The Green Organic Dutch­man takes a com­mand­ing lead in the organic space

National Post (Latest Edition) - - FP COMMENT - DENISE DEVEAU

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.”

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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...

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