The Facilities Are Fully Funded
On Oct. 9, 2019, The Green Organic Dutchman (OTC: TGOD) said in a press release that it was updating the market on credit financing. In the statement, it noted that “The Company may revise the construction schedule for its Ancaster and Valleyfield projects if it is unable to obtain sufficient financing on reasonable terms, within the required timeframe. There can be no assurance that this review will result in the completion of any financing transaction.” Basically, TGOD said it needed money to finish the projects as planned.
However, TGOD had previously issued an investor presentation in which it stated its Ontario projects were fully funded. This did not go unnoticed by shareholders who were surprised to learn that TGOD needed more money to complete its facilities. Then on October 18, just 10 days later, the company said, “The Ancaster greenhouse is complete, and the Ancaster processing facility is approximately five weeks from material completion.”
On November 13, the company was able to secure financing and said, “A term sheet with an investment fund for a $40 million construction mortgage loan has also been signed, secured on the facilities at Ancaster and Valleyfield.” TGOD said that now it had this money secured, it could complete construction of the processing facility at Ancaster and complete construction of six zones in the Valleyfield hybrid greenhouse and enclose the balance of the facility with the ability to quickly expand production as the market develops.
CannTrust (NYSE: CTST) earned the social media moniker “can’t trust” after the company was caught growing plants in unlicensed rooms. This past summer in July, the company conceded that it had plants seized by regulators from five unlicensed rooms. The scandal resulted in a death spiral for the company as it lost its license, saw the CEO resign and at least a hundred workers have been laid off.
Backing up a bit, roughly around May 19 CEO Peter Aceto said the company was on track to meet its production goals. Within six weeks, the company announced that it received a report of non-compliance from Health Canada. Aceto said, “Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgement, but the lessons we have learned here will serve us well moving forward.”
Last month, CannTrust said it planned to destroy about $12 million worth of plants and about $65 million worth of inventory. The company has seemed to clean house and may be able to move one from this “error in judgment,” but so far the market isn’t convinced and the stock is still near its year low of 77 cents.
It’s Worth More
It’s hard to convince investors to buy company stock when the company devalues the price of said stock. Zenabis Global Inc. (TSX:ZENA) (OTC: ZBISF) destroyed the value of its stock after announcing it was going to raise $20.8 million through a rights offering to holders of its common shares of record at the close of business on October 31, 2019. The stock was lately trading at 16 cents, down from its year high of $3.03. At one point in this debacle, the stock traded at one cent.
The company said that part of the strategy was to fend off a hostile takeover, but there didn’t seem to be anyone bidding on the company. Director of Corporate Communications Jonathan Anthony said that the decline in Zenabis stock is “outside our control,” yet the company absolutely trashed the value by pricing the rights at a 70% discount.
The Twitter universe though had another opinion regarding the stock. There are accusations of Zenabis insiders shorting the stock while covering themselves with the rights offering.
Stock jocks were specifically pointing to the Twitter account of @rubiconcapital for talking up Zenabis ahead of the offering that prices the rights at 15 cents. Then, the former CEO and current Chief Facilities Officer, Kevin Coft sold 2.6 million shares right before the rights offering. The company reported its earnings on November 14 but opted to not host a conference call to discuss the earnings with investors.
Our Bad. We Thought It Was Licensed
After acquiring Newstrike Brands, HEXO Corp. learned that there were plants growing in a room called Block B. The room passed inspection by Health Canada and Hexo said Health Canada said nothing in the report gave them cause for concern. However, within days of the closing of its acquisition the company said it became aware of the illegal plants and notified Health Canada. The mistake was blamed on a new software program run by the federal regulator. Still, the plants were destroyed as a result of the snafu.
While market watchers didn’t seem to criticize Hexo in the same manner that CannTrust was criticized, it certainly didn’t help the company. The facility is no longer being used for growing cannabis.
In addition to the bogus Block B plants, in June, Hexo had said it would do $400 million in revenue in 2020 and double net revenue in the fiscal fourth quarter. Just four months later the company instead reported that revenue was $15.4 million a drop from the third-quarter revenue of $15.9 million, so it wasn’t even an increase. The net revenue for 2019 was $59 million making it abundantly clear that $400 million in 2020 is never going to happen and so that number was retracted but not replaced with a new one.