The Green Organic Dutchman takes a commanding lead in the organic space
In the hotly contested cannabis market, The Green Organic Dutchman (TGOD) has been carving out a sizable niche of its own. While a handful of Canadian companies are including organic offerings in their portfolios, TGOD ranks as the only public cannabis company that is producing 100-per-cent organic products.
It also made headlines when it recently completed the largest initial public offering in the industry, becoming one of the top five publicly listed cannabis companies based on funded capacity.
TGOD was founded in 2012 by a Dutch couple (hence the name) who grew organic cannabis under Canada’s Medical Marijuana Access Regime, or MMAR. When the new Marijuana for Medical Purposes Regulations (MMPR) came into play in 2013, the owners knew they were onto something, and immediately applied for a cultivation licence. At the time, the company was one of the first companies to ever submit a licence to cultivate under MMPR (now known as ACMPR).
Upon receiving its cultivation licence in 2016, the Company attracted a new management team that includes CEO Robert Anderson, director Dave Doherty and Danny Brody, vice-president, investor relations. The team members have a strong record for scaling small companies in the cannabis space, having also helped finance and bring to market Organigram in 2014 and Emblem Cannabis in 2016.
Brody says TGOD has several compelling competitive advantages that will fuel its growth domestically and internationally.
“The first is the fact that we are completely organic,” he explains. “Studies show that 57 per cent of consumers prefer organic cannabis. We knew from the start that it would make us stand out, and that it would be a big differentiating factor with both the medicinal market and the recreational market.”
He adds that while capital expenditures for organic production can be higher, operating expenditures actually drop over time because the plants are grown in living soil. “It requires a different level of expertise in cannabis cultivation to begin with, but we’ve been growing organically since the dawn of time,” says Brody. “David Perron, our VP of growing operations, has been involved in organic growing for over 15 years; he holds a master’s in organic agriculture.”
TGOD’s second key advantage is its focus on the beverage, alcohol beverage and consumer packaged goods industries. “From the start, we have focused on CPG. We have a crystal ball in that we can look to recreational legalized states to determine where the cannabis market is heading, and the majority of cannabis isn’t smoked anymore,” Brody notes. The company has since expanded on that, adding additional management that results in over 125 years of CPG experience with companies like Proctor & Gamble, Andrew Peller Ltd., and Cott Corp.
The third advantage, he explains, is the focus on international markets. “TGOD understands the future of cannabis isn’t only Canadian,” Brody says.
On June 14, TGOD announced a joint venture with Epican Medicinals, a vertically integrated Jamaican cannabis company with cultivation, extraction, manufacturing and retail distribution licences. “This represents the first of many strategic partnerships TGOD intends to execute in the coming months,” said Robert Anderson, CEO.
There has been no shortage of investor interest in the company since its inception. Since 2016, TGOD has raised more than $315 million, primarily through retail investors. It has also secured a wholesale contract with industry giant Aurora Cannabis for 20 per cent of its product.
In January 2018, Aurora invested $55 million, acquiring just over a 17-percent interest in TGOD, and continued that investment to the tune of $23.1 million in the IPO. “That investment has completely validated our business plan and management’s vision of the importance of organic cannabis in the marketplace,” Brody says.
An added benefit of the relationship is that it secures TGOD’s access to the world’s premier hybrid facility design engineer, Thomas Larssen of Larssen Ltd., which was acquired by Aurora in November 2017. “That’s been a huge benefit to the partnership as we continue to build out our facilities,” Brody says.
He notes that at this point, in addition to expansion, funding is going into R&D that will focus on producing cannabis for consumer packaged goods offerings in a variety of high-margin products. “We now have one of the largest R&D budgets of any licensed producer, with over $55 million,” he adds.
TGOD is building four standalone research labs in Ontario and Quebec, where research will encompass micro-propagation, genetics and breeding, research partnerships, identifying novel traits, and clinical trials. Development work will be focused on licensing deals, joint ventures and potential M&A opportunities for the beverage and alcohol beverage industries specifically.
When completed, the two facilities being built in Ontario and Quebec, which are expected to be in production in Q1 and Q2 2019, respectively, will be capable of producing 116,000 kg of cannabis annually. Brody notes that at an estimated market price of $8 per gram, “that could potentially translate into $928 million in revenues.”
All the groundwork means TGOD is in a strong position to capitalize on the future of cannabis.
“Consumer packaged goods represent the breadand-butter of where cannabis is going,” Brody says. “U.S. markets indicate that upwards of 75 per cent of consumed cannabis is through some sort of extracted product, whether it’s a beverage, topical, edible or a tincture. I think that is where we will be heading in Canada. We are not a cannabis company, but a CPG company that grows cannabis. That was the real vision when we were putting our team together.”
According to vice-president Danny Brody, while capital expenditures for organic production can be higher, operating expenditures actually drop because the plants are grown in living soil. “It’s tricky at the start, but we’ve been growing organically...