Initiation of Coverage The Green Organic Dutchman Holdings Ltd€¦ · The Green Organic Dutchman...

The Green Organic Dutchman Holdings Ltd

Canadian Cannabis

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.

Canadian Equity Research24 October 2018

SPECULATIVE BUYPRICE TARGET C$7.00Price (23-Oct)Ticker

C$4.02TGOD-TSX

52-Week Range (C$): 3.50 - 10.24Market Cap (C$M): 1,293Shares Out. (M) : 321.6Implied Return to Target (%) : 74.1Net Debt (Cash) (C$M): (355)Enterprise Value (C$M): 938

FYE Dec 2017A 2018E 2019E 2020ESales (C$M) 0.0 17.6 373.0 606.8Gross Profit (C$M) (0.2) 14.6 276.6 459.7

EBITDA (C$M) (14.5) (30.4) 46.0 141.5EPS Adj (C$) (0.12) (0.12) 0.07 0.27Free Cash Flow (C$M) (10.0) (97.1) (1.8) 45.4

EV/EBITDA (x) NM NM 20.4 6.6P/E (x) NM NM 55.6 14.6

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TGODHorizons Marijuana Life Sciences Index ETF (rebased)

Source: FactSet

Priced as of close of business 23 October 2018

The Green Organic Dutchman is an Ancaster-basedlicensed cultivator of medical cannabis under theACMPR. The company grows organic cannabis using all-natural principles. The company has facilities (currentlyin buildout process) in Ontario, Quebec and Jamaicaas well as a joint venture with a Denmark cultivator,capable of producing ~195,000 kg of organic cannabis.Additionally, the company has acquired HemPoland,a leading European manufacturer and marketer oforganic CBD oils.

Derek Dley, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 416.869.7270Matt Bottomley, CPA, CA, CBV | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.867.2394Alexander Diakun | Associate | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.687.6339

Initiation of Coverage

A certified organic, global cannabis playInvestment recommendation:We are initiating coverage of The Green Organic Dutchman ("TGOD") with a SPECULATIVEBUY rating and C$7.00 target price. TGOD offers investors exposure to the Canadianorganic cannabis market while also being well established and fully funded to capitalizeon multiple international opportunities.

Investment highlights:• TGOD is a Canadian Licensed Producer ("LP") of organic cannabis and is fully funded,

with what we estimate to be $355 million in cash after including the impact of in-the-money warrants, to achieve annual capacity of approximately 195,000 kgs (excludinghemp production). We estimate that TGOD's fully funded production capacity translatesto approximately $1.1-1.4 billion in annual revenue. While TGOD’s current focus ison increasing production capacity in Ontario and Quebec, we expect the company tobe free cash flow positive in 2020 as it plans to build a portfolio of organic cannabisbrands that will serve legal recreational and medical markets around the world.

• TGOD focuses on offering organic cannabis products, which we believe will allow thecompany to develop a differentiated brand positioning from many other cannabisproducers. According to Hill and Knowlton, 43% of Canadian recreational cannabisconsumers prefer organic cannabis, and we expect the negative impact of consumingcannabis containing pesticides will continue to generate strong demand for organicproduct. Additionally, we believe these customers who prefer organic products are"stickier" and less price elastic, basing consumption patterns on quality, not price. Thishas resulted in organic cannabis commanding a pricing premium of 29% as comparedto regular cannabis, according to CannStandard. We expect this to continue as organicproducts typically command a pricing premium in excess of 25%.

• Following the acquisition of HemPoland, a manufacturer of organic CBD oil with salesin 14 countries across Europe, TGOD has established a solid international footprintwith operations in 17 countries across 2 continents. While cannabis regulationremains ambiguous globally, CBD oil is generally legal across Europe. We believeTGOD's unique positioning as a provider of legal CBD in Europe provides the companywith a first mover advantage, should further legalization of cannabis continue.

Valuation: Our target implies 13.4x our 2020 EBITDA estimate of $141 million. We valueTGOD at a slight discount to current mid-tier Canadian LP valuations at 15.9x, giventhe early-stage nature of TGOD’s operations. In our view, TGOD offers investors uniqueexposure to organic cannabis, as the company is the largest publicly traded LP that isa certified producer of organic cannabis while also offering investors above averageinternational optionality. Importantly, TGOD is well capitalized and, by our estimates,fully funded to achieve our estimates over our forecast period. With the shares tradingat 6.6x our 2020 EBITDA estimate, we believe TGOD represents an attractive buyingopportunity at current levels. With that said, given the various risks associated withexecution, regulatory changes and other factors, we believe a SPECULATIVE BUY rating isappropriate at this time.

For important information, please see the Important Disclosures beginning on page 36 of this document.

Unauthorized publication, disclosure or other distribution is strictly prohibited.

2

Table of Contents

Executive Summary .................................................................................................... 4

Overview of Operations............................................................................................... 6

Investment Thesis .................................................................................................... 15

Risks ......................................................................................................................... 23

Financial analysis and outlook ................................................................................. 25

Valuation .................................................................................................................. 30

Appendix A: Management ......................................................................................... 33

Appendix B: Ownership ............................................................................................. 34

The Green Organic Dutchman Holdings LtdInitiation of Coverage

Speculative Buy Target Price C$7.00 | 24 October 2018 Canadian Cannabis 2


3

Figure 1: Summary sheet

Source: Company Reports, Canaccord Genuity estimates

Company Description Consolidated Balance Sheet

Year end Dec 31 $000s 2017 2018E 2019E 2020E

Cash 63,736 266,063 383,980 429,424

Current Assets 81,466 277,450 430,172 481,783

Fixed Assets 6,965 98,980 181,957 211,186

Total Assets 96,977 399,295 634,994 715,834

Current Liabilities 19,729 16,824 106,332 94,889

Debt - - - -

P&L Forecasts Shareholders Equity 77,248 382,471 528,662 620,945

Year end Dec 31 $000s 2017 2018E 2019E 2020E

Kgs of cannabis sold - 8 ,400 82,006 130,567 Total Liabilities & S/E 96,977 399,295 634,994 715,834

Ave. Price per gram (bud) NM 2.09$ 4.55$ 4.65$

Revenue 0 17,581 373,007 606,840

Production Costs 153 3,004 96,437 147,188

Operating Expenses 14,305 45,023 230,559 318,169

Adj. EBITDA (14,458) (30,446) 46,011 141,482

Depreciation/Amortization 455 2,914 16,023 23,771

Interest Expense (Income) (253) (719) - -

Income Before Taxes (15,015) (32,642) 29,988 117,711

Taxes (1,556) (4,207) 7,497 29,428

Net Income (13,459) (28,435) 22,491 88,283

Shares o/s (basic) 112,526 220,149 297,608 308,008

Shares o/s (FD) 112,558 242,031 311,208 321,608

EPS - FD (0.12) (0.12) 0.07 0.27

Cash F low Forecasts

Year end Dec 31 $000s 2017 2018E 2019E 2020E

Net Income (13,459) (28,435) 22,491 88,283

Adj, EBITDA (14,458) (30,446) 46,011 141,482

Change in Working Capital 2,186 1,013 54,704 (17,611)

Cash Taxes 1,556 4,207 (7,497) (29,428)

Capex (5,832) (78,423) (99,000) (53,000)

Free Cash F low (9,983) (97,079) (1,782) 45,444

Growth Analysis

Year end Dec 31 2017 2018E 2019E 2020E

Revenue NM NM 2022% 63%

EBITDA 8830% 111% -251% 207%

Net Income 8252% 111% -179% 293%

Margin Analysis Valuation Ratios

Year end Dec 31 2017 2018E 2019E 2020E Year end Dec 31 2017 2018E 2019E 2020E

Gross Margin NM 82.9% 74.1% 75.7% Enterprise Value / Revenue NM 53.3x 2.5x 1.5x

EBITDA NM -173.2% 12.3% 23.3% Enterprise Value / EBITDA NM NM 20.4x 6.6x

Net Income NM -161.7% 6.0% 14.5% Enterprise Value / Funded Cap NM 62.5x 5.5x 4.8x

The Green Organic Dutchman is an Ancaster based licensed cultivator of medical

cannabis under the ACMPR. The company grows organic cannabis using all-natural

principles. The company has facilities (currently in buildout process) in Ontario, Quebec

and Jamaica as well as a joint venture with a Denmark cultivator and is capable of

producing ~195,000 kg of organic cannabis. Additionally, the company has acquired

HemPoland, a leading European manufacturer and marketer of organic CBD oils.

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Executive Summary The Green Organic Dutchman is a Canadian Licensed Producer (“LP”) of medical cannabis

pursuant to Health Canada’s Access to Cannabis for Medical Purposes Regulations

(“ACMPR”). TGOD, which has an annual funded capacity of approximately 195,000 kgs

(excluding hemp production) which translates to an estimated $1.1-1.4 billion in annual

revenue, is one of only three Licensed Producers in Canada that grows certified organic

cannabis and the only publicly traded company which exclusively produces organic

cannabis. While the company’s current focus is mainly directed towards increasing

production capacity in Ontario and Quebec, TGOD plans to build a portfolio of organic

cannabis brands that will serve legal recreational and medical markets around the world.

Key investment highlights:

1) Organic focus a key differentiating factor

2) Fully funded for capacity expansion as well as R&D opportunities

3) International presence provides optionality

4) Aurora investment validating the organic business model

5) Attractive valuation

Organic focus a key differentiation factor

The Canadian organic industry is one of the fastest growing agricultural sectors, with

annual retail sales of certified organic products reaching ~$5.4 billion in 2017. According

to Hill and Knowlton, 43% of Canadian recreational consumers prefer organic cannabis

and as TGOD is one of only three LPs certified to produce organic cannabis, we believe the

company can capture a sector of the market with “sticky” customers who have a

preference for organic products. Additionally, we believe the organic barriers to entry are

sufficient to ensure limited competition for TGOD, with the organic certification process for

LPs potentially lasting well over a year and half.

In our view, this subset of consumers purchasing organic cannabis are likely to pay a

higher price for the product, as organic cannabis in Canada sells at an average premium

of 29% as compared to regular cannabis. We expect this premium to lead to prices in

excess of $2/gram higher than regular cannabis. While we believe TGOD maintains a

slightly higher cost to produce organic cannabis, with a cash cost to produce of ~$1/gram,

we expect the company’s premium pricing will offset the impact of higher production

costs. Furthermore, TGOD’s organic cannabis represents a differentiated product, which

we believe will become of increasing importance to investors as the cannabis market

evolves.

Fully funded for capacity expansion and R&D opportunities

TGOD began 2018 with production capacity of 1,000 kgs in its Hamilton facility. After

raising over $400 million in capital throughout 2017 and 2018, the company disclosed

plans to increase its production to 195,000 kgs by the end of 2019. TGOD intends to

expand its Hamilton facility to 14,000 kgs, while constructing a state-of-the-art hybrid

facility in Valleyfield, Quebec, with annual production capacity of 142,000 kgs, which will

be the largest organic cannabis production facility in the world. The company intends to

ramp up production at these facilities over the course of 2019, and is fully funded to reach

these targets. We estimate TGOD will sell roughly 42,000 kgs during 2019, from its

Hamilton and Valleyfield facilities.

Given TGOD’s strong experience in beverages, as many TGOD executives previously held

roles at Cott Beverages, we believe TGOD has a first mover advantage when it comes to

cannabis infused beverage research and eventual production. TGOD intends to leverage

its management team’s past history in the beverage market by committing to building a




5

40,000 square foot research and development facility at its Valleyfield property, with a

focus on developing leading cannabis or CBD infused beverage products.

International presence could lead to further upside

With the recent acquisition of HemPoland, TGOD has surpassed its initial international

growth targets, now operating in 17 countries across two continents. The company has

also signed a letter of intent for a 50/50 joint venture with a company based out of

Denmark, which would increase TGOD’s global presence to a total of 18 countries.

International expansion into Europe and Latin America would increase TGOD’s

addressable population by more than 1.4 billion, as compared to the Canadian market

with a population of 36 million. We believe international growth will be an increasing focus

for TGOD management, as the company ramps up its production facilities in Canada. This

could provide additional upside to our estimates over time.

Aurora investment validating the organic business model

In January of 2018, Aurora Cannabis entered into a supply agreement with TGOD

purchasing $55 million in subscription receipts of the company and bringing Aurora’s total

investment in TGOD to $78 million. Under the supply agreement, while Aurora owns more

than 10% of TGOD the company has the right to purchase up to 20% of TGOD’s production

at its Hamilton and Quebec facilities. Currently, Aurora owns approximately 13% of TGOD

on a fully diluted basis, and in our view this ownership and supply agreement are both

strong validations for TGOD’s organic business model, while providing TGOD with a source

of predictable revenue.

Valuation remains attractive

We are initiating coverage of The Green Organic Dutchman with a SPECULATIVE BUY rating

and C$7.00 target price. Our target price reflects our sum-of-the-parts valuation, where we

separately value the company’s medical, recreational and international opportunities,

resulting in a value of $7.16 per share. Our valuation incorporates a 10.2% WACC and

2.0% terminal growth rate for the medical and recreational opportunity, as well as an

11.5% WACC and 2.0% terminal growth rate for the international opportunity. We note that

while there are roughly 100 million locked-up securities becoming free-trading stock in

early November, which we believe has led to some investor concern about near-term

selling pressure, the company’s share structure is not dissimilar to a number of other

cannabis LPs

Our target implies 13.4x our 2020 EBITDA estimate of $141 million. We value TGOD at a

slight discount to mid-tier Canadian LPs at 15.9x, given the relatively more early-stage

nature of TGOD’s operations. In our view, TGOD offers investors unique exposure to

organic cannabis, as the company is the largest publicly traded Canadian Licensed

Producer that is a certified producer of organic cannabis. As well, TGOD offers investors

above average international optionality, with established operations across Europe and

plans to expand into South America. Importantly, TGOD is very well capitalized and, by our

estimates, fully funded to achieve our estimates over our forecast period. With shares

trading at 6.6x our 2020 EBITDA estimate we believe TGOD represents an attractive

buying opportunity, at current levels.

Given the various risks associated with execution, regulatory changes and other factors,

which are highlighted below, we believe a SPECULATIVE BUY rating is appropriate at this

time.

Risk of high cost production of organic cannabis

Facility expansion risk

Cultivation risk

Regulatory risk

Risk to Aurora supply agreement

Selling pressure risk related to free trading shares




6

Overview of Operations

The Green Organic Dutchman (“TGOD”) is a Canadian Licensed Producer of medical

cannabis pursuant to Health Canada’s Access to Cannabis for Medical Purposes

Regulations (“ACMPR”). TGOD has an annual funded capacity of approximately

195,000 kgs (excluding hemp production), which we estimate relates to $1.1-1.4

billion in annual revenue, and is one of only three Licensed Producers in Canada that

grows certified organic cannabis. While the company’s current focus is mainly directed

toward increasing production capacity in Ontario and Quebec, the company plans to

build a portfolio of organic cannabis brands that will serve legal recreational and

medical markets around the world.

Figure 2: The Green Organic Dutchman mock-up medicinal branding

Source: Company reports

As TGOD continues to build its production capabilities, the company has established a

solid international footprint, operating in 17 countries across North America and

Europe with plans on the horizon to expand into South America. The company recently

announced agreements to form joint ventures in Jamaica and Denmark. Furthermore,

TGOD recently acquired a leading European producer of organic hemp-derived CBD

oils, HemPoland. We believe the company’s focus on organic cannabis provides a

level of differentiation for TGOD, and should allow the company to command a portion

of the Canadian recreational market.

Cannabis acceptance in Canada rapidly increasing following de-criminalization

Canada is at the forefront of cannabis legalization, as the country is the second in the

world to federally legalize recreational cannabis, following Uruguay’s legalization of

recreational cannabis in December of 2013. As well, Canada is one of only a few

countries where medical cannabis is regulated at the federal level, with a number of

highly regulated Licensed Producers (“LPs”) cultivating, manufacturing and

distributing cannabis domestically. With many international markets poised for further

de-criminalization of both medical and recreational cannabis, Canadian LPs, including

TGOD, are well positioned to gain a first mover advantage in the highly profitable and

high growth cannabis industry.

Medical cannabis in Canada is well established, and growing

The Canadian industry for legalized medical cannabis was born in the early 2000s,

when the Marihuana Medical Access Regulations (“MMAR”) were enacted in July of

2001. The legalization of medical cannabis was in response to mounting pressure

from individuals with chronic illnesses, who were advocating to be exempted from the




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criminal laws surrounding marijuana consumption on account of its therapeutic

benefits. The MMAR allowed for the possession and production of medical marijuana,

including home cultivation.

After the implementation of MMAR, it was believed that the regulations were open for

abuse, and so in July of 2013, the federal government replaced the existing

framework, introducing the Marihuana for Medical Purposes Regulations (“MMPR”).

The MMPR required that all cannabis be grown, cultivated and sold by a Licensed

Producer on a highly regulated, commercial scale. In June of 2015, the Federal Court

of Canada ruled that the MMPR was unconstitutional as it did not allow individuals

who require marijuana for medical purposes reasonable access to cannabis. In August

of 2016, following the ruling by the Federal Court, the Access to Cannabis for Medical

Purposes Regulations (“ACMPR”) were introduced. Under these regulations, LPs can

continue to grow and sell medical cannabis; however, patients also have the right to

apply to grow or designate a grower for medical use.

We are forecasting solid growth in the consumption of medical cannabis, as we are

projecting this to grow to 176,000 kgs in 2024, up from 51,000 kgs in 2017. This is

being driven by a growing number of registered patients, which we expect will reach

619,000 by 2024, up from 270,000 at the end of 2017. In our view, the growth in

registered patients continues to be driven by the increased ease of access to medical

cannabis, increased patient and physician awareness as well as the decrease in

negative stigma associated with the consumption of marijuana. In addition to these

trends, we anticipate the increasing consumer acceptance of oils and extracts will

continue to support solid growth in registered patients over the medium term.

Figure 3: Canadian medical cannabis market size projections

Source: Health Canada, Canaccord Genuity estimates

Recreational cannabis now legal following royal assent of Cannabis Act

During the 2015 federal election, the Liberal Party of Canada introduced a platform

calling for the legalization of recreational marijuana in order to regulate the existing

illicit market and restrict youth access to cannabis. In the fall of 2015, the Liberals

won a majority government and, shortly thereafter, announced plans to introduce

legislation that would legalize the recreational use of marijuana in Canada. A special

committee, known as the Task Force on Marijuana Legalization and Regulation (the

“Task Force”) was established to study the issue and released a report towards the

end of 2016, detailing its findings.

On April 13, 2017, Bill C-45, also known as the Cannabis Act, was introduced to

parliament. The Cannabis Act creates a legal and regulatory framework for controlling

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the production, distribution, sale and possession of cannabis in Canada and was

informed by the findings of the Task Force. The Cannabis Act received Royal Assent on

June 21, 2018, and came into effect on October 17, 2018, at which point it became

legal for adults of legal age (as established provincially) to:

1. Purchase fresh cannabis, dried cannabis, cannabis oil, cannabis seed or

cannabis plants from provincially authorized retailers.

2. Possess up to 30 grams of dried or equivalent non-dried cannabis in public.

3. Consume cannabis in locations as authorized provincially.

4. Grow up to four cannabis plants per household for personal use.

5. Share up to 30 grams of dried or equivalent non-dried cannabis with other

adults.

6. Make products containing legal cannabis at home, providing dangerous

solvents are not used to produce them.

We note that the federal government expects to permit the sale of edibles and other

products within one year of the Cannabis Act becoming law. As well, the above

regulation remains subject to provincial/territorial restrictions, which are outlined

below.

Figure 4: Landscape of recreational cannabis provincially


We are forecasting robust growth over the medium term in the recreational cannabis

market, as we believe that federal legalization will allow the market to evolve,

appealing to a much larger user base as compared to the illicit market. We estimate

ProvincePopulation

(% of Canada)

Type of retail

(Private/Government/Hybrid)

Online sales

(Private/Government/Hybrid)

Age of legal

consumption

Grow your

own?Where to smoke?

Alberta 4,067,175 (12%) Private Government 18+Yes, up to 4

plantsWherever tobacco is permitted

British Columbia 4,648,055 (13%) Hybrid Hybrid 19+Yes, up to 4


Manitoba 1,278,365 (4%) Private Private 19+ No Private property and residences

New Brunswick 747,101 (2%) Government Government 19+Yes, up to 4

plantsPrivate property and residences

Newfoundland

and Labrador519,716 (1%) Private Government 19+

Yes, up to 4


Northwest

Territories41,786 (0%) Private Government 19+

Yes, up to 4

plants

Private property and outdoor public

areas not in use for public events

Nova Scotia 923,598 (3%) Government Government 19+Yes, up to 4


Nunavut 35,944 (0%) Private Private 19+ No Private property and residences

Ontario 13,448,494 (38%)Private

(retail starting April 2019)Government 19+

Yes, up to 4


Prince Edward

Island142,907 (0%) Government Government 19+

Yes, up to 4

plants

Private property and residences,

some exceptions for public spaces

Quebec 8,164,361 (23%) Government Government 18+ No Wherever tobacco is permitted

Saskatchewan 1,098,352 (3%) Private Private 19+Yes, up to 4


Yukon 35,874 (0%) Government Government 19+Yes, up to 4





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the annual amount of recreational cannabis consumed will increase to 513,000 kgs

in 2024, up from what we estimate to be 407,000 kgs in 2017. It is important to note

that our 2017 estimate for recreational cannabis consumed is all illicit consumption,

and we expect the majority of this consumption to shift to the legal market over the

course of our forecast period. As well, we estimate that illicit recreational cannabis

sales declined in the years prior to 2018 due to the rapid growth of consumption in

Canada’s registered medical patient base.

Figure 5: Canadian recreational cannabis market size projections

Source: Canaccord Genuity estimates

Significant capacity expansion is fully funded

TGOD began 2018 with production capacity of 1,000 kgs in its Hamilton facility. After

raising over $400 million in capital throughout 2017 and 2018, the company

disclosed plans to increase its production to 195,000 kgs by the end of 2019

(excluding hemp production capacity). TGOD intends to expand its Hamilton facility to

14,000 kgs, while constructing a state-of-the-art hybrid facility in Valleyfield, Quebec,

with annual production capacity of 142,000 kgs. The company also intends to

develop, or have an investment stake in, facilities in Jamaica, Denmark and Poland.

We believe TGOD is fully funded to reach its production targets, and we estimate

TGOD will sell roughly 42,000 kgs of cannabis (excluding hemp) during 2019, as the

Hamilton and Valleyfield facilities begin to ramp up production.

11.8%

12.0%

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12.4%

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Figure 6: Projected production capacity growth

Source: Company reports, Canaccord Genuity estimates

Figure 7: Summary of operations


Hamilton Facility – planned 14,000 kg of production capacity

The Green Organic Dutchman owns a 100-acre property in Hamilton, Ontario, which is

licensed to cultivate cannabis, wholesale cannabis to other Licensed Producers and

Licensed Dealers, process cannabis into oil and sell cannabis to medical patients.

Currently, the company operates a 7,000 square foot indoor growing facility on the

property, which produces approximately 1,000 kg of cannabis annually. TGOD has

begun construction on the facility, with expansion planned to bring the company’s

production capacity to 14,000 kg annually. Once complete, the facility will be

approximately 150,000 square feet with both indoor and hybrid growing operations

(3,000 kg indoor / 11,000 kg hybrid). Construction has begun on the facility and the

company anticipates the expansion will be complete by Q1/19, with the first harvest

occurring in the first half of 2019.

Jamaican production expected to come online

(14,000 kg) Hamilton production expected to come online

(14,000 kg)

Quebec production expected to come online

(142,000 kg)

Denmark production expected to come online

(25,000 kg, pending signing of joint venture)

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Q3/18E Q4/18E Q1/19E Q2/19E Q3/19E Q4/19E Q1/20E Q2/20E Q3/20E Q4/20E

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pa

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Canada International

Hamilton Valleyfield Epican Knud Jepsen HemPoland LLACA Grupo

Location Ontario QuebecBlue Mountain,

Jamaica

Hinnerup,

DenmarkElblag, Poland Mexico

TGOD %

Ownership100% 100% 49% 50% 100% 50%

Approved

licenses

Cultivation

Sales

Oil extraction

Cultivation

Cultivation

Extraction

Manufacturing

Retail

-Cultivation

ManufacturingN/A

Pending

licenses-

Oil extraction

Dealer- Cultivation - N/A

Current

capacity (kg)1,000 - 1,300 - 32,000 (hemp) N/A

Planned

capacity (kg)14,000 142,000 14,000 25,000 32,000 (hemp) N/A

Planned size

(sq. ft)150,000 1,107,245 150,000 200,000 - N/A

Expected

cultivationQ1 2019 H1 2019 H2 2018 H2 2019 Operational N/A

Type Indoor/Hybrid HybridOpen air

greenhouseGreenhouse Outdoor N/A




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We note the company is currently appealing a ruling by Hamilton city council which

reversed an early decision by the city planning staff, which denied zoning to TGOD to

proceed with its Hamilton facility expansion. This could reduce the capacity at

Hamilton by 11,000 kgs, or less than 6% of TGOD’s consolidated production capacity.

That being said, the company is confident it will win its appeal, and is currently

proceeding with construction. We note should TGOD lose its appeal, it would likely

transfer a portion of the planned production from Hamilton to its Quebec facility.

Figure 8: Hamilton Facility illustration


Valleyfield Facility - planned 142,000 kg of production capacity

Through a subsidiary of which TGOD maintains 49.99% ownership, the company owns

a 72.4-acre property in Salaberry-de-Valleyfield, Quebec. Construction at the property

is underway, and the company is fully funded to develop a 1.1 million square foot

facility, capable of producing approximately 142,000 kg of cannabis annually making

this facility the largest organic cannabis cultivation facility in the world. In April of

2018, the company completed the construction of a genetic research and breeding

facility, also located on the property. TGOD expects to start production at the facility in

the first half of 2019. We note that TGOD owns 100% of the production at the

Valleyfield facility.

Figure 9: Valleyfield Facility illustration





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Epican – planned 14,000 kg of production capacity

TGOD owns a 49.18% interest in Epican Medicinals, which represents the maximum

allowable amount that a foreign entity can own in a Jamaican company. Epican’s Blue

Mountain cultivation site received Jamaica’s first cultivation license and produces

approximately 1,300 kg of cannabis annually. Epican also holds licenses for

extraction, manufacturing and retail sales. The company plans to develop a 125,000

square foot facility that is Good Manufacturing Practice compliant and is in the

process of applying for licensing. The new facility would increase Epican’s production

capacity to 14,000 kg annually. Additionally, Epican has recently opened its first retail

location, the first legal cannabis retail store in Jamaica, with plans to open a total of

five stores in the near to medium term. The joint venture is structured such that the

existing production capacity of 1,300 kg is allocated to the Jamaican market, and

TGOD receives the pro-rated economics based on its 49.18% interest in the joint

venture. For the remaining production capacity of 12,700 kgs, TGOD has an offtake

agreement with the joint venture, whereby the company can purchase 90% of the

production at a pre-determined price. TGOD plans to export this production to Latin

America as well as Europe.

Figure 10: Epican flagship retail location


Denmark JV – planned 25,000 kg of production capacity

In June of 2018, TGOD signed a letter of intent to enter into a joint venture with Knud

Jepsen. Under the terms of the agreement, the joint venture would focus on the

cultivation and extraction of organic cannabis out of a 200,000 square foot facility, to

be built within Knud Jepsen’s 1.3 million square foot greenhouse in Denmark. TGOD

will have the exclusive right to purchase all cannabis products produced by the joint

venture through a guaranteed offtake agreement. TGOD anticipates the joint venture

will add approximately 25,000 kg of annual production capacity once the

development of the facility is complete in the second half of 2019.




13

Figure 11: Breakdown of funded production capacity (non-hemp production)


HemPoland – 32,000 kg of production capacity (hemp)

In October of 2018, TGOD closed the acquisition of HemPoland, a vertically integrated

manufacturer and distributor of organic hemp-derived CBD oils. The company sells

CBD oil products under the brand CannabiGold in approximately 700 locations across

14 European countries. HemPoland operates over 1,250 acres of cultivation and in

2017 the company produced over 32,000 kg of dried hemp flower and 310 kg of CBD

oils.

Mexico JV – mass distribution across Mexico

Also in October of 2018, TGOD entered into a strategic joint venture with LLACA Grupo

Empresarial. Under the terms of the joint venture, the companies will create a

separate entity focused on entering the medicinal cannabis market in Mexico, each

with 50% interest in the newly formed company. The partnership provides TGOD mass

scale distribution throughout all of Mexico, through access to approximately 4,500

pharmacies and 3,100 supermarkets in Mexico, which has a population of

approximately 125 million people.

Aurora Cannabis supply agreement

Importantly, TGOD has been identified as a strategic partner for Aurora Cannabis

(ACB-TSX; C$10.08 | SPECULATIVE BUY), with Aurora owning an ~13% interest in the

company. Furthermore, TGOD has a purchase commitment from Aurora for up to 20%

of the company’s production from its Ontario and Quebec production facilities. This, in

our view, provides a visible revenue stream for TGOD, as Aurora is one of the largest

cannabis companies in Canada. The supply agreement is structured such that the

term of the agreement varies based on the fully diluted ownership that Aurora

maintains in TGOD. So long as Aurora holds more than 10% of TGOD, the term of the

supply agreement is 20 years from when TGOD receives sales licenses at both the

Hamilton and Valleyfield facilities. If the Aurora ownership falls to 5-10%, then the

term is two years, and if it is below 5%, then the agreement terminates.

Furthermore, TGOD is utilizing Aurora Larssen as its design and consulting partner for

the development of its Hamilton and Valleyfield facilities. We believe the company will

be able to leverage Aurora Larssen’s world class knowledge into developing the one of

the largest scale and lowest cost organic cannabis production facilities in the world.

73%

7%

7%

13%

Quebec Hamilton Jamaica Denmark

Funded production capacity: 195,000 kg




14

TGOD Acquisition Corporation

TGOD recently announced its intention to spinout TGOD Acquisition Corporation

(“Acquisition Corp”), with plans for the Acquisition Corp to complete an IPO on the

Canadian Securities Exchange in Q4/18. The Acquisition Corp will operate at an arm’s

length to TGOD, with its own management team, as well as Board of Directors, and will

engage in acquiring and developing emerging cannabis companies not considered to

be core assets in TGOD’s business plan. TGOD and the Acquisition Corp will be legally

distinct entities, with TGOD deriving no economic benefit from, and holding no

ownership in, the Acquisition Corp.

We note that while the Acquisition Corp’s potential listing on the CSE will allow for the

ownership of cannabis companies with operations in the United States, TGOD does

not hold any option to acquire the Acquisition Corp should de-scheduling of cannabis

occur at a federal level in the United States. Since TGOD would only be able to acquire

ownership of the Acquisition Corp at market price, we do not believe the Acquisition

Corp to be a core part of the TGOD business plan, and have excluded this business

from our analysis.

Management

TGOD announced a top-level management change in early July of 2018, as previous

CEO Robert Anderson was forced to step-down due to health concerns. However,

TGOD had previously identified its CFO, Brian Athaide, as a successor, and Mr. Athaide

was appointed CEO on July 2, 2018. Mr. Athaide is a seasoned consumer products

executive, having previously served as CFO of Andrew Peller Ltd, Canada’s largest

publicly traded wine and alcohol producer. Prior to Andrew Peller Ltd, Mr. Athaide

spent 25 years in progressively senior roles with Procter & Gamble.

We have known Mr. Athaide for a number of years and believe his track record at both

Procter & Gamble and Andrew Peller is stellar. Meanwhile, TGOD has appointed a

number of former consumer packaged goods executives to senior roles, which we

believe will be key in allowing the company to develop a leading brand as the

cannabis market evolves.

Large insider position

In our view, management and shareholders of TGOD are well aligned, as management

and insiders hold ~17% of the fully diluted shares outstanding, while Aurora owns a

13% stake in the company. Furthermore, founder shares are subject to a 42-month

escrow, whereby only 10% of shares can be released every six months, meaning we

expect founders to continue to retain a sizeable position within the company over the

next three years at a minimum. In addition, there are locked-up securities which will

become free-trading stock in early November. While we believe this has led to some

investor concern about near-term selling pressure, the company’s share structure is

not dissimilar to a number of other cannabis LPs.

Figure 12: Locked-up shares freely trading on November 2, 2018


Security Description Shares ('000s)

Common shares @ $0.50 26,581



Accelerated warrants @ $2.15 17,721

Locked-up shares free trading Nov. 2 104,022

Less: Management ownership of above shares 10,000

Add: Founder stock escrow release 5,500

Net shares free trading Nov. 2 99,522




15

Investment Thesis

Carving a niche positioning in the organic cannabis segment

TGOD is focused on offering organic cannabis products, which we believe will allow

the company to develop a differentiated brand positioning from many other cannabis

producers as both the medical and recreational cannabis markets evolve. According

to Hill and Knowlton, 57% of Canadian medical cannabis consumers as well as 43% of

recreational consumers prefer organic cannabis and we expect the negative impact of

consuming cannabis containing pesticides will continue to generate strong demand

for organic product.

The Canadian organic industry is one of the fastest growing agricultural sectors, with

annual retail sales of certified organic products reaching ~$5.4 billion in 2017. As

TGOD is one of only three Canadian LPs certified to produce organic cannabis (the

others being Organigram Inc. and Whistler Medical Marijuana Corp), we believe the

company can capture a sector of the market with “sticky” customers who prefer

organic products. These customers tend to be brand loyal, and exhibit less price

elasticity, basing consumption patterns on quality, not price. In our view, this subset of

consumers is likely to pay a higher price for organic cannabis, providing margin

support for TGOD.

Organics represent a growing trend

Over the last five years, organic produce and food has been the fastest growing

category in agriculture, growing at a 9% CAGR, according to the Canada Organic Trade

Association. Increasingly, consumers have become more aware and concerned about

what they are eating or consuming. With a greater focus on health and wellness from

both the baby boomer and millennial populations, we believe organic products will

continue to outpace the growth of the overall agricultural market.

Figure 13: Historic organic produce and food market size

Source: Canada Organic Trade Association

Ability to command a premium price

Given TGOD’s position as one of only three certified organic cannabis producers, we

believe the company will have the ability to create a diversified brand proposition,

which should result in the ability to command a premium price per gram relative to the

more traditional cannabis producers. Typically, a consumer of organic products tends

to be less price sensitive, which we believe will also allow TGOD to command a

$3.5 bln

$5.4 bln

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2012 2013 2014 2015 2016 2017

Ma

rket

siz

e ($

bil

lio

n)




16

premium price for its products, as it targets a consumer focused on quality as

opposed to price.

Figure 14: Organic price premium- fruits Figure 15: Organic price premium - vegetables

Source: Amazon Fresh Source: Amazon Fresh

While on average, we believe organic products command roughly a 25% premium as

compared to non-organic products, this premium can vary by product type. We note

above that the organic premium associated with the most popular selling fruits and

vegetables is 40% and 63% respectively. We believe this strongly supports the ability

for organic cannabis to continue to command a premium price as the market

matures, with the current premium for organic cannabis amounting to 29%, according

to CannStandard. We believe this will allow TGOD to realize approximately $2/gram

higher sale prices as compared to traditional cannabis producers.

Figure 16: Organic pricing of cannabis compared to industry average

Source: CannStandard

Differentiation as an organic cannabis producer should lead to shelf space gains

Ahead of the legalization of Canada’s recreational cannabis market, we witnessed a

very competitive battle among Canadian Licensed Producers to secure retail

distribution. This has culminated in each province awarding supply tenders with 6-12

month time frames.

TGOD did not participate in the initial round of supply tenders, namely due to the fact

the company’s Canadian production facilities are not slated to begin production until

what we believe will be Q1/19. That said, as the second round of tenders are rolled

out, we believe TGOD will be a strong participant, as we believe the differentiated

organic product offering will be a compelling one for Canadian provinces. Given

Item Unit Regular Organic Organic Premium

Bananas 5ct bunch 1.79 1.99 11%

Apples Fuji, one 1.16 1.69 46%

Grapes Red seedless, 2 lb. 5.98 8.99 50%

Strawberries 1 lb. 3.99 4.99 25%

Lemons One 0.87 1.05 21%

Blueberries 6 oz. 3.99 5.49 38%

Peaches One 1.1 1.4 27%

Cantaloupe One 2.99 5.99 100%

Avocados Hass, one 1.99 2.99 50%

Lime One 0.5 0.68 36%

Average 40%

Item Unit Regular Organic Organic Premium

Potatoes Russet, 5 lb. 3.33 5.39 62%

Tomatoes Roma, 1.5 lb. 2.79 3.99 43%

Onions Yellow, one 0.99 1.29 30%

Carrots Baby, 1 lb. 1.56 1.99 28%

Lettuce Iceberg, 1 head 1.72 2.99 74%

Broccoli Florets, 1 oz. 0.21 0.35 68%

Bell peppers Red, one 1.99 2.99 50%

Celery One 1.32 2.50 89%

Cucumbers One 1.09 2.29 110%

Mushrooms Whole white, oz. 0.29 0.51 76%

Average 63%

11.67

9.05

8.0 9.0 10.0 11.0 12.0

Organic average

Industry average

Average retail price (C$ / gram)

29% premium




17

TGOD’s position as a certified organic cannabis producer, we believe the company is

well positioned to win recreational supply agreements during 2019. Furthermore, the

company’s relationship with Aurora should also allow TGOD to gain widespread

distribution of its products, along with allowing TGOD to generate recreational

revenues through its supply agreement with Aurora.

Our discussions with industry insiders have lead us to believe that many cannabis

retailers may look to develop an organic section within their stores. This supports our

view that TGOD’s position as one of only three organic cannabis producers in Canada

should allow the company to gain market share given its differentiated product.

Organic cannabis lacking meaningful competition with high barriers to entry

Currently, the only other two organically certified producers of cannabis are Whistler

Medical Marijuana Corporation and Organigram Inc. (OGI-TSE; C$5.54 | SPECULATIVE

BUY). While Whistler is a private company, we estimate that the company’s production

capacity is substantially less than that of TGOD. Additionally, Whistler’s current focus

is mainly on the medical cannabis market, having only secured a recreational supply

agreement in British Columbia. While Whistler’s competition is meaningful to TGOD,

the company lacks TGOD’s scale, and does not compete with TGOD across all

provinces within Canada or internationally.

Figure 17: Canadian Licensed Producers of organic cannabis

Source: Company Reports

In October of 2018, Organigram announced the organic certification of its medicinal

cannabis plants and growing process, making it the third organically certified

Canadian Licensed Producer. While Organigram is fully funded to achieve ~110,000

kg of annual production capacity out of an approximately 470,000 square foot facility,

we note that the estimated square footage allocated to organic production is only

32,000 square feet. We believe TGOD’s superior planned production capacity

positions the company far better to gain share of the organic cannabis market both

domestically and internationally over the long run.

Organigram: a case study on the barriers to entry within organic cannabis

Importantly, Organigram provides a key insight into the substantial barriers to entry

that exist in the organic cannabis industry. After having received a license to cultivate

medical cannabis in the spring of 2014, the company voluntarily recalled product

containing unapproved pesticides in December of 2016. Following the recall,

Organigram launched an investigation into the incident and Ecocert suspended

Organigram’s organic certification. Organigram’s recertification process lasted well

over a year and a half and, in our view, demonstrates the high degree of complexity

involved in receiving an organic certification. We believe Organigram’s troubled history

helps position TGOD as the clear leader in organic cannabis globally.

Company DescriptionDate of first

license

Market Capitalization

($mm)

Fully-funded

production capacity

Provincial supply

agreements

Organigram

Operates an indoor cultivation facility based in Moncton, New

Brunswick. Due to its geographic location, OrganiGram benefits

from some of the lowest utility and labour rates in the country.

The company currently has a capacity of 36,000 kg with 1 of 3

completed phases currently allocated to organic cultivation.

26-Mar-14 1,051 113,000 kgON, MB, AB, NB

NF, PEI, NS

Operating out of Whistler, British Columbia, the company is the

first certified organic licensed producer in Canada. The company

competes regionally in British Columbia, with an emphasis on

serving the province's medical market. Whistler has received a

supply agreement with the province of British Columbia.

26-Feb-14 N/A (Private) ~7,000 kg BC




18

Capacity expansion, as well as substantial R&D optionality, fully funded

Following the company’s recent $76 million equity financing, where TGOD issued 11.0

million shares at a price of $6.85 per share, along with 12.6 million warrants at a

strike price of $9.00, we believe the company is fully funded to reach its production

targets.

TGOD ended Q2/18 with $262 million in cash on the balance sheet. After

incorporating the exercise of the company’s in-the-money warrants, and including the

recent equity raise, we estimate TGOD will have a net cash position of $355 million by

the end of Q2/19.

This leaves the company fully funded to complete its Hamilton and Valleyfield capacity

expansion projects, which we estimate will cost a total of $35 million and $140

million, respectively. As of the end of Q2/18, TGOD has spent $45 million on these

respective projects. Furthermore, the company is currently in the process, along with

its JV partners, of expanding its Jamaican cultivation capacity to 14,000 kgs from

1,300 for a capital cost to TGOD of, what we estimate to be, ~$5 million.

Looking across the Atlantic, TGOD completed the acquisition of HemPoland in early

October for approximately $23 million. TGOD plans to invest an additional $13 million

into the business to help accelerate European expansion and new product innovation.

The company also has signed a LOI for a 50/50 joint venture with Knud Jepsen in

Denmark with total production capacity of 25,000 kgs. While the details have not

been released, forming of the joint venture would require incremental CAPEX over and

above our estimate.

Figure 18: Planned CAPEX by region


Committed to beverage development

A number of members of TGOD’s senior management team previously held senior

positions at Cott Beverages, including TGOD President, Csaba Reider, and VP

Operations, John Wren. We believe this gives TGOD a first mover advantage when it

comes to cannabis infused beverage research and eventual production. TGOD intends

to leverage its management team’s past history in the beverage market, by

committing to building a 40,000 square foot research and development facility at its

Valleyfield property, with a focus on developing leading cannabis or CBD-infused

beverage products.

TGOD intends to dedicate ~40,000 kgs of its 156,000 kgs Canadian funded capacity

towards the development of beverage and edible products. We believe this will help

drive higher selling prices per gram, as edible and beverage products are typically

priced ~2-3x higher than dry flower and generate more robust margins.

Projected CAPEX

($ 000s)

CAPEX Incurred to date

($ 000s)

Hamilton

Facility35,000 14,684

Valleyfield

Facility140,000 30,219

HemPoland 13,390 -

Epican 5,000 -

Total 193,390 44,903




19

Figure 19: TGOD beverage mock-ups


Licensing strategy allowing for rapid product portfolio expansion

To reduce TGOD’s time to market for new products, the company has implemented a

licensing strategy whereby it enters into exclusive licensing agreements with

companies that own proprietary technologies. We expect this will substantially reduce

TGOD’s CAPEX while reducing the company’s time to launch new products. As well, we

believe this will reduce the risk of new product launches, as the company leverages

brands and technologies that have already been validated in various other markets.

To date, the company has entered into licensing agreements with Evolab, CBx

Sciences and RIPPLE SC.

Figure 20: TGOD licensing agreements


TGOD positioned well internationally with cannabis poised for global growth

Access to cannabis globally is generally guided by international treaties, most notably

the United Nations Single Convention on Narcotic Drugs of 1961. The purpose of this

treaty is to limit the production, import, export, distribution and possession of drugs,

including cannabis, exclusively to medical and scientific purposes. Additionally, the

treaty suggests that a government agency be responsible for licensing cultivators of

cannabis while also having the exclusive right to import and export cannabis products.

As a result, we have witnessed broad based acceptance of cannabis for medical

purposes, with many countries exploring legalization of medical cannabis. We note

that industrial hemp is excluded from the definition of cannabis within the United

Nations drug control conventions so long as its uses are for industrial purposes.

Licensing Agreement Technology details

- Top cannabinoid vaporization brand, #1 selling vaporizer brand in Colorado

- Industry leading extraction efficiencies allow for the derivation of

cannabinoid oils without the use of harmful solvents

- this creates cleaner oils without the harmful chemicals commonly found in

the e-vape industry

- sells a unique line of products that combine cannabinoids and botanical

ingredients

- focused on alternative cannabinoids such as CBD, CBN and CBG

- products include anti-inflammatory, skin repair and moisturizing topics as

well as botanical vaporizers

- owns proprietary low-calorie, fast-acting, water soluble ingredient products

that allow consumers to easily infuse cannabinoids into beverages or food

- the products allow for the absorbtion into the bloodstream within 15

minutes and can last for up to 2 hours




20

While the United Nations drug control conventions are supportive of medical

cannabis, the same cannot be said of non-medical, or recreational, cannabis. Leading

up to the legalization of recreational cannabis in Canada, the United Nations Narcotics

Control Board expressed concern regarding Canada’s legalization, as it is in direct

violation of Canada’s international obligations as a State Party to the drug control

conventions. Many believe aspects of these international treaties are outdated, and

we believe the United Nations is taking the appropriate steps to update these

international laws, as the status of cannabis under international law will be reviewed

in November of 2018. While there is no guarantee the United Nations will remove

cannabis from the scope of the drug control conventions, this would be a

transformational event for the cannabis industry and TGOD, given the company’s

strong presence internationally.

Overview of TGOD’s international operations

Through various investments and partnerships TGOD has established a solid

international footprint, with plans to operate in 3 continents and 12 countries by the

end of 2018. With the recent acquisition of HemPoland and strategic joint venture

with LLACA Grupo in Mexico, TGOD has already surpassed its business plan in terms

of the number of countries in which it operates, operating in 17 countries across two

continents. We note that the main source of TGOD’s international exposure is through

the acquisition of HemPoland, as the company manufactures CBD oil from hemp,

which is generally accepted in many countries across Europe. TGOD has also signed a

letter of intent for a 50/50 joint venture with a company based out of Denmark, which

would increase TGOD’s global presence to a total of 18 countries. Below we highlight

the top 5 international opportunities based on population.

Figure 21: TGOD international opportunities by population


TGOD believes that international expansion into Europe and Latin America would

increase TGOD’s addressable population by more than 1.4 billion, as compared to the

Canadian market with a population of 36 million.

CountryPopulation

(millions)Overview of regulation

Mexico 129Medicinal cannabis with THC content less than 1%

legalized in 2017

Germany 83Medicinal cannabis legal for the seriously ill with a

doctor's prescription

United

Kingdom66

Despite improving sentiment, cannabis remains illegal

to possess, grow, distribute or sell

Italy 61Medical cannabis, while strictly regulated is legal with

broad decriminalization of recreational cannabis

Poland 38 Medical cannabis legalized in 2017




21

Figure 22: Population by region


HemPoland and entry into Europe

In early October of 2018, TGOD closed the acquisition of HemPoland, a European

manufacturer and marketer of premium organic CBD oils. The company was founded

in 2014 and was the first company in Poland to be granted a state license, allowing

for the cultivation of hemp and manufacturing of CBD oil products. In 2017, we

estimate HemPoland generated approximately $3.5 – 5.0 million in revenue, while

producing 32,000 kg of organic hemp flower and selling products across 14 countries

in Europe. HemPoland currently markets its products under the CannabiGold brand,

selling gum, tinctures and capsules which all contain CBD oil derived from hemp.

Figure 23: CannabiGold product assortment – HemPoland’s CBD brand

Source: HemPoland

In Poland, while medical cannabis is legal in the country, it remains illegal to cultivate

cannabis domestically. We believe this provides TGOD with a first mover advantage in

Poland and across Europe, as the company is able to market hemp-derived CBD oils

in many European countries, while many other cannabis derived extracts remain

illegal. In addition to providing TGOD with a premium organic CBD brand, HemPoland

also provides the company with hemp oil extraction technologies that can be

leveraged across TGODs planned product portfolio globally. As well, we believe

HemPoland’s distribution network provides TGOD with a strategic pathway into Europe

for the company’s medical and recreational products.

Epican investment a starting point for entry into Latin America

Through TGOD’s 49.18% ownership in Epican, the company operates a 1,300 kg

production facility in Jamaica, serving the domestic market through Epican’s retail

dispensaries. Epican recently opened its first flagship retail location in July of 2018

Chewing Gum Capsules Tinctures




22

and has plans to open an additional four cannabis dispensaries in Jamaica, legally

selling medical cannabis to patients with prescriptions from medical practitioners. The

partnership is planning to add 12,700 kg of annual production capacity within

Jamaica and TGOD has an offtake agreement to purchase 90% of this incremental

cannabis production.

Through the company’s offtake agreement, we expect TGOD will have access to more

than 10,000 kg of annual production capacity in Jamaica, which the company plans to

export to legal medical markets in Latin America and Europe. While Epican is licensed

for cultivation, extraction, manufacturing and retail sales in Jamaica, the partnership

will need to receive authority from the Chief Medical Officer of Jamaica to export

cannabis, and only value-added products such as extracts and tinctures, may be

exported. As well, Epican’s Jamaican cultivation facilities are open air greenhouses

which, in our view, will allow the company to achieve best-in-class production costs

per gram and be a competitive provider of medical cannabis in many international

markets.

Multiple expansion opportunities not included in our estimates

Recently, TGOD announced two 50/50 joint ventures in Mexico and Denmark. In

Mexico, the company has partnered with LLACA Grupo Empresarial, a distributor of

pharmaceutical and over-the-counter products to pharmacies and supermarkets in

Mexico. TGOD plans to leverage the partnership to import and distribute organic

medical cannabis products in Mexico, where the medical use of cannabis is legal

provided the products contain less than 1% THC.

Meanwhile in Denmark, TGOD has signed a letter of intent for a 50/50 joint venture

with Knud Jepsen. As part of the agreement, 200,000 square feet within Knud

Jepsen’s Denmark greenhouse would be allocated to the joint venture for organic

cannabis cultivation and extraction. Through a guaranteed offtake agreement, TGOD

will have the exclusive right to the joint venture’s cannabis related products, which

management expects will increase TGOD’s production capacity by approximately

25,000 kg.

Regulation surrounding cannabis in Denmark is in its infancy, as cannabis for medical

use is currently being tested and can only be used by a defined patient group in the

country. With that said, Denmark allows for the cultivation of medical cannabis,

requiring interested producers to apply for a cultivation license with the Danish

Medicines Agency. The partnership has submitted a cultivation application to the

Danish Medicines Agency and is currently awaiting approval. Other regulation in

Denmark, including that relating to the export of cannabis has yet to be defined. Given

the early-stage nature of the market in Denmark, we have yet to include these

operating results in our estimates. With that said, further clarity relating to the

country’s regulation, particularly as it relates to exporting cannabis would represent

meaningful upside to our estimates.

We also note that while further details related to additional international expansion

opportunities have yet to be provided, TGOD recently published an updated

organizational chart which includes recently created operating subsidiaries in Greece

and Colombia. While we have not included these opportunities in our estimates we

believe further details would also provide upside to our estimates.




23

Figure 24: TGOD corporate structure


Aurora investment validating the organic business model

In January of 2018, Aurora Cannabis entered into a supply agreement with TGOD

purchasing $55 million in subscription receipts of the company and bringing Aurora’s

total investment in TGOD to ~$78 million. Under the supply agreement, while Aurora

owns more than 10% of TGOD the company has the right to purchase up to 20% of

TGOD’s production at its Hamilton and Quebec facilities. Currently, Aurora owns

approximately 13% of TGOD on a fully diluted basis, and in our view, this ownership

and supply agreement is strong validation for TGOD’s organic business model.

We also believe the Aurora supply agreement immediately provides TGOD with a

source of predictable revenue, albeit at a lower margin than what TGOD would receive

selling to other wholesalers, in our view. Additionally, we expect TGOD to leverage

Aurora’s expertise, not only from a design perspective through the Aurora Larssen

Projects, but also through access to Aurora’s technology, distribution channels and

international presence.

Risks

Risk to Aurora supply agreement

Aurora maintains a 13% interest in TGOD, entitling the company to purchase up to

20% of TGOD’s production at its Hamilton and Valleyfield facilities. Currently, TGOD is

able to leverage Aurora’s expertise, which we believe will help in the development of

TGOD’s facilities, securing of supply agreements and execution of its international

strategy. Recently, TGOD announced that Cam Battley, Aurora’s Chief Commercial

Officer, resigned from TGOD’s Board of Directors. In our view, the potential for Aurora

to distance itself from TGOD presents a risk to the company, as we believe it would

negatively impact the company’s ability to execute its business plan. In our view, this

is unlikely as Aurora has no facilities that are organically certified and able to

supplement the volume associated with its TGOD supply agreement.




24

Risk of high cost production of organic cannabis

TGOD’s organic production process will be conducted in a LEED certified facility with

technology in place to conserve water and energy. Although TGOD has been granted a

favourable power rate of 3.5 cents per kwh by Hydro Quebec, we believe the cost of

growing organic cannabis will nonetheless be higher than its greenhouse peers. We

believe that retailing organic cannabis could demand premium pricing from a niche

group of customers; however, the added cost of cultivation and ensuring an organic

and sustainable production process could overshadow the pricing premium.

Facility expansion risk

We have already seen the Hamilton City Council cause delays at the company’s

Hamilton facility and further delays in expansion plans could cause the company to

miss out on supply agreements as well as other revenue opportunities. While the long-

term impact should be limited given the high emphasis on the international business,

which is not yet broadly legalized, competitors have been growing medical patient

bases and securing recreational supply agreements domestically. Gaining share in

these markets may become increasingly challenging as the industry matures and

select brands develop a strong presence among consumers.

Cultivation risk

While TGOD’s hybrid greenhouse facilities support low-cost production, we believe it

could pose some risk to the consistency and quality of the cannabis produced as

compared to indoor facilities. We believe this risk is elevated at the company’s open-

air greenhouses in Jamaica. Additionally, similar to all other Licensed Producers, it is

possible that the company could lose portions, or its entire crop, to pests or other

environmental factors.

Competition risk

Given the large number of well-funded Licensed Producers with substantial production

capacity we believe both the medical and recreational cannabis markets are already

very highly competitive. We expect this large amount of supply will lead to pricing

pressure, which may erode margins for LPs. While TGOD’s differentiated offering of

organic cannabis is slightly insulated from this pricing pressure, we believe that lower

pricing of non-organic cannabis would also result in lower pricing of organic product.

Additionally, with only three LPs currently selling organic cannabis, we believe

increased competition specifically within the organic segment may pose a risk to

TGOD’s attainable market share. We note that we believe this risk is minimal given the

high barriers to entry associated with becoming an organically certified LP.

Regulatory risk

While the regulation in Canada is all but set, with the exception of the federal

framework relating to edibles and various provincial regulations, the regulatory

landscape internationally remains much more ambiguous. Importantly, the United

Nations recently announced a critical review of cannabis under its drug control

conventions. While the sentiment surrounding cannabis is certainly shifting, findings

from the critical review that do not support further legalization of cannabis could

reduce TGODs international expansion opportunities, in our view.

Selling pressure risk related to free trading shares

As mentioned previously, we estimate there to be approximately 100 million locked-up

shares that will be free trading on November 2, 2018. While we do not expect the

entirety of the shares to be sold in the near-term, or for the sale to have an impact on

the operations of the company, the potential for near-term selling pressure may have

a materially negative impact on the price of TGOD’s shares.




25

Financial analysis and outlook

While TGOD had approximately 1,000 kg of cannabis production capacity prior to

Q3/18, the entirety of the company’s production to date has been used for research

and development. As such, in 2017 and through the first two quarters of 2018, the

company has not recorded revenue. We anticipate that TGOD will begin to report

revenue in Q3/18 through the company’s joint venture with Epican, as TGOD finalized

the investment in early July of 2018. Furthermore, in Q4/18 we expect the company’s

results to benefit from the inclusion of revenue from HemPoland, which TGOD

acquired at the beginning of the quarter.

We are forecasting strong revenue and EBITDA growth in 2019 and 2020 as TGOD

begins to serve both the medical and recreational markets in Canada, with substantial

domestic production capacity coming online throughout 2019. Importantly, we expect

production at TGOD’s Valleyfield facility to begin to ramp up starting in Q1/19 and

anticipate that, including the Denmark LOI, the company will exit 2019 with

production capacity of 195,000 kg of cannabis (excluding hemp production).

Figure 25: Estimates summary table


International strategy to support long-term revenue growth

We believe TGOD will undergo rapid growth as substantial production capacity begins

to come online in Q1/19. While the company did not participate in the first round of

the Canadian provinces’ recreational supply agreements, we expect supply wins to

occur throughout 2019 given the lack of meaningful competitors supplying organic

cannabis to the Canadian market. While medical cannabis represents a smaller

portion of industry sales, we expect a similar competitive landscape to benefit TGOD,

allowing the company to immediately capture share in 2019. In our view, TGOD’s

strong positioning internationally is supportive of above average industry growth over

the long term. We expect the HemPoland business to generate substantial growth,

The Green Organi c Dutchman 2017 Q1/18 Q2/18 Q3/18E Q4/18E 2018E 2019E 2020E

Total # o f KGs so l d 0 0 0 200 8,200 8,400 82,006 130,567

Revenue 0 0 0 2,850 14,731 17,581 373,007 606,840

Cost of goods sold 153 0 0 200 2,804 3,004 96,437 147,188

Adj usted gross profi t -153 0 0 2,650 11,927 14,577 276,570 459,651

Gross profi t % n.a. n.a . n.a . 93.0% 81.0% 82.9% 74.1% 75.7%

COGs / gram 0.00 0.00 0.00 1.00 0.34 0.36 1.18 1.13

Marketing expenses 1,165 828 662 1,175 2,872 5,537 74,745 96,156

Research and development expenses 1,563 796 1,310 1,424 1,899 5,429 18,235 28,482

General and administrative expenses 11,576 5,698 6,919 8,629 12,811 34,057 137,579 193,531

Total operating expenses 14,305 7,322 8,891 11,228 17,582 45,023 230,559 318,169

SG&A as a % of revenue n.a. n.a. n.a. 394.0% 119.4% 256.1% 61.8% 52.4%

Adj usted EB ITDA -14,458 -7,322 -8,891 -8,578 -5,655 -30,446 46,011 141,482

EBITDA % n.a. n.a . n.a . n.a . n.a . n.a . 12.3% 23.3%

Depreciation and amortization 455 139 181 967 1,628 2,914 16,023 23,771

Interest expense (net) -253 -195 -524 0 0 -719 0 0

Income tax expense (recovery) -1,556 0 0 -2,386 -1,821 -4,207 7,497 29,428

Net earnings (loss) -13,459 -7,266 -8,548 -7,158 -5,462 -28,435 22,491 88,283

Di l uted EPS -0.12 -0.05 -0.03 -0.03 -0.02 -0.12 0.07 0.27




26

supported by the rapidly increasing consumer acceptance of CBD. Over the long run,

we expect TGOD will be well positioned to gain share in various international markets

as medical and recreational legalizations continues to occur. We are forecasting

revenue for TGOD of $373 million in 2019, which we expect to grow at a CAGR of 25%

to $1.1 billion in 2024.

Figure 26: Annual revenue estimates


EBITDA and margin forecast

For 2019, we are forecasting EBITDA of $46 million and an EBITDA margin of 12.3%

as TGOD begins to ramp up its production capabilities and secure distribution

agreements over the course of the year. We are forecasting this to grow to $313

million in 2024, an EBITDA margin of 27.3%, which represents a CAGR of 47%. While

we believe this is supported by strong growth in revenue over our forecast period, we

expect further growth internationally, particularly within the HemPoland business will

generate higher EBITDA margins than TGOD’s domestic operations.

We note that while we believe organic cannabis carries higher margins than non-

organic, we are forecasting slightly more compressed margins for TGOD as compared

to other Canadian Licensed Producers. In the near term, we expect TGOD to generate

lower margins given it is in the early stages of ramping up production capacity and it

will need to secure supply agreements domestically, something that other Canadian

Licensed Producers have already done. Over the long run, given TGOD’s offtake

agreements, both as a supplier through the Aurora Cannabis supply agreement and as

a purchaser through the Epican joint venture, we are forecasting narrower margins

given the lower degree of vertical integration as compared to TGOD’s peers.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

0

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800

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2018E 2019E 2020E 2021E 2022E 2023E 2024E

Ca

nn

ab

is s

old

(kgs

)

Rev

enu

e ($

mm

)

Medical Recreational International Cannabis sold (kgs, including hemp)




27

Figure 27: Annual EBITDA estimates


-30

46

141167

225

262

313

12.3%

23.3%24.5%

26.3% 26.8% 27.3%

0.0%

5.0%

10.0%

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20.0%

25.0%

30.0%

-100

0

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200

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400

2018E 2019E 2020E 2021E 2022E 2023E 2024E

EBIT

DA

ma

rgin

EBIT

DA

($

mm

)




28

Figure 28: Income statement summary


Free cash flow generation

Over the long term, we expect TGOD to generate strong free cash flow, given the

company’s robust margin profile and revenue growth opportunities. With that said, we

expect near-term free cash flow to be compressed given the substantial amount of

capital expenditures the company plans to incur to reach its planned production

capacity. We believe the company is well positioned to generate a meaningful amount

of free cash flow once its production facilities are fully operational starting in 2020.

The Green Organi c Dutchman Ho l di ngs Ltd.

Income statement (C$ 000s) Change Change Change

Y ear ended Dec 31 2017 2018E 2019E 2020E 18/17 19/18 20/19

Tota l # o f KGs so l d - 8,400 82,006 130,567 n.a. 976.3% 159.2%

Revenue - 17,581 373,007 606,840 n.a. 2121.7% 162.7%

Cost of goods sold 153 3,004 96,437 147,188

Adjusted gross profit (153) 14,577 276,570 459,651 -9526.0% 1897.3% 166.2%

Marketing expenses 1,165 5,537 74,745 96,156

Research and development expenses 1,563 5,429 18,235 28,482

General and administrative expenses 11,576 34,057 137,579 193,531

Adj usted EB ITDA (14,458) (30,446) 46,011 141,482 210.6% -151.1% 307.5%

Depreciation and amortization 455 2,914 16,023 23,771

FV of unrealized change in biological assets (net) (453) - - -

Other expenses 807 - - -

EBIT (15,267) (33,361) 29,988 117,711 218.5% -89.9% 392.5%

Interest expense (net) (253) (719) - -

EBT (15,015) (32,642) 29,988 117,711 217.4% -91.9% 392.5%

Income tax expense (recovery) (1,556) (4,207) 7,497 29,428

Net earni ngs (l oss) (13,459) (28,435) 22,491 88,283 211.3% -79.1% 392.5%

Di l uted EPS (0.12) (0.12) 0.07 0.27 98.3% -61.5% 379.8%

Basic shares outstanding 112,526 220,149 297,608 308,008

Diluted shares outstanding 112,558 242,031 311,208 321,608

Rati os

Gross margin n.a. 82.9% 74.1% 75.7%

SG&A / sales n.a. 256.1% 61.8% 52.4%

EBITDA margin n.a. -173.2% 12.3% 23.3%

EBIT margin n.a. -189.8% 8.0% 19.4%

Profit margin n.a. -161.7% 6.0% 14.5%

ROE -17.4% -7.4% 4.3% 14.2%




29

Figure 29: Free cash flow estimates


We are forecasting CAPEX of $78 million, $99 million and $53 million in 2018, 2019

and 2020, respectively, well above our long-term estimate of $9 million annually as

TGOD ramps up its production capacity. We believe this will generate free cash flow of

-$97million, -$2 million and $45 million in 2018, 2019 and 2020.

Figure 30: Cash flow analysis


Fully funded for expansion with very healthy balance sheet

Throughout 2017 and 2018, TGOD has raised over $400 million, and maintains a

very healthy balance sheet with what we estimate to be $266 million of net cash

following the recent $76 million bought deal financing. With approximately $150

million remaining for the company to spend on its production capabilities, we believe

TGOD is fully funded to reach 195,000 kgs of annual production capacity. Additionally,

with approximately $120 million of in-the-money warrants outstanding, the company

remains well funded to pursue acquisition opportunities, further solidifying its

positioning internationally.

-97

-2

45

129

183205

247

45%

69%

76% 75% 75%

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-150

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2018E 2019E 2020E 2021E 2022E 2023E 2024E

Free

ca

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ca

sh fl

ow

($ m

m)

Cash fl ow anal y si s: (C$ 000s) 2017 2018E 2019E 2020E

Cash flow from operations (6,338) (19,668) 42,514 116,054

Cash from operating activities (4,152) (18,656) 97,218 98,444

Capital expenditures, net (5,832) (78,423) (99,000) (53,000)

Free cash flow (12,170) (98,091) (56,486) 63,054

Free cash flow (inc. wc) (9,983) (97,079) (1,782) 45,444

Free cash flow per share (0.11) (0.41) (0.18) 0.20

Free cash flow per share (inc. wc) (0.09) (0.40) (0.01) 0.14




30

Figure 31: Financial policy analysis


Valuation

We are initiating coverage of The Green Organic Dutchman with a SPECULATIVE BUY

rating and C$7.00 target price. Our target price reflects our sum-of-the-parts

valuation, where we separately value the company’s medical, recreational and

international opportunities which results in a value of $7.16 per share. Our valuation

incorporates a 10.2% WACC and 2.0% terminal growth rate for the medical and

recreational opportunity, as well as an 11.5% WACC and 2.0% terminal growth rate for

the international opportunity.

Our target implies 13.4x our 2020 EBITDA estimate of $141 million. We value TGOD

at a slight discount to mid-tier Canadian LPs at 15.9x, given the relatively more early-

stage nature of TGOD’s operations. In our view, TGOD offers investors unique

exposure to organic cannabis, as the company is the largest publicly traded Canadian

Licensed Producer that is a certified producer of organic cannabis. As well, TGOD

offers investors above average international optionality, with established operations

across Europe and plans to expand into South America. Importantly, TGOD is very well

capitalized and, by our estimates, fully funded to achieve our estimates over our

forecast period. With shares trading at 6.6x our 2020 EBITDA estimate we believe

TGOD represents an attractive buying opportunity, at current levels.

Comparable valuations

We have constructed a peer-set using Canadian Licensed Producers and have

principally focused on the low-to-mid tier Canadian LPs for the basis of our valuation.

While TGOD’s peer group of Canadian LPs trade at approximately 36.1x their

respective 2020 EBITDA estimates, we note that the mid-tier peers trade at

approximately 15.9x their 2020 EBITDA estimates. We believe TGOD deserves to

trade in line with these peers, given the lack of meaningful competition in the organic

cannabis space as well as TGOD’s superior financial position. While these views may

warrant a valuation premium, we note that TGOD’s lower degree of vertical

integration, corresponding to lower EBITDA margins, as well as the substantial CAPEX

required in the near-term slightly reduce the valuation multiple we are comfortable

assigning to the company. With shares trading at 6.6x our 2020 EBITDA estimate, we

believe TGOD is attractively valued at current levels.

F i nanci a l po l i cy anal y si s 2017 2018E 2019E 2020E

Total debt - - - -

Net debt (cash) (63,736) (266,063) (383,980) (429,424)

Total capital 96,977 399,295 634,994 715,834

Net debt / equity n.a. n.a. n.a. n.a.

Net debt / total capital n.a. n.a. n.a. n.a.

NTM EBITDA (30,446) 46,011 141,482 167,200

NTM interest expense (719) - - -

Interest coverage n.a. n.a. n.a. n.a.

Debt / EBITDA - - - -

Net debt / EBITDA n.a. n.a. n.a. n.a.




31

Figure 32: Comparable valuations


Free cash flow yield

TGOD is currently valued at a free cash flow yield of 3.5% based on our estimate of

2020 free cash flow. We note that we anticipate significant growth in free cash flow

post-2020 as the company expects to incur significant CAPEX through 2018-2020 to

expand its production capacity.

Sum-of-the-parts valuation

We value TGOD using a sum-of-the-parts valuation which separately values the

company’s medical, recreational and international opportunities, resulting in a value

of $7.16 per share. Our valuation incorporates a 10.2% WACC and 2.0% terminal

growth rate for the medical and recreational opportunity, as well as an 11.5% WACC

and 2.0% terminal growth rate for the international opportunity.

Figure 33: Sum-of-the-parts valuation


Sensitivity analysis

Below we present a sensitivity analysis outlining the impacts that variations in

cannabis pricing and quantity of product sold have on our EBITDA estimates and

valuation. We note that our estimate for cannabis sold to Aurora is ~31,000 kg

annually, and we have created a downside scenario whereby TGOD is only able to

Share and Earni ngs Informati on By Company

Shrs Mark et Enterpr i se Val ue / Enterpr i se Val ue /

O/S Cap. Enterpr i se Revenue Rati os EB ITDA/Revenue EBITDA Rati os

Company Name TK Pr i ce (ml n) (ml n) Rati ng Val ue (ml n) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E

Larg e -cap Canadi an L i censed Producers

Canopy Growth Corporation WEED-CA $53.63 504.8 $27,071 SPEC BUY $14,332 183.9 40.6 15.6 n.a. 10.9% 36.3% n.a. 372.7 43.0

Aurora Cannabis Inc. ACB-CA $10.08 1,045.5 $10,539 SPEC BUY $10,175 184.3 24.3 13.0 n.a. 33.3% 40.5% n.a. 72.9 32.2

Tilray, Inc. TLRY-USA $120.79 93.1 $11,251 NOT RATED $11,280 273.7 72.6 33.3 n.a. 7.3% 13.0% n.a. 993.8 256.7

Aphria Inc APH-CA $15.88 254.3 $4,039 SPEC BUY $3,703 100.3 15.6 6.6 15.1% 34.6% 39.2% 663.0 45.2 16.9

Group average 185.6 38.3 17.2 15.1% 21.5% 32.2% 663.0 371.2 87.2

Mi d-cap Canadi an L i censed Producers

Cronos Group Inc CRON-CA $10.92 206.4 $2,254 HOLD $2,152 61.4 14.5 9.4 24.0% 31.0% 39.5% 255.4 46.7 23.7

HEXO Corp HEXO-CA $5.85 240.5 $1,407 SPEC BUY $988 192.9 7.1 5.2 n.a. 27.8% 33.2% n.a. 25.5 15.8

CannTrust Holdings, Inc. TRST-CA $10.20 108.0 $1,102 SPEC BUY $1,015 13.0 3.9 3.2 3.6% 14.5% 21.9% 362.4 27.2 14.5

OrganiGram Holdings Inc OGI-CA $5.54 140.5 $779 SPEC BUY $674 43.0 4.3 3.7 n.a. 37.1% 38.9% n.a. 11.7 9.5

Group average 77.6 7.5 5.4 13.8% 27.6% 33.4% 308.9 27.8 15.9

Smal l -cap Canadi an L i censed Producers

Emerald Health Therapeutics, Inc. EMH-CA $3.38 129.9 $439 NOT RATED $369 n.a. n.a. 2.9 n.a. n.a. n.a. n.a. n.a. n.a.

Supreme Cannabis Company Inc FIRE-CA $1.54 367.3 $566 SPEC BUY $400 45.2 4.0 2.5 n.a. 28.7% 35.2% n.a. 13.9 7.1

Emblem Corp. EMC-CA $1.17 111.8 $131 NOT RATED $71 6.9 1.4 0.7 n.a. 10.2% 18.6% n.a. 13.9 3.6

Invictus MD Strategies Corp GENE-CA $1.18 115.9 $137 SPEC BUY $82 34.8 2.2 1.5 n.a. 31.6% 33.8% n.a. 7.0 4.6

Wayland Group Corp. WAYL-CA $1.50 216.9 $353 SPEC BUY $228 12.5 1.8 1.3 n.a. 12.6% 24.6% n.a. 14.3 5.2

Group Average 24.9 2.4 1.8 n.a. 20.8% 28.0% n.a. 12.3 5.1

Green Organi c Dutchman Ho l di ngs Ltd. TGOD-CA $4.02 321.6 $1,293 SPEC BUY $937.68 53.3 2.5 1.5 n.a. 12.3% 23.3% n.a. 20.4 6.6

Segment MethodologyNAV

($ '000s)Probability

Probability

Adjusted NAV$ per share

Medical DCF 558,484 100% 558,484 1.73$

Recreational DCF 634,977 100% 634,977 1.96$

International DCF 943,925 80% 755,140 2.34$

Net Cash 366,434 1.13$

Total 2,315,034 7.16$




32

fulfill sales to Aurora, with no other sales to the Canadian medical and recreational

markets or internationally. While this scenario is extreme, we highlight the fact TGOD

shares would still be worth $2.34 per share in this draconian scenario.

Figure 34: Sensitivity impact on 2020 EBITDA estimate ($mm) Figure 35: Sensitivity impact on price target

Source: Company Reports, Canaccord Genuity estimates Source: Company Reports, Canaccord Genuity estimates

cannabis kgs sold

31,987 51,987 71,987 91,987 111,987

5.71 29 31 34 36 38

6.21 45 57 69 82 94

6.71 61 83 105 128 150

Sales price per gram 7.21 77 109 141 174 206

7.71 93 135 177 220 262

8.21 109 161 213 266 318

8.71 125 187 249 312 374

cannabis kgs sold

31,987 51,987 71,987 91,987 111,987

5.71 2.34 2.43 2.52 2.62 2.71

6.21 3.00 3.51 4.02 4.52 5.03

6.71 3.66 4.59 5.51 6.43 7.35

Sales price per gram 7.21 4.33 5.66 7.00 8.34 9.67

7.71 4.99 6.74 8.49 10.24 12.00

8.21 5.65 7.82 9.98 12.15 14.32

8.71 6.32 8.90 11.48 14.06 16.64




33

Appendix A: Management

Brian D. Athaide, Chief Executive officer, Director

Mr. Athaide joined The Green Organic Dutchman in March of 2018 as CFO of the

company, assuming the role of CEO shortly thereafter in July following Robert

Anderson’s resignation from CEO and Co-Chairman of the Board. Mr. Athaide has over

28 years of global executive experience, most recently serving as the CFO as well as

the Executive Vice President of Human Resources and Information Technology at

Andrew Peller Limited, a Canadian publicly listed wine producer. Prior to Andrew

Peller, Mr. Athaide spent 25 years with Procter and Gamble in various management

roles within international divisions of the company. Most recently at Procter and

Gamble, he served as the CFO of the Eastern Europe and Central Asia division. Mr.

Athaide holds his Bachelor of commerce degree, with a major in finance and

marketing from McGill University.

Sean Bovingdon, Chief Financial Officer

Mr. Bovingdon was appointed CFO of TGOD in late October 2018. Prior to his

appointment, Mr. Bovingdon served as CFO of Toronto Hydro Corporation, and has

previously served as President and CFO of both public and private oil and gas

companies and technology companies.

Csaba Reider, President

Mr. Reider has over 35 years of experience as a senior executive in the consumer-

packaged goods industry. He joined TGOD after having spent 3+ years as President

and CEO of Sun Pac Foods, a manufacturer of private label and branded beverage

products. Prior to Sun Pac, Mr. Reider served as the President and CEO of Xyience

Inc., a manufacturer of energy drinks and sport nutrition products. His other

experience includes various management roles with consumer-packaged goods

companies such as Cott Corporation and FoodCor Corporation. Mr. Reider has also

served on the Board of several companies including Associated Brands, GP

Corporation, and FoodCor Corporation.

Matt Schmidt, Executive Vice President, Corporate Development

Mr. Schmidt has over a decade of experience in Canadian capital markets, most

recently as an investment banker at one of Canada’s independent investment banks,

during which time he became a specialist in the Canadian cannabis sector. Prior to

that, Mr. Schmidt was a founder and executive of Dogleg Publishing, a North American

golf industry publisher. Mr. Schmidt graduated with a Master of Business

Administration from Wilfrid Laurier University and a Bachelor of Commerce from the

University of Windsor.

Anna Stewart, General Counsel

Anna Stewart has 13 years of private practice and corporate in-house legal

experience. Ms. Stewart joins TGOD from Teva Pharmaceuticals, the world’s largest

generic pharmaceutical company, where she spent 7+ years and, most recently,

served as the company’s Assistant General Counsel. Ms. Stewart has extensive

experience in regulated products manufacturing, marketing and distribution,

intellectual property licensing and complex merger and acquisition activities. Prior to

her experience in the pharmaceutical industry, Ms. Stewart practiced law at Stikeman

Elliott LLP and Gardiner Roberts LLP.

John Wren, Vice President, Operations

Mr. Wren joined TGOD from Monaghan Mushrooms, a 270-acre farm operation where

he was responsible for the growing and packaging of fresh mushrooms across central

Canada and Northern US. Prior to that, he spent 22+ years with Cott Corporation in

various operations roles. In his most recent position with Cott, he served as the




34

company’s VP of Operations, a role which he held for 9+ years, where he was

responsible for the operation of seven beverage facilities across North America.

Mike Gibbons, Vice President, Sales

Mr. Gibbons has 25+ years of consumer-packaged goods experience in beverages

and food. He spent 15+ years with Cott Corporation in various roles which included

Senior Vice President of Sales to President of the US business unit. Mr. Gibbons has

experience in both branded and private label businesses, and led high-performing

teams in geographic expansion, building distribution and new product introductions.

Andrew Pollock, Vice President, Marketing

Andrew Pollock brings 25 years of experience in consumer-packaged goods, retail and

subscription businesses to TGOD. Mr. Pollock was named Canada’s Marketer of the

Year in 2011 and has worked extensively in the organic food industry while also

successfully commercializing a recently legalized category. Most recently at Weight

Watchers Canada, Ltd., Mr. Pollock helped to drive double-digit growth in a

subscription service by adopting state of the art digital, social and SEO strategies. His

previous experience includes Senior Vice President of Marketing at Maple Leaf Foods

Inc., Canada Bread Company, and Cott Corporation.

Jeffrey Scott, Chairman of the Board

Mr. Scott is the founder of Gran Tierra Energy, a South America based oil and gas

exploration and production company and served as Chairman of the Board from 2005

to 2015. Currently, he holds the role of President of Postell Energy Co., a privately held

oil and gas producer based in Western Canada. As well, since 2012 Mr. Scott has

served as Chairman of Sulvaris Inc., a private fertilizer technology company. He is

currently a director of Pentanova Energy Corp. Mr. Scott holds a Bachelor of Arts

degree from the University of Calgary, and a Master of Business Administration from

California Coast University.

Ian Wilms, Director

Mr. Wilms is a member of the Canadian Medical Cannabis Council. With over 25 years

of global business experience and an executive of IBM for 14 years, Mr. Wilms has

lead and managed sales and operational teams across North and South America. Mr.

Wilms also served as the Chairman of the Calgary Police Commission in 2005 and

was elected President of the Canadian Association of Police Boards in 2006 after

spending 10 years as an Officer for the Canadian Military.

Appendix B: Ownership

Following the recent treasury issuance, whereby TGOD raised $76 million by issuing

11.0 million units at $6.85 (each unit consisting of one common share and one

common share purchase warrant at $9.00), we estimate that insiders of the company

maintain ~30% ownership in The Green Organic Dutchman. Importantly, management

and founders of the company own 17%, while 13% is held by Aurora Cannabis.




35

Figure 36: Ownership summary


ShareholderBasic shares

outstanding

Dilutive securities

held

Fully diluted shares

outstandingOwnership %

Management/Founders

Jeffrey Scott, Chairman 619 919 1,538 0.5%

Brian Athaide, CEO 310 1,300 1,610 0.5%

Csaba Reider, President 394 1,664 2,058 0.6%

Other management 7,014 7,081 14,095 4.1%

Other founders 40,322 0 40,322 11.8%

Management/founders shares 48,659 10,963 59,622 17.5%

Other insiders

Aurora Cannabis 39,675 3,171 42,845 12.5%

Total insider ownership 88,333 14,134 102,467 30.0%

All other shareholders 158,185 80,966 239,151 70.0%

Total 246,518 95,100 341,618




Appendix: Important DisclosuresAnalyst CertificationEach authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) therecommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent andobjective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoringanalyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the authoring analyst in the research.Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons ofCanaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communicationswith a subject company, public appearances and trading securities held by a research analyst account.Sector CoverageIndividuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoringanalysts of the report.

Investment RecommendationDate and time of first dissemination: October 24, 2018, 04:45 ETDate and time of production: October 23, 2018, 23:43 ETTarget Price / Valuation Methodology:The Green Organic Dutchman Holdings Ltd - TGODWe value The Green Organic Dutchman using a sum-of-the-parts analysis; Our DCF model incorporates a 10.2% WACC and 2.0% terminalgrowth rate for the medical and recreational opportunity, as well as an 11.5% WACC and 2.0% terminal growth rate for the internationalopportunity.Risks to achieving Target Price / Valuation:The Green Organic Dutchman Holdings Ltd - TGOD

Risk of high cost production of organic cannabisTGOD’s organic production process will be conducted in a LEED certified facility with technology in place to conserve water and energy.Although TGOD has been granted a favourable power rate of 3.5 cents per kwh by Hydro Quebec, we believe the cost of growing organiccannabis will nonetheless be higher than its greenhouse peers. We believe that retailing organic cannabis could demand premiumpricing from a niche group of customers, however, the added cost of cultivation and ensuring an organic and sustainable productionprocess could overshadow the pricing premium.Facility expansion risksWe have already seen the Hamilton City Council cause delays at the company’s Hamilton facility and further delays in expansionplans could cause the company to miss out on supply agreements as well as other revenue opportunities. While the long-term impactshould be limited given the high emphasis on the international business, which is not yet broadly legalized, competitors have beengrowing medical patient bases and securing recreational supply agreements domestically. Gaining share in these markets may becomeincreasingly challenging as the industry matures and select brands develop a strong presence among consumers.

Cultivation riskWhile TGOD’s hybrid greenhouse facilities support low-cost production, we believe it could pose some risk to the consistency and qualityof the cannabis produced as compared to indoor facilities. We believe this risk is elevated at the company’s open-air greenhouses inJamaica. Additionally, similar to all other Licensed Producers, it is possible that the company could lose portions, or its entire crop, topests or other environmental factors.

Competition riskGiven the large number of well-funded Licensed Producers with substantial production capacity we believe both the medical andrecreational cannabis markets are already very highly competitive. We expect this large amount of supply will lead to pricing pressure,which may erode margins for LPs. While TGOD’s differentiated offering of organic cannabis is slightly insulated from this pricing pressure,we believe that lower pricing of non-organic cannabis would also result in lower pricing of organic product. Additionally, with only threeLPs currently selling organic cannabis, we believe increased competition specifically within the organic segment may pose a risk toTGOD’s attainable market share.

Regulatory riskWhile the regulation in Canada is all but set, with the exception of the federal framework relating to edibles and various provincialregulations, the regulatory landscape internationally remains much more ambiguous. Importantly, the United Nations recentlyannounced a critical review of cannabis under its drug control conventions. While the sentiment surrounding cannabis is certainly




shifting, findings from the critical review that do not support further legalization of cannabis could reduce TGODs international expansionopportunities, in our view.

Risk to Aurora supply agreementAurora maintains a 12% interest in TGOD, entitling the company to purchase up to 20% of TGOD’s production at its Hamilton andValleyfield facilities. Currently, TGOD is able to leverage Aurora’s expertise, which we believe will help in the development of TGOD’sfacilities, securing of supply agreements and execution of its international strategy. Recently, TGOD announced that Cam Battley,Aurora’s Chief Commercial Officer, resigned from TGOD’s Board of Directors. In our view, the potential for Aurora to distance itself fromTGOD presents a risk to the company, as we believe it would negatively impact the company’s ability to execute its business plan.

Selling pressure risk related to free trading sharesAs mentioned previously, we estimate there to be approximately 100 million locked-up shares that will be free trading on November 2,2018. While we do not expect the entirety of the shares to be sold in the near-term, or for the sale to have an impact on the operations ofthe company, the potential for near-term selling pressure may have a materially negative impact on the price of TGOD’s shares.

Distribution of Ratings:Global Stock Ratings (as of 10/24/18)Rating Coverage Universe IB Clients

# % %Buy 556 63.25% 46.40%Hold 202 22.98% 30.20%Sell 14 1.59% 21.43%Speculative Buy 107 12.17% 63.55%

879* 100.0%*Total includes stocks that are Under Review

Canaccord Genuity Ratings SystemBUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.

HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.

SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.

NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk QualifierSPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.

12-Month Recommendation History (as of date same as the Global Stock Ratings table)A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx

Required Company-Specific Disclosures (as of date of this publication)The Green Organic Dutchman Holdings Ltd currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliatedcompanies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to The Green OrganicDutchman Holdings Ltd.In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromThe Green Organic Dutchman Holdings Ltd .In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-managerof a public offering of securities of The Green Organic Dutchman Holdings Ltd or any publicly disclosed offer of securities of The GreenOrganic Dutchman Holdings Ltd or in any related derivatives.Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Bankingservices from The Green Organic Dutchman Holdings Ltd in the next three months.




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The Green Organic Dutchman Holdings Ltd Rating History as of 10/23/2018C$9

C$8

C$7

C$6

C$5

C$4

C$3Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

Past performanceIn line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole periodfor which the financial instrument has been offered or investment service provided where less than five years. Please note price historyrefers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.

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