LGC Capital Ltd’s Portfolio Company Expansion Should Serve It Well

LGC Capital Ltd. (TSXV:LG) has a convertible loan agreement that could give it a 49% stake in Tricho-Med Corporation

SmallCapPower | April 11, 2018: LGC Capital Ltd. (TSXV:LG) Monday announced that Quebec-based Tricho-Med Corporation intends to expand the scale of its operations with new land options covering more than two million square feet of gross building areas of controlled atmosphere production capacity. The construction of the first phase of expansion, a “state-of-the-art” 34,000 square foot, fully-enclosed growing facility located in Brownsburg, Quebec, is expected to begin in next few weeks, with the steel structure and building envelope planned for completion by October 2018.

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Tricho-Med’s Stage One will consist of seven air-tight, controlled atmosphere flowering chambers. The facility will be built so that it qualifies for GMP certification with a selection of materials to the highest international norms. Production is expected to kick-start in 2019 from Stage One and will increase gradually with the further expansion of the facilities.

LGC Capital’s CEO John McMullen remarked, “Tricho-Med is aiming to be one of the largest controlled atmosphere producers of high quality medical cannabis in air controlled growing chambers in Canada. In addition, its production costs should be within the lowest quartile production costs range in the industry, due to some of the lowest power costs in North America. Tricho-Med has retained the services of experienced growers and regulatory experts to assist with the construction and expansion of its state-of-the-art enclosed facilities with the aim of producing and selling medical cannabis in Canada and obtain GMP certification in order to export internationally.”

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LGC Capital entered into a four-year secured convertible loan agreement with Tricho-Med amounting to C$4 million with an annual interest rate of 10% payable from available operational cash flow. The loan amount will be disbursed as per pre-agreed milestone disbursement schedule. As, and when, Tricho-Med gets licensed for production of medical cannabis from regulatory authorities, the loan will be converted to common shares of Tricho-Med representing 49% of then-issued and outstanding shares. In addition to that, LGC will be entitled to 5% royalty on Tricho-Med’s net cannabis sales.

Tricho-Med is one of two current investments in the legal marijuana space for LGC, the other being a 14.99% stake in Little Green Pharma of Australia. LGC Capital currently trades at a market capitalization of $53.47 million with price-to-book multiple of 7.89x. After the announcement, LGC’s stock rose 4% on the TSXV to close at $0.15 on Monday.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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