TGOD Shareholder Q&A Danny Brody, Vice President, Investor Relations

There has been a lot of speculation and questions around today’s date, Nov 2nd, 2018, the day our restricted stock became free trading, and what a day it was!

We closed at $3.49 after trading nearly 31 million shares, the highest single day volume TGOD has ever seen.

Thank you to everyone that believed in us from the beginning. Without your support throughout this entire process, none of this would be possible.

I would like to take this opportunity to do a Q&A and address your important questions.

We are incredibly excited about the next 12 months. TGOD has secured its financial future by raising over $450,000,000, fully funding our current domestic and international plans, and we have no plans to return to the market for additional capital.

Lets get started…


Q: What is causing the recent cannabis market sell-off?

The sell-off can be attributed to a lack of operational readiness from Licensed Producers (“LPs”). These are causing supply shortages and significant distribution issues in the post-legalized market.

Instead of rushing out the door on October 17th, we at TGOD anticipated this bottleneck. We have focused our efforts on operational readiness and the TGOD brand. This will pay dividends as we roll-out our medical and recreational products across the country, beginning early next year; at which point we expect many of the issues in the provincial distribution and supply chain to be resolved.

Q: How is construction progressing at the Ancaster and Valleyfield sites?

A: I am happy to report we are on schedule. For the latest construction videos, please visit www.tgod.ca or click the photos below.


Q: Why did Aurora sell their free trading IPO stock?

A: Aurora’s investment portfolio was valued at approximately $698.6(1) million of which TGOD accounted for a significant portion, approximately 55%. The recent sale of shares represents a fraction of their TGOD ownership and they still own approximately 15% of our Company on a fully diluted basis. Aurora remains our single largest shareholder and an important partner. They currently own 33,333,334 common shares and 19,837,292 warrants totaling 53,170,626 shares and warrants.

Aurora’s 15% ownership allows them to maintain the option to purchase up to 20% of our premium organic product produced in our two Canadian facilities and we look forward to continuing our partnership.
(1) Aurora October corporate presentation

Q: How does Aurora’s Milestone Option expiry affect TGOD?

A: TGOD Management is confident with our position following Aurora’s Milestone Option expiry.

We recently raised $76 million at $6.85 per share, which, combined with all our warrant exercises, completely de-risked the capital side of Aurora’s investment. Had Aurora exercised their option to acquire an additional 8% of TGOD, the acquisition price would have been ~$4.75, adding significantly more dilution for the same amount of capital.

Additionally, any large-scale alcohol or beverage company looking to partner with us would have to do so knowing a third-party competitor LP had an option to acquire over 50% of our Company. Now that all four Milestone Options have expired, we are no longer tied to a single LP.

We are now able to explore partnerships with multiple commercial scale consumer packaged goods companies including large beverage, alcohol, pharmaceutical, and/or tobacco companies, without having the overhang of a third-party competitor LP able to acquire control of our Company.

This puts us in a much stronger position moving forward.

Q: Do any research analysts cover your company?

A: Canaccord has just released a 40-page research report reviewing our entire business. You can obtain a copy of this report from your broker. Canaccord has rated TGOD a speculative buy. We anticipate other research analysts will cover us in the future.

Q: Isn’t it true that you aren’t producing?

A: False!
We have been breeding and cultivating on a small scale since 2016 at our Ancaster site for R&D purposes, while fine tuning our grow methodologies and novel product development in anticipation of the launch of our medical and recreational brand.

Our original Ancaster site was designed to receive a cultivation license as quickly and efficiently as possible. It has acted as our test facility for everything that goes into cultivating organic cannabis.

We have spent time testing different lighting systems, multiple living soil mixtures, state-of-the-art climate controls in addition to irrigation systems, while remaining environmentally-friendly and producing the highest quality product with industry leading margins. When it comes time to scale, we will be ready.

In Valleyfield we have begun cultivating in our breeding facility, and plan to scale production and sales throughout 2019 and 2020.

Internationally, we are already producing cannabis in Jamaica and industrial hemp in Poland, including CBD oil and other products derived from industrial hemp.

Buildout Timeline
Facility

Q: And what about sales? You still have zero revenue and haven’t sold a gram?

A: False!
We are selling in Europe with our HemPoland and CannabiGold brands which will be reflected in our Q4 financial statements. Additionally, we are selling in Jamaican dispensaries through our partnership with Epican Medicinals. With our recent Mexican JV, we have established over ~7,600 potential points of sale across Latin America which we intend to start selling during the first half of 2019.

TGOD is excited by the Supreme Court of Mexico’s ruling, on October 31st, 2018, that an absolute ban on the use of recreational cannabis was unconstitutional.

We have positioned ourselves early, establishing a tremendous joint venture with one of the largest pharmaceutical and over-the-counter distributors in Mexico and plan to export, through our Jamaican partnership with Epican, TGOD branded products throughout Mexico.

We are launching our TGOD organic medical cannabis to 200 select patients/founding investors in January. We have made the conscious decision to delay sales and build inventory because the two largest patient and customer complaints are lack of supply and inconsistent quality. We want to ensure we are in a position to provide our customers and patients with consistent and reliable product, and in order to do so, we are focusing on operational readiness at our Ancaster and Valleyfield sites.

Q: You are launching in January to a small number of patients, why does this matter?

A: This is the beginning of our ramp-up! We have spent time perfecting our cultivation and are inviting a select group to try our first products. Our new Ancaster facility is on schedule to be completed in Q1, 2019 with the first harvest expected in H1, 2019. Valleyfield comes online shortly thereafter and ramps up steadily throughout the year. We are on track to deliver national sales in both medical and recreational markets in 2019.

Q: What does that mean for revenues and EBITDA for TGOD?

A: We do not give financial guidance. However, Canaccord just released a 40-page research report detailing all aspects of our business. Please contact your broker to receive a copy.

We anticipate more brokerage firms will initiate coverage in the coming months.

Q: This doesn’t make any sense without supply agreements?

A: Supply agreements were initially prompted by Provinces seeking to secure the limited anticipated supply from LPs in proximity to recreational legalization. In the long term, it will be the consumers who dictate the products and the brands that survive based on demand. This is why we have spent time focusing on our brand and product, to ensure we are prepared, instead of rushing to the market on October 17th.

With TGOD’s product scheduled to come online in recreational markets in Q2 of next year, our preliminary conversations with the provinces and territories have shown excitement around our differentiated, certified organic cannabis. Provincial distributors across the country have indicated strong demand for our product, when ready.

If the first 12 days of recreational sales have revealed anything, it is that sufficient product is not available anywhere. Stores and online retailers are sold out across Canada and the demand is incredibly high.

In addition, with 43% of consumers preferring organic cannabis(1) coupled with incredibly high demand, lack of supply and strong interest in our organic product, TGOD is in an excellent position moving forward.

(1) Hill+Knowlton 2017

Q: So, you haven’t missed the ‘demand window’ with recreational cannabis?

A: Absolutely not. This industry is still in its infancy.

Currently, demand far exceeds supply, and that is expected for at least the next 18-months as all LPs scale. Canopy and Aphria are the only LPs with significant product available, and even they are sold out!

Remember, we are on schedule to reach 170,000 kgs of production during 2020, with national sales across medical and recreational markets.

Q: Everything sounds like it’s in order, but, can you comment on your share price? You’ve moved from $9 down to $3 in a month.

A: The whole industry has trended down in that time frame, and TGOD’s Nov 2nd, 2018 free trade date had placed further downward pressure on our stock.

Our share price has moved so much that we believe we are now the cheapest large-scale LP on a 2020 EV/EBITDA multiple; see chart below detailing TGOD at a discounted 2020 EV/EBITDA multiple (based on analyst estimates of EBITDA) versus an industry average of 15x.

Estimated EV/EBITDA

With the free trade date behind us and our Canadian medical and recreational sales approaching, I am confident we will begin a move back to valuations more in line with industry peers.

Q: Can you add any additional comments regarding Nov 2nd?

A: Yes. Let’s break it down. Here is the chart:

Figure 12

Keep in mind this is spread over 4,000 private retail investors.

Typically, when a company has shares coming free trading, stock brokers can sell shares approximately two weeks before the free trade date in a margin account. Looking on a calendar, this correlates with the share price decline beginning the week of October 15th. TGOD has traded over ~103 million shares since that date. It is possible that a large amount of these shares have already been absorbed into the market.

In the big picture, TGOD will have 263 million shares outstanding. Compared to other industry leading LPs, Aurora has 958 million outstanding, Aphria has 249 million outstanding, Canopy has 230 million outstanding. Our total free trading and outstanding float is in-line with most large-scale LPs.

Q: What’s next for TGOD?

A: We expect continued volatility in the coming weeks for both TGOD and the industry, especially as a number of hedge funds and traders become more active in our market taking advantage of this increased liquidity.

However, that is the opportunity.

We will continue to communicate to the markets and ensure you understand our value proposition. The key to success is staying agile, focusing on what we can control and sticking with our vision and strategy.

The fundamentals of our business have not changed.

  • We are fully funded for our domestic and international strategies
  • TGOD has no plans to return to the market for additional capital
  • We have de-risked the capital side of our business and plan to execute expansion plans on schedule and on budget
  • TGOD is launching its first Canadian product in January 2019, and we will continue to ramp-up our production throughout the year, reaching 170,000 kgs of annual production during 2020
  • Canada is home to only 37 million people. We are not waiting until our maximum production is online to aggressively pursue additional distribution and sales networks throughout Europe and Latin America. We are moving now!

By focusing on delivering on our plans and executing better than our competition, we will succeed in the market and expect to drive significant value for shareholders.

We are very excited about the future we are building together and ask for your support during this time of increased liquidity. It is my strongest belief that TGOD offers one of the best investment opportunities in the entire cannabis industry due to the recent sell off. We hold a number of significant differentiators and are on track to become the largest organic cannabis brand in the world.

Thank you for your continued support.

As always,

Danny Brody
Vice President, Investor Relations

CONTACT US:

Investor Relations
The Green Organic Dutchman
[email protected]
905-304-4201

This Q&A includes statements containing certain “forward-looking information” within the meaning of applicable securities law (“forward-looking statements”). Forward looking statements in this Q&A includes, but is not limited to, statements about the future legalization of cannabis-infused products in Canada, statements about future research, development and innovation by the Company, statements about the offering of any particular products by the Company in any particular territory and statements regarding the future performance of the Company. Forward-looking statements are frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or statements that certain events or conditions “may” or “will” occur. These statements are only predictions. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this Q&A.
Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Company is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.
Neither TSX nor its Regulation Services Provider (as that term is defined in the policies of Toronto Stock Exchange) accept responsibility for the adequacy or accuracy of this Q&A.