Green Growth Brands (CSE: GGB) has become a cash incinerator. On July 31, it closed a raise for C$41.48 million, just days after it had announced the bought deal was for up to C$50.2 million. At the time, they had provided a number of justifications for the deal – the majority of which The Deep Dive disputed based on previous company filings. Now, the firm has returned to the trough yet again for further funding.
This time, the financing comes as a form of a “backstop commitment” according to the news release put out late yesterday evening. The funding, which will come from Park Lane Capital Limited, All J’s Greenspace, and Chiron Ventures – the latter two of which are considered insiders. All J’s Greenspace is the firm that brought Green Growth Brands public, and is controlled by the Schottenstein family. Chiron Ventures also assisted in bringing the firm public, and is controlled by Adam Arviv.
The backstop commitment accounts for approximately US$77 million, and will come in the form of convertible debentures at a conversion price per share of C$2.45. In Canadian dollars, it amounts to roughly C$102.79 million. The backstop commitment is being utilized as a means of providing funding if required, based on two scenarios.
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For the first scenario, US$52.32 million will be made available to the firm if Green Growth is unable to refinance or extended the terms of the currently outstanding convertible debentures. The second, consists of US$25 million being made available in the event that Green Growth requires funding to for general operations during the term. If issued, the financing will take the form of convertible debentures, with an expiry date 12 months from issuance. While the release indicates that there will be interest on the debt, a figure is not provided.
Additionally, there is a clause in the agreement that denotes Green Growth will be required to issue US$3,866,250 in the form of common shares to the lenders should the money be accessed. The shares are to be issued at a price equal to the closing price on the day prior to the funds being issued.
The problem with this entire scenario however, is extremely straight forward. For the first scenario, wherein Green Growth may access funds to the tune of US$52.32 million to cover existing convertible debt if it fails to refinance or extend the original terms, those very debentures are owned by “early stage strategic investors” – whom are likely to be involved in this latest financing.
The debentures believed to being referenced are the 15% secured convertible debentures with a conversion price of $7.00 that were famously mocked among the investing community. The funding came from early stage investors, although the associated Form 7 filings is extremely slim on details, aside from it amounting to roughly $61.14 million Canadian. At the very least the three parties involved with this financing are highly likely to be “friendly” towards the early stage strategic investors, as a result of being early stage investors themselves. Thus, its unlikely that the original debentures are renegotiated, thus requiring Green Growth to draw upon the backstop commitment, which in turn generates US$3.86 million in additional shares for the parties involved.
As if this US$77 million was not enough for Green Growth to continue its current operations, at the bottom of the release the firm also indicated that it has entered a letter of intent with United Capital Partners LLC for additional funding to the tune of US$50 million. This capital is expected to be put towards the continued expansion of Green Growths CBD and cannabis operations across several jurisdictions.
Green Growth brands closed yesterdays session at $1.97, down 6.19% on the day.
Information for this briefing was found via Sedar, The CSE and Green Growth Brands. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
