Green Growth Brands Stock + Aphria Stock = ?

When we approach any particular investment opportunity, we try not to get too overwhelmed by the marketing spin and focus purely on what common sense tells us about what we see. When it comes to investing in marijuana stocks, you really need to try to avoid spin. Fortunately, we have unique insights into this space because lots of people talk to us. These conversations happen with the many retail investors who read what we have to say and ask for our opinions on various things, or a fair number of companies that ask us to write about them. Of course, we rarely dispense any additional advice from what we’ve already said publicly, and we rarely choose to write about companies that approach us because we usually can’t tell a very good story about their value propositions. What we do in all cases though, is always call it as we see it.

When we read today’s news about a company called Green Growth Brands (GGB), which wants to use their Green Growth Brands stock for a hostile takeover of Aphria, we decided to take a closer look, even though we suspected we might not like what we’d see. Sure enough, it’s clouded in reverse mergers and accusations of fraud by short sellers. In short, it appears to be a big volatile mess. So, we’ll keep things real topical here and stay objective as possible. First, let’s talk about Green Growth Brands (GGB:CN).

Green Growth Brands Stock

The first thing we like to do is start by digging into the filings on Sedar – the Canadian equivalent of the SEC – before looking at anything else. That way we can learn about how this Canadian-traded company came about, and what it entails today – prior to any sort of acquisition or merger with Aphria.

Green Growth Brands (GGB:CN) is so fresh off a reverse merger that they haven’t even managed to get all the names changed yet. Previously, the entity was known as Xanthic Biopharma Inc, and prior to that, Aurquest Resources. The first thing they did was get some financing to purchase a Las Vegas, Nevada dispensary called “The Source” for an “aggregate consideration of $41,741,200 USD payable by a combination of cash, and a promissory note.” Here are the financials from that entity based on their latest filings:

Not a bad little business really, provided they can get away from all those steep overhead costs (more on that later).

The company then acquired a Pahrump, Nevada cultivation facility operated by Wellness Orchards of Nevada for around $13 million USD which has about 12,000 square feet of growing space. On the same day, they announced the purchase of another entity called Hendersen LLC which is the other dispensary operating under “The Source” brand in Henderson, Nevada for around $15.48 million USD. The last acquisition we noted was a Massachusetts company called “Just Healthy.”

The Nevada Department of Taxation also awarded GGB seven retail cannabis dispensary licenses on December 5. When all is said and done, today Green Growth Brands has a market cap of $655 million USD according to Yahoo Finance. (While some Yahoo finance writers can hardly spell, let alone be trusted with numbers, back of the napkin math tells us that this number is about right considering the 166,304,982 common shares outstanding cited in the latest GGB management discussion filing.) Sure, GGB is building a cannabis operation in Nevada, but it seems hard to justify that market cap based on what we’ve seen so far. Of course, we need to take into account that their stock is up +17% on the heels of an announcement that they plan to do a hostile takeover of Aphria. Remember Aphria?

Remember Aphria?

It wasn’t even two months ago when we wrote an article about Aphria which highlighted their profitability and the increasing number of kilos they’ve been selling each month. In fact, we put together this chart just to show you how much weed they’re actually selling:

After reading that article, you might conclude – as we did – that this wouldn’t be the worst company to invest in if you had to pick a cannabis stock. Of course, you would never try and cherry pick a single winner, but Aphria probably wouldn’t be the worst choice if you did.

Then, we read that some short sellers have been making some alarming accusations against Aphria. A firm called Hindenburg Research (get it?) wrote an absolutely scathing report on Aphria. The report is massive, and it looks to be some proper investigative journalism. However, we don’t have their legal team so we’re not lending any credibility towards it whatsoever. If you don’t want to read the entire December 3rd report, here’s the summary from the first part of the report they put together:

Hindenburg actually published a second report three days later that we were just too scared to read. Since we have no intention at all of getting into it with Aphria, we would cite our very positive article on their firm published just several months ago, and claim that it’s possible these are some very bad, bad men who are just telling lies because they’re nothing but a bunch of gravy-sucking shorts. Or not, we have no idea really. Moving on.

 The Green Growth Brands Deck

After we rooted around in the Green Growth Brands financials sufficiently, we then downloaded their investor deck. When reading these sorts of decks, we like to pay very close attention to the key messages being emphasized throughout the deck, and like to dismiss the generic “market opportunity size” slides because we all know there’s a big opportunity in cannabis and don’t need to be told that yet again. After requesting the deck, we were sent an email containing a link to the deck, and the opportunity to talk with Eric about “an exciting cannabis investment opportunity:”

Cheers for that Eric.

In perusing the deck, the first few slides make it clear that the management team has formidable retail experience. Good, that’s pretty much what we expect to see. Here’s how the current deck is laid out:

  • Slides 1 – 2: Cover slide and disclaimer
  • Slides 3 – 5: Talks about how they have the most retail experience of any cannabis company in the industry
  • Slides 6 – 13: All about the massive opportunity and “skate where the puck will be” banter
  • Slides 14 – 15: A dispensary they own called “The Source” is outperforming all other top dispensaries
  • Slides 16 – 18: More market opportunity stuff and how they will leverage their previous retail experience
  • Slides 19 – 21: Pro-forma financials with truckloads of growth, valuation metrics, etc.
  • Slides 22 -25: Some cannabis brand called “Camp” with a picture of a couple of dudes that look camp
  • Slides 26 – 34: More brands built around ideals like health and wellness and lifestyle and every other buzzword du jour that your average millennial is likely to wank over
  • Slide 35: Talks about talent, raising capital, acquiring assets, building emotional brands, etc. Essentially, all the stuff any company needs to do to succeed in this space.

The thing that stands out most in the deck is the “retail experience” of the existing management team. That was a recurring theme and something they really want you to take away here. We would have loved to see some granular details on their plans to start purchasing all these entities and some timelines, but they haven’t updated the deck with that yet. (You need to call Mr. David Bhumgara for that.)

An all-stock bid for Aphria pretty much just takes Aphria and adds them to Green Growth Brands so Aphria can get away from all that negative publicity both firms can enjoy some good old “2 + 2 = 5” synergies. Or, if everything the GGB management team touches turns to gold, they can just can Aphria’s management team (which actually looked pretty solid last time we checked) and make everything great again. Since it’s a hostile takeover, that idea shouldn’t be so far-fetched.


We have no dog in the race here, as we haven’t taken any meaningful positions in the cannabis theme – much less either of these firms – because we believe retail cannabis investors speculators are behaving very irrationally, especially those who are new to the game. While the emergence of large corporate investors instills some confidence, we’re still not comfortable with the risk-vs-reward on offer. As for ever being short any cannabis stock, you’d have to be nuttier than a five-pound fruitcake to ever get on the short side of such irrationality. (Just ask the lads who were getting their asses handed to them on their Tilray short.) We just like calling things as we see them because that’s what our lovely readers expect us to do.

We liked what we saw with Aphria when we wrote about them a few months ago. They have an ever-increasing trend of kilos sold, and they’re profitable. Provided that they’re not cooking the books, they look favorable relative to other producers who are burning their way through too much cash. As for Green Growth Brands, the whole reverse-merger thing has always been a turnoff. We’ve been told before that “it’s different in Canada,” and that may well be the case. Then, there’s the cost of this extremely talented management team with all this retail experience. Maybe they plan to clean house over at Aphria because, well, what shareholder wants to pay two management teams? At any rate, the whole thing reads high-risk. Given the sort of volatility we’ve seen in the markets lately, it’s not the sort of thing we think that prudent investors ought to be speculating on these days. There are just far too many unknowns here – and maybe even some unknown unknowns.

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