Green Organic Dutchman tried to sell its unfinished new pot facility for $94.2 million in a leaseback deal and there were no takers
Cannabis producer The Green Organic Dutchman Holdings Ltd. says it has taken its Ancaster, Ont., greenhouse off the market after attempting to sell the facility through a leaseback arrangement earlier this month.
According to an offering memorandum advertising the property’s sale, which the Post obtained this week, TGOD was asking for $94.2 million for its 165,879-square-foot facility. Construction has yet to be completed, but the memorandum said TGOD had invested $107 million in the facility and its equipment. Under the terms of the offering, the licensed producer was willing to pay a little more than $10 million per year in rent over an initial lease term of 15 years and would be subject to annual rent increases of two per cent.
TGOD spokesperson Sebastien Bouchard said the Mississauga, Ont.-based company had previously disclosed in an Oct. 9 press release that it had been engaged in discussions for “ordinary course commercial bank facilities and equipment leasing.” TGOD received offers for the facility, Bouchard said, but was unable to come to an agreement with prospective buyers.
“Based on current market conditions, we didn’t get the offer on the terms and within the timeframe we needed so we had to disclose we’re reviewing alternative options,” said Bouchard, who explained that the company was looking to bridge financing and that the Ancaster facility was off the market.
While Bouchard said that TGOD had not been interested in selling the property since Oct. 8, it remained listed on the website of Stream Capital Partners, a net lease and sale leaseback advisory firm based in Chicago, through Thursday afternoon.
The listing, which suggested the property was still for sale, was taken down after the Post inquired about its online presence. Neither Stream Capital Partners nor TGOD appeared to realize that it was still online.
The memorandum was intended for the eyes of prospective investors in the property. TGOD mentioned that it was looking into “equipment leasing” multiple times this year but did not appear to specifically indicate that its entire Ancaster facility was on the market.
TGOD is one of several licensed producers struggling for liquidity in a dried-up marketplace.
In the memorandum, TGOD is described as a “well-financed company with robust market cap,” but its stock price has declined significantly after touching a 52-week high of $5.81 in March. On Thursday the shares closed at $1.15 in Toronto.
We didn’t get the offer on the terms and within the timeframe we needed
On Oct. 18, the company said it was looking to raise between $70 million and $80 million to implement a new strategic construction and operating plan that would see it slash its 2020 target capacity from 147,500 kg to between 20,000 and 22,000 kg. The raise would also allow the company to become profitable in the second quarter of 2020, it said.
Daniel Sax, the CEO of Sensi Properties, a cannabis real estate investment company, said it didn’t surprise him to see TGOD try to sell its Ancaster facility. In late August, Hamilton-based Beleave Inc. announced it signed a letter of intent to leaseback its London, Ont., facility in a deal that would net the company $7 million.
“(Real estate) will eventually move off these companies’ books,” Sax said. “You’re seeing an acceleration of that happening in which the free flowing money in the public markets is just no longer there. The time these companies could raise $200 million overnight is gone so they’re looking around at alternate financing sources.”
Sax was also not surprised to see that the property hadn’t sold, saying that the $94 million asking price was “out of line.”
“Cannabis companies tend to think it is worth what they put into the facility and from a real estate valuation standpoint it is not at all,” he said.
Because the cannabis industry is still in its infancy and it’s difficult to say which companies will still be operating in 15 years, any kind of long-term deal could come with risks for prospective buyers.
If a cannabis producer were to fail after selling its property in such a manner, Sax said the property would immediately be worth significantly less because it would no longer have a licensed producer operating inside.
Trina Fraser, a cannabis lawyer with Brazeau Seller Law, said that a landlord would not be able to automatically take on the licence of a producer.
“If all they’re buying is the land then no, you’re not able as the landlord to say ‘You’re in default under your lease and I’m stepping in your shoes to continue operating this business,’” Fraser said. “The licence doesn’t automatically go with the property.”