The genesis of Grown Rogue International Inc. (CSE: GRIN; OTC: GRUSF) began in the Oregon Medical Marijuana Program (OMMP) in 2006, where we were growing sun-grown cannabis while simultaneously building a family. Today, our company is listed on the Canadian Securities Exchange (CSE) and has more than 200,000 square feet of cultivation operations in Oregon and Michigan.
So, how did we go from those humble beginnings in the OMMP to being a publicly traded company? While everyone’s path looks a little different, going public is full of challenges and lessons learned.
In 2015, when we were both working full-time jobs and running our OMMP company, we began spending more time evaluating cannabis as a full-time opportunity due to the rapidly changing regulatory landscape in the U.S. and Canada. After many long discussions around our passion and belief in cannabis, we made the decision to commit full-time to building Grown Rogue in 2016.
Once we made that decision, we threw everything we had into Grown Rogue. We built a business plan with a focus on craft cannabis in Oregon, hired the first of our team (which included operations, marketing, branding and finance, as well as engaged legal and professional services), began the process of converting our existing medically licensed facilities to adult-use, and started constructing our state-of-the-art indoor facility. All of this took not only strong perseverance and planning, but also lots and lots of money.
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We seeded Grown Rogue with seven figures of capital, but we quickly realized additional capital would be necessary to scale at the speed we were planning and to build the infrastructure necessary to compete in this rapidly growing industry. This led to us begin outside financing in early 2017 and ultimately tapping the public markets for the cash necessary to build Grown Rogue.
Raising money is a grueling process with lots of travel, pitching, and rejection. Fortunately, we were able to attract enough additional seed funding to keep the business moving forward. In mid-2017, during our private fundraising efforts, we were introduced to an investor who ultimately became a sponsor on our going-public path. This person said he had $7.5 million he was willing to invest—but to access it, we had to go public.
Due to the regulatory structure in the United States, Grown Rogue’s path to going public and tapping the capital markets needed to take place in Canada under the Canadian Securities Exchange (CSE). Going public is an arduous process that involves a considerable amount of accounting, auditing and legal work, and many of the professional experts we needed, including the bankers who would finance the capital raises, were almost all exclusively based in Canada.
So, once we, our rapidly expanding leadership team, and our advisers and investors decided to take this path, it just added to the complexity of building a business in a brand-new industry.
The Paths to Public
There are two primary ways to go public: through either a traditional Initial Public Offering (IPO) or a Reverse Takeover (RTO). We chose the RTO route, as it is generally quicker to receive approval and cheaper than a traditional IPO.
In an RTO, the prospective private company that wants to go public identifies an existing publicly listed company that is either no longer operating or has a failing business. These entities typically are called “shells.” During an RTO, the “shell” company (which in our case was called Novicius) will “purchase” the new entity (Grown Rogue) by issuing a majority of outstanding stock shares to the new entity. This allows for the new entity to control the majority of the stock of the “shell,” hence the name “reverse takeover.”
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To navigate the complex RTO process, we needed a sponsor—someone who would not only provide money, but also guidance. Through one of our many pitches in California, we met our sponsor, who helped us launch the going-public process with the promise of $7.5 million of guaranteed funding. After deciding to pursue this option, our management team and key advisers began the planning stages of all the required legal and audit work.
We expected that work to take several months, so we picked the end of October 2017 as the date to be listed. We could not have been more optimistic!
As a U.S.-based cannabis operator trying to go public in Canada, the number of professional services we required was intense. We engaged legal and accounting services in Oregon and an auditor in California, since part of going public is to have audited financials—which is no easy feat considering cannabis is a traditionally cash-based industry, and the concept for Grown Rogue was still relatively new. In addition to partnering with U.S. professionals, we also had to engage additional Canadian legal and accounting firms to handle the Canadian side of the RTO.
To say our lives got hectic in late 2017 would be an understatement. On top of the craziness that comes with building a business, we were also suddenly trying to go public and manage five different professional service firms between two countries. It quickly became apparent that hitting the October deadline for listing was not going to happen due to the significant audit and legal requirements ahead of us.
Then, in early 2018, a bombshell hit. Grown Rogue’s leadership team, including a group of our key investors and advisers, met with the sponsor to discuss progress and timelines. During this discussion, we pressed the sponsor on his commitment of the $7.5 million of financing, and he let it slip that he didn’t actually have the money.
We were shocked. After months of grueling legal, accounting and audit work, we were told there is no money from our sponsor, which was one of the primary reasons we decided to go the RTO route. The sponsor continued to promise funds to Grown Rogue up to our listing in November 2018 and even post-listing, but ultimately, he brought $0 to Grown Rogue’s efforts.
Lessons Learned
Realizing we had to raise the funds ourselves, our team quickly pivoted.
Despite feeling defeated, we identified and hired an investment banker in Canada to assist in raising capital. We then spent the next several months in investor meetings in Toronto and Vancouver pitching Grown Rogue’s story over and over, and we successfully secured the financing necessary to complete the RTO.
Once investors agree to the financing, they sign a subscription agreement that commits the funds, which are placed into an escrow account. Once the RTO is complete, the funds are released to the company. Generally, an escrow is for a set amount of time, and after almost a year of work, we had almost everything ready to go—or so we thought.
By mid-summer of 2018, we finished all the legal and accounting work, secured the financing with the help of a second investment banker, and submitted everything to Canadian regulators to approve the transaction. This review process normally takes a few weeks or a month to complete, but, as with most of our going-public process, that was not the case.
In 2018, a substantial number of U.S.-based cannabis operators decided to go public—a relatively new situation for stock exchanges in Canada, which created a backlog in the regulatory review process. Approvals were delayed, and then delayed again.
These delays quickly started to impact our escrow period for financing, so with the help of our lead investment bank, we extended the escrow period to the middle of November.
Simultaneously, we were working with regulators in Oregon to get our state approvals. While there were nearly 2,000 privately held cannabis operators in Oregon, there were few, if any, publicly traded companies. This created quite the dilemma; we couldn’t submit the change of ownership forms (since Grown Rogue Unlimited, our U.S. entity that was approved by the state, would now be owned by Grown Rogue International, the to-be-formed public company in Canada) to the state of Oregon until we had general approval for the transaction from the Canadian regulators, and with the delays in Canada, this was putting more and more pressure on our timing.
Finally, in mid- to late-October of 2018, we got comfort from Canadian regulators that we would be approved for listing, and thus Oregon regulators expedited approvals for our company. However, during the review, the state informed us it had recently implemented new regulations related to ownership by existing investors in the parent company of the entities holding the assets. This required a complete restructuring of Grown Rogue with paperwork temporarily rescinding ownership held by about 15 existing investors who had not been approved by the state previously. Once the RTO process was completed, the investors could get ownership in the newly formed public company.
Thankfully, we had mostly great relationships with our investors. We had to go to each and every one of them and convince them this was not some master plot to eliminate their ownership in the company, as the state required us to rescind the ownership of every investor who had not gone through the extensive background and vetting process required under the new rules.
Then, disaster struck. During our financing effort, we received a large investment commitment from a Canadian investment fund. Many of the investment funds in Canada were financing several of the going-public transactions happening, and one of the other transactions that had just closed put severe financial pressure on this fund.
After several calls to try to ease their fears, the fund requested their escrow money be returned. Normally that would not work, as escrowed money is protected, but these dollars were brought in by the second investment bank. Therefore, in order for that bank to salvage its relationship with the investment fund, the bank took the position that it had not approved the escrow extension completed by the lead investment bank and thus was able to rescind the funding.
We were driving to one of our sun-grown farms in the middle of harvest season when we got the call from our banker that the investor was pulling out of the deal. After over a year of work and commitment on our part, the banker recommended that we put the RTO on hold and consider concluding the transaction in the first quarter of the year when the markets got better. Simply put, without those funds, we couldn’t close the deal.
Bouncing Back (Again)
At first, we thought the worst—but we were determined to finish what we had worked so hard to achieve. We immediately got to work on the phone with other investors we had been courting, and within 48 hours, we replaced the seven-figure financial commitment that had been pulled.
On Nov. 15, 2018, we finally closed the transaction of taking Grown Rogue public.
The first trading day, after getting all the final CSE approvals, was Nov. 26, 2018. This year, Grown Rogue celebrated its fourth anniversary of being a publicly traded cannabis company.
If you asked either of us if we thought this is where we would be today, the answer is no, not in a million years. Did we think we would be growing cannabis for a living? No. Did we think we would be a publicly traded company in the cannabis industry? No.
But what we did know is that we are dreamers and executers. We are hard workers, and we are smart. We know how to build teams and operate within a team environment. But ultimately, we knew we were leaders who could get it done.
