Green Growth Brands (CSE: GGB) investors had an eyebrow raising moment yesterday after the close, when the company announced that they would be conducting a bought deal financing to the tune of C$50.2 million. This news follows a recent share buyback that the company went through only a few short months ago.
The financing, to be conducted at a price of $2.45 per unit, is to include a share as well as one half warrant. In total, it is expected that 20.5 million units will be sold to fill the financing, with the option for an over-allotment to the tune of 3.075 million additional units.
While its no surprise that a cannabis firm is conducting a financial raise, Green Growth Brands investors are reeling from the news following a recent share buyback executed by the company. The buyback, conducted at a price per share of $3.26, was for a total C$89 million which consisted of roughly 27.3 million shares. Advertised at the time as being 13% of total outstanding shares for the firm, the buyback was conducted through the issuance of a $39 million note and $50 million in cash. The note bears interest at 6% and was payable within six months of the May 16, 2019 closing date.
Thus, this new financing conducted at $2.45 per unit will likely see its proceeds go towards paying off the bill for the previous share buybacks conducted at $3.26 per share.
Commenting on the matter at the time, CEO Peter Horvath stated, “While we continue to focus on the rapid expansion of GGB, the opportunity to repurchase these shares well below the current market price immediately and directly increased shareholder value.”
The financing also follows a raise consisting of convertible debentures issued on May 17 for US$45.5 million. The debentures are subject to an interest rate of 15%, with the entirety of the debt maturing on May 17, 2020. With a conversion price of C$7.00 per share, the debt will likely have to be paid off in cash in one years time.
The current financing has been described by the company to be intended for the following purposes;
- (i) to finance the cash purchase price payable by the Company to complete its acquisition of Nevada Organic Remedies,
- (ii) to finance the cash purchase price payable by the Company to complete its acquisition of Henderson Organic Remedies, and
- (iii) to finance the cash purchase price payable by the Company to complete its acquisition of Spring Oaks, with
- (iv) the balance, if any for Company’s ongoing capital expenditures and general corporate purposes
However, there’s some issues with the above stated purposes of the proceeds. First and foremost, on September 18, 2018 the company announced that it completed the acquisition of Nevada Organic Remedies. Second, the cash purchase price of Henderson Organic Remedies was already loaned to the firm as per the latest financials posted by Green Growth Brands on May 29, for the period ended March 31, 2019. The only thing stopping the Henderson acquisition from closing, based on previous company filings, is the formal exercise of the warrants that were issued in connection with the option. No further cash should be required to close the transaction.
Thirdly, the cash purchase price of Spring Oaks, which is a Florida licensee, consists of US$26.15 million, out of the total US$54.65 million price tag. This purchase should have been satisfied under the US$45.5 million raise conducted on May 17 through the aforementioned convertible debentures, as the acquisition of Spring Oak Greenhouses LLC was announced on June 4, 2019. There was a mere two week time frame between these dates, and no other major expenditures during this time period. Furthermore, a US$5 million loan was provided to GGB by MXY Holdings LLC as part of the all share acquisition announced on July 9, 2019 of the multi state operator. The funds from this loan were stated to be used to “fund certain pending acquisitions.”
Based on this information, it results in the current C$50 million financing likely being used for purpose (iv), the Company’s ongoing capital expenditures and general corporate purposes. A large portion of which, consists of the C$39 million promissory note issued on May 16, 2019 to complete the buy back of 27.3 million shares of the company at a price of $3.26 per share.
Green Growth Brands closed yesterdays session at $2.68, down $0.05, or 1.83% on the day.
Information for this briefing was found via Sedar, The CSE and Green Growth Brands. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
