The Green Organic Dutchman Holdings Ltd. (TSE: TGOD), an Aurora Cannabis-backed licensed producer, made history on Friday by announcing the first dividend that will cost investors money.

Many investors are likely confused by the press release which announced a reward for shareholders.


Source: GlobeNewswire.com

However, a quick look through the details make it plain to see that management is trying to coerce current investors into providing even more capital to the company and no dividend is actually being provided.

A management team willing to use highly questionable, and what some would consider deceitful, tactics to squeeze more money from stockholders who are already supporting them in the first place, should be a big red flag for investors as they decide which management teams to trust in the emerging cannabis industry.

 
Investors Should Feel Insulted
It almost seems as if management is preying on some of its less sophisticated retail investors by phrasing the press release as a reward to shareholders and using the word dividend which implies a return of capital, when in reality investors are being given an option that requires a cash payment before it will turn into a potentially valuable share of stock.

The quote below is especially concerning as it is highly misleading and comes directly from the CEO of the company which means he explicitly signed off on this questionable fundraising tactic.

Management will likely argue that a stock of the newly formed entity TGOD Acquisitions may have value, but unfortunately for investors they have to pay money first before they can claim ownership.

A dividend this is not.

 
Stock Market 101

What is a dividend?
The functional worldwide definition of a dividend is a distribution of a portion of a company's earnings in the form of cash, stock, or other property.

The security being issued by TGOD has no value on its own and requires that investors pay TGOD $0.50 before they will own anything of value.

If you do not pay $0.50 you will be left with nothing.

This TGOD Acquisitions "unit" doesn't look anything like a dividend.
What is a warrant?
A warrant is defined as a derivative that gives the right, but not the obligation, to buy or sell a security at a certain price before expiration.

The TGOD Acquisitions "unit" gives investors the right but not the obligation to buy a share in this new entity.

Sounds exactly like a warrant to us.

So What's the Problem?
The big problem here is that investors are betting on a management team that has now shown themselves to have questionable ethics.

Coming up with a financial structure that we frankly consider a unique and highly inventive way to raise additional capital is one thing.

But putting out a press release making false claims about the security you are issuing to shareholders is another darker side of the coin.

Make no mistake, though TGOD's warrant has a value that is by no means guaranteed, what is a sure thing is that management has issued the first dividend in history that will cost investors money.

 

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