can’t really talk about yet in terms of getting into cannabis side in Europe as well. Actually, we’ve announced a letter of intent with a company in Denmark to develop cannabis in Europe as well, beyond the CBD products.

James West:   Sure, interesting. Okay, to what extent would you say that TGOD’s strategy is based on the recreational versus the medical?

Brian Athaide: It’s both. It’s not either/or, so I’d say it starts in medical, and really, as you look – I mean, outside of Canada, there is no country, Uruguay, I mean, that has a recreational legal framework. We’re only going to sell where it’s federally legal. So in the US, it’s still not federally legal, even though you’ve got states that have legal recreational regime. So that’s why we’re going into Europe with CBD, which isn’t regulated in many countries. Hemp-based CBD is legal pretty much everywhere in Europe, and building on that. So, as more medical markets come online, we’ll be selling there in the medical market, and then several years after that, the product becomes more socially acceptable, recreational becomes legal, we’ll be ready to sell into the recreational markets there as well.

James West:   Wow.

Brian Athaide: So I’d say it starts with medical, but we’ll be selling in both.

James West:   Okay, fantastic. Brian, we’re going to leave it there for now. That was a great introduction to TGOD. Come back often!

Brian Athaide: For sure.

James West:   We’d love to talk to you a lot. Thanks for joining me.

Brian Athaide: Thank you very much. Appreciate it.

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