The Green Organic Dutchman Holdings Ltd. (TSX:TGOD) saw its shares crash on Wednesday as one of its largest investors, Aurora Cannabis Inc. (NYSE:ACB)(TSX:ACB), sold its shares in the company.
The $86.5 million block trade sale was completed at negotiated price of $3 per share — a 14.5 per cent discount on TGOD’s closing price of $3.51 on Tuesday. The Globe and Mail reported late Thursday investment banks are struggling to attract buyers for Aurora’s stake in TGOD, with close to 40 per cent still remaining unsold.
On Wednesday, TGOD fell to $3 immediately as a result of the large sell order, and the momentum carried it even further down closing at $2.93, falling 16.5 per cent on the day.
While Aurora still has warrants that would allow it own about 5 per cent of TGOD’s shares, it marks a turning point for the two firms and an end to their relationship.
Green Organic claims that its revenue and gross margin mix will improve because the agreement it had with Aurora involved a revenue-sharing model that had an adverse impact on its average selling price.
Aurora has been an excellent partner during TGOD’s initial development phase; their investment played an important role in our success. The relationship added significant value across multiple areas of the business, including the initial design and construction of our Canadian facilities.
– Brian Athaide, CEO of TGOD
Green Organic said the move could pave the way for relationships with new companies while also providing institutional ownership, which can sometimes suggest a bit more safety to investors and could be beneficial for the company’s application to be uplisted on the Nasdaq exchange.
However, investors might be weary of the sale as TGOD has already been struggling this year falling sharply from the $5.81 high it reached March, 2019.
TGOD welcomes new investors and provides update on Aurora ownership!
— The Green Organic Dutchman (@GrnOrganicDutch) September 4, 2019
TGOD desperate for revenues
Green Organic currently has a market capitalization of $815 million and the firm has been successful in raising large amounts of money — but overall TGOD has struggled operationally.
Despite receiving an additional Health Canada licence for its second facility in Hamilton this week, conflict with local government has halted production at its main Hamilton site resulting in scant sales in the Canada’s legal weed market.
In its most recent quarter, TGOD reported a $16.6 million loss on $2.9 million in sales. Those aren’t numbers that will attract investors. But even worse, the company has yet to record a single dollar in Canadian cannabis sales and all of its revenues came from a Poland-based subsidiary that sells hemp.
On the positive side, the second wave of legalization is rapidly approaching and TGOD could be ready to sell derivative products like vape pens and edibles in Canada by the end of the year.
In April, the company received federal approval to produce cannabis oil, which could be used to develop the novel second-phase products. The company’s stock could rebound if its able to benefit from the hype surrounding the Cannabis 2.0 launch.
In addition, the company has also made moves to enter the U.S. market. But more than ever, investors are looking at cannabis company’s bottom line and TGOD is going to have to at least start producing sales to validate its potential.
Aurora pads cash reserves
Meanwhile, the sale of TGOD shares injects a fresh supply of cash into Aurora’s vault. The Edmonton-based pot giant cited a rate of return of about 50 per cent from its investment. The added $86.5 million will give Aurora some liquidity as it continues its build out its cultivation and processing footprint.
– Terry Booth, CEO of Aurora
Aurora also noted when it acquired Whistler Medical Marijuana Corp., which also produces premium organic cannabis, its interest in TGOD became less important to its core strategy.
While it’s not a huge windfall of money for Aurora, it can certainly help the company given the cash it has burned through amid expansion.