Aurora Cannabis Inc. appears to be doubling down on its divorce from The Green Organic Dutchman, announcing last week that it has sold $32.8-million worth of TGOD shares in the past two weeks.
Aurora, an early and significant investor in TGOD, still has a 15.3-per-cent stake in the company, (on a fully diluted basis, including common shares and warrants); the $32.8-million in sales only amounted to 2.25 per cent of Aurora’s TGOD common-share holdings.
But the news comes on the heels of several developments that suggest the relationship between the companies is changing. It also comes two weeks ahead of Nov. 2, when more than half of TGOD’s shares – locked up for the past six months, following the company’s IPO – start freely trading.
At the end of September, Aurora’s chief corporate officer Cam Battley stepped down from TGOD’s board of directors, with no explanation from either company.
Two weeks later, TGOD announced that Aurora had let its option to acquire more TGOD stock expire. The unexercised option would have let Aurora acquire a further 8 per cent of TGOD shares at a 10 per cent discount to TGOD’s 10-day average trading price.
Neither company responded to requests for comment about the state of the “strategic partnership,” which both have touted repeatedly over the past nine months.
Despite a $76-million in investment from Aurora, several successful capital raises, and a market cap well in excess of $1- billion, TGOD has yet to report significant revenues or operational successes. It’s far from the only Canadian cannabis company to see its valuation soar far beyond fundamentals. But with no revenue and an $8.5-million net loss in its most recent quarter, the mismatch between market cap and operations is acute.
TGOD only has one building licensed to grow and sell cannabis, a 7,000-square-foot facility near Hamilton, Ont. Plans for a major expansion on this site were shot down by Hamilton city council in July, leaving the TGOD to appeal the decision with Ontario’s Local Planning Appeal Tribunal.
The company is building a facility in Valleyfield, Que., that it says will be 820,000 square feet. But to date, only one small breeding facility on the site has received a cultivation license. TGOD has yet to strike recreational supply deals with any province.
Operational difficulties have not stopped the company’s share price shooting up from $3.65 in May, when TGOD began trading on the Toronto Stock Exchange, to a high of $8.78 on Sept. 20. (It’s since shed nearly 40 per cent of that value, dropping 8.6 per cent on Friday alone to close at $4.99).
Whatever the state of their current relationship, TGOD’s run-up has made Aurora a lot of money. Aurora invested $55-million in TGOD in January at $1.65 per unit (a common share and a warrant), and a further $23.1-million in May at $3.65 per unit. The 5.78 million shares Aurora sold over the past two weeks were going for between $5.52 and $5.87 a share.
TGOD insiders have also been trimming their holdings. Five company insiders, directors and executives, have sold more than 1.1 million shares since the beginning of September, netting somewhere between $6-million and $8-million.
“Management and insiders hold an approximate $55-million of shares in TGOD,” said executive vice-president Brett Allan, in response to questions about insider selling in late September. “Recently, a small number of longer-term employees have sold minority positions of their shares as the company entered its first window where insiders and management were not under trading blackouts.”
“Much of the recent trading was motivated by the desire of members of management to participate in the management funding round of TGOD Acquisition Corp.,” Mr. Allan added. (TGOD Acquisition Corp is a new spinoff company that will be “engaged in the acquisition and development of worldwide opportunities.”)
While Aurora and company insiders have been reducing their positions, a large proportion of TGOD shareholders have been unable to sell out of their positions, even as the share price soared.
Roughly 55 per cent of TGOD’s common shares, most held by retail investors, are locked up in a six-month no-trading agreement that came with the company’s IPO. These shares will begin trading on Nov. 2.