by Eric Vengroff, Financial Analyst, Cannabis Daily

The Green Organic Dutchman Holdings Ltd. (the “Company” or “TGOD”) (TSX:TGOD) (US:TGODF) announced this morning that it has signed a letter of intent (“LOI”) for a 50/50 joint venture (try not to smirk whenever you hear this term in the future) (“JV”) with Queen Genetics/Knud Jepsen A/S (“Knud Jepsen”) based in Hinnerup, Denmark. The JV will initially consist of two facilities located within Knud Jepsen’s 1.3 million sq. ft. state-of-the-art automated greenhouses in Denmark.

The approximately 200,000 square feet of advanced buildings to be dedicated to the JV were designed and engineered by Thomas Larssen of Aurora Larssen Projects Inc. and will provide an opportunity for TGOD to increase its total organic funded capacity by approximately 25,000 kgs. This will provide a consistent supply of high-quality organic cannabis grown in Europe, ready for the local European markets and increases TGOD’s funded capacity to 195,000 kgs.  Company spokespeople were not available for comment when contacted this morning when CD inquired regarding any further details.

The JV will focus on the cultivation of premium organic cannabis and primary extraction following TGOD’s organic growing protocols and using Knud Jepsen’s years of advanced R&D directed towards plant genetics and breeding, including many patented discoveries that could be applied towards the cultivation of premium organic medicinal cannabis. TGOD will have the exclusive right to all cannabis-related production at the JV through a guaranteed offtake agreement at a pre-determined value over the production cost to the JV.

Knud Jespen has more than 75-years of experience in all areas of horticulture ranging from genetics and breeding to international partnerships and setting-up global distribution networks and is the world’s largest Kalanchoes breeder and producer distributing and selling more than 35 million finished plants in Europe and 90 million cuttings to over 75 countries each year. The company employs over 425 people in Denmark, Turkey, and Vietnam.

“Europe, being home to 750 million people, is a key market, and Knud Jepsen has nearly 3 million sq. ft. of horticultural operations, 75 years of operating experience and a significant focus on R&D providing an incredible platform for TGOD to enter the European market,” said Csaba Reider, the Company’s President. “These first two facilities are simply the first step in our business plan to enter Europe at scale. We look forward to completing our final agreement in the coming weeks,” continued Mr. Reider.

”We are very excited about entering the European market as the leader of international organic cultivation,” said Robert Anderson, TGOD’s CEO. “Organic is one of our key differentiators, and when creating a catalog of higher margin products across varying delivery methods, organic inputs make a significant difference in the end product. This JV establishes TGOD’s product across Europe and increases our funded capacity to 195,000 kgs. This represents another significant step forward as we create the largest organic cannabis brand in the world,” Anderson continued.

Closing of the transaction is subject to customary conditions, including the signing of definitive documents, completion of satisfactory due diligence, and applicable regulatory approvals.

As noted in previous articles and editorials, industry trends suggest that cannabis consumers, particularly regular users, are very engaged and interested in knowing where their cannabis came from, what conditions it was grown under and what fertilizers, fungicides, herbicides and pesticides were used.   As usage increases across various demographics, we at CD believe this trend will continue.  However, as cannabis is illegal under U.S. federal law, little or no documented research exists regarding safe chemicals to use, and no U.S. sanctioning body can offer a ‘certified’ organic label.  So one is mostly left to trust growers’ claims in this regard. However, TGOD has their product certified by both Ecocert and Procert, two internationally recognized organic certifications.

The other interesting aspect of this deal is the ‘offtake’ agreement.  Having a guaranteed customer or customers at a pre-determined is common in many commodity and extraction industries and it is good to see this practice being employed for cannabis, as in time this may produce pricing stability on a global basis.

Despite domestic warnings and doomsayers predicting a long-term supply glut of cheap pot, innovators in the space may be showing better ways to exploit the cannabis market through export deals and product differentiation.

 

The information and opinions presented here are that of the analyst and do not represent the thoughts and opinions of this website.  The analyst does not own or represent any of the companies listed in this article and receives no compensation from any party mentioned in this article. Readers are urged to do their own research and due diligence and should seek advice from an independent financial advisor before making any financial investment.