So this about explains it again where these .30 cent shares are coming from. The question is how long will it take to sell all those .003 shares? It would seem it would be more profitable to make business of Liberty, put a few PR's out, and sell your .003 shares of Liberty while its a hot commodity rather than dumping at .30 cents? or insiders can just keep burying the share price till nobody wants a Liberty share ? https://www.docdroid.net/htlxcOn/2019-08-24-thestoryoflibertyhealthsciences.pdf
stivi_1 (Reddit, Twitter)2019-08-24The Story ofLiberty Health Sciences ($LHS, $LHSIF)A couple of days ago I posted a price paid per share summary for LHS on Twitter. Together with the screenshot of my spreadsheet I promised to write this up in more detail, providing context so everybody can understand it. First, let me make some things clear by answering some questions:Q&AQ: What’s your motivation behindthis?A: I’ve been a shareholder of LHS for a long time now. The recent decline in stock price made no sense to me and therefore I started looking for possible explanations. While being aware the whole sector is down quite huge, LHS always felt to be hit harder. I questioned myself -did I oversee something when doing my DD? Is there something I’m not aware of, either because I don’t know it or because my view is biased as I have a quite huge position? The question I simply couldn’t get my head aroundwas: Who the fuck would be so stupidor desperateto sellhisLHS shares at such ridiculous price levels?Nobodycould, because nobody would be able to sell at these levels without taking a huge loss, right? Well, unfortunately, no... Somebody can.But we will get to thatlater.Q: Is there some new or previously unreleased information in this article?A: I don’t think so. The main points have been highlighted in the Hindenburg short report: Aphria Part 2: We Believe This Rot Runs Deep. All I can say reading and going through hundreds of PDFs, filingsand the story of LHS is:The short report seems to be spot on. Points highlighted in it seem valid.Q: If there isn’t anything new in this article, why did you write it anyway? What’s the purpose?A: The purpose of it and the reason I’m doing it is, because I want to highlight the importance of share structure to everybody. I believe it’s overlooked and not accounted for most of the time. You can hold sharesof the most fundamentally solid company –if there’s somebody who got his shares for CAD $0.003/piece while you paid CAD $0.62/piece –that’saproblem and depending on the amount of suchshares available, can suppress stock price for quite a long time.StoryEnough with the questions, let’s get started with the story. To understand the LHS of today, we must go back in history to the point it was founded and try to understand how it developed since then.IntroductionBefore LHS was called LHS and before it went public on any stock exchange, there was a private company called DFMMJ InvestmentsLtd. and an already publicly traded company called SecureComMobileInc.These two formed LHS through a RTOin 2017. The document describing the business combination can be found here(it’s of great value and I can only suggest the reader to read through it and try to understand it). There also was a private company called Chestnut Hill Tree Farm LLC which later became the first core asset of LHS. Chestnut consisted of aFlorida license and the growing operations/facilityand was sold just recently again by LHS. To summarize, we have the following three pieces at this point:
stivi_1 (Reddit, Twitter)2019-08-24•SecureCom Mobile Inc.(Michael Galloro: CEO of SecureCom and COO of Delavaco Capital-private equity firm of DeFrancesco)•DFMMJ Investments Ltd.(DeFrancesco Company that’s been setup a month before all these transactionstook place)•Chestnut Hill Tree Farm LLC(Florida license and growing operation/facility)Sequence of EventsThe following list describes what happened in a simplified way (chronological logical order):1.DFMMJ gets foundedby DeFrancesco (March 20, 2017)2.DFMMJ signs agreement to buyChestnut Hill Tree Farm LLC (March 30, 2017)3.DFMMJ carries out 1stprivate placement (April 11, 2017)4.DFMMJ signs agreements with Aphria (April 18, 2017)5.DFMMJ carries out 2ndprivate placement (April 27, 2017)6.DFMMJ buys Chestnut Hill Tree FarmLLC(May 23, 2017)7.DFMMJ goes public through SecureCom RTO–LHS was born (July 26, 2017)8.LHS carries out 3rdprivate placement (May 10, 2018)9.LHS buys 242 Cannabis LLC (February 15, 2018)10.LHS pays Thermo Energy Systems Inc. (July, 2018)11.LHS sells Chestnut Hill Tree Farmand Ohio Assets(August 22, 2019)As one can see, the formation of DMMJ up to the RTOhappened within roughly 4 months. Let’s investigate each in a little bit more detail:DFMMJ gets founded(March 20, 2017)Well, not a lot to add here –basically DeFrancesco set-up the company for the events that should follow the next couple of days/weeks.DFMMJ signs agreement to buyChestnut Hill Tree Farm (March 30, 2017)DFMMJ signed a purchase agreement for Chestnut Hill Tree Farms whereby a price tag of US $40millionwas agreed upon. As DFMMJ was foundedjust 10 days earlier, this raises the question –where arethe US $40millioncomingfrom? DMMJ currently has zero cash.Let’s see...DFMMJ carries out 1stprivate placement (April 11, 2017)This is the most important event of all and the point whereAndy DeFrancesco and friends enriched themselves on the backof retail shareholders. On April 11, 2017 they carried out a private placement for 242,600,000shareswhereby each share cost them CAD $0.001.DFMMJ now has 242,600,000shares and CAD $242,600cash available. Still a couple of $$$ missing for paying the US $40millionprice tag on Chestnut, right?DFMMJ signs agreements with Aphria (April 18, 2017)DFMMJ signed a couple of agreements with Aphria, including a Know-How agreement whereby Aphria agreed to share growing know-how etc. with DFMMJ (later LHS). DFMMJ issued Aphria 192,400,000 sharesin exchangefor these agreements.DFMMJ now has 435,000,000 shares and still only CAD $242,600 cash available.
stivi_1 (Reddit, Twitter)2019-08-24DFMMJ carries out 2ndprivate placement (April 27, 2017)The structure of this was a bit trickierbecause they didn’t directly issue shares, they issued subscription receipts: 164,182,679 subscription receiptsand 2,644,231 sharesto be exact. A subscription receipt entitles the holder to convert it to a generic common share without the payment of any further amount of cash –but also has some lock-up period on it.DFMMJ now has 437,644,231shares, 164,182,679subscription receiptsand roughly CAD $34millioncash available.The price paid for each subscription receipt was $0.208. The private placement was led by Clarus Securities Inc.and buyers were likely mostly retail shareholders. I doubt Clarus told all these people that they are paying 208-times more than DeFrancesco and friends payed merely a month earlier.DFMMJ buys Chestnut Hill Tree Farm (May 23, 2017)The price tag of Chestnut with US $40millionstill is higher than the currently available funds of roughly CAD $34millioncash available at DMMJ. So, where does the difference come from? The business combination document referred to at the beginning tells us:“[...] The balance of the purchase price (less the non-refundable deposit) was funded by Aphria [...]” Therefore, DMMJ issued Aphria another 120,192,308shares for US$18.4millionso DFMMJ can finally purchase Chestnut:•US $3.26 millionup-front deposit borrowed by DFMMJ from SecureCom•US $18.4million from issuing ~120 million shares to Aphria•US $25.02 million from issuing ~365 million shares in private placements?US $46.68million cash availablenowNote: 120,192,310 of the 164,182,679 subscription receiptswere converted to common shares for funding the Chestnut purchase(as previously written, conversion rate equals 1:1).Note: Interesting side hint -Brady Cobb was the trust agent for the US $3.26 million up-front payment.DFMMJ now has 678,028,849 shares, 43,990,369(164,182,679-120,192,310)subscription receipts andCAD 14.3millioncash available.They also own Chestnut Hill Tree Farms.DFMMJ goes public through SecureCom RTO –LHS was born (July 26, 2017)At this point SecureCom and DFMMJ got combined and the newly created entity got renamed to Liberty Health Sciences (not directly, if you look atthe company structures DFMMJ was integrated as a sub-company under SecureCom -but to make things more easy and understandable and because it doesn’t matter for the math I express this in a simplified way).Therefore, we must combine the existing share structures and cash amounts available:•SecureCom: 130,044,447shares, CAD $3.6 million cash•DFMMJ: 678,028,849shares, 43,990,369subscription receiptsand CAD 14.3 million cash•Combined: 852,063,665shares(subscription receiptsconverted 1:1)and CAD 17.9million cashNote: Together with the RTO there has been a reverse stock split of 3:1. The 852,063,665pre-split shares of newborn Liberty Health Sciences became 284,021,221post-split shares.
stivi_1 (Reddit, Twitter)2019-08-24Note: The share structure of SecureCom looks suspicious, but I didn’t dive deeper into it at this point.Time to check the table from the Tweetto see how much was paid for all these issued shares(the table should make way more sense now, with the story behind them):This doesn’t look good –CAD $0.269/share was paidon average. Considering the price LHS started trading at –CAD $1.3/share –Ifeel for everybody who bought it at that price.Note: Cost for Aphria contains the assigned value of CAD $5 million Liberty booked this at. Aphria didn’t pay a single dollar, they just signed a couple pieces of paper. Therefore, one might even remove the CAD $5 million from the calculation. Doing so reduces the average price paid to CAD $0.251/share.Note: Initial directors at LHS were Vic Neufeld, John Cervini, Aaron Serruya,Brady Cobb andMichael Galloro.LHS carries out 3rdprivate placement (May 10, 2018)Classic bought deal. Issued 25,555,875shares (CAD $0.90/piece) and 25,555,875warrants (CAD $1.10/pieceuntil May 10, 2020).LHSnow has 309,577,097shares, 25,555,875 warrants.
stivi_1 (Reddit, Twitter)2019-08-24Average price paid per share rose to CAD $0.32 through this bought deal.LHS buys 242 Cannabis (February 15, 2018)This is the property where their Liberty 360 campus was built upon. There are a couple of things to notice:•242 Cannabis LLCis another DeFrancesco company setup a couple of weeks earlier for the sole purpose of being man-in-the-middle again•LHS cancelled a bought dealthey announced previously tothe 242 Cannabis acquisition that would have been much more favorable for them.Issued 18,815,322 shares (CAD $1.6476/piece) and 9,407,661 warrants (CAD $2.07/piece until Jan 31, 2021).Here is a summary of the transaction, showing that DeFrancesco and friends made millions again by playing man-in-the-middle:
stivi_1 (Reddit, Twitter)2019-08-24LHSnow has 328,392,419sharesand34,963,536warrants.Average price paid per share rose to CAD $0.40 through this purchase.LHS pays Thermo Energy Systems Inc. (July, 2018)Nothing special here,I just wanted to mention it because of the number of shares issued –10,092,583(CAD $0,92/piece).They wanted to save cash (as they were aware, they would run low on it soon otherwise) and paid a contractor in shares.LHSnow has 338,485,002shares and34,963,536warrants.
stivi_1 (Reddit, Twitter)2019-08-24Average price paid per share rose to CAD $0.41 through this share issuance.LHS sells Chestnut Hill Tree Farmand Ohio Assets(August 22, 2019)This happened just recently –because stock price has been in the cellar and they ran out of cash, they decided to sell their initial Chestnut property/facility together with their Ohio assets.They received US 14.75 million cash for it.Costs when they bought them:•Chestnut: US $40 million (incl. license that was not sold)•Chestnut additional land: US $866,975•Chestnut investments/optimizations:?•Ohio assets: CAD $1 million+ contributedThis leaves us with a lossof roughly US $26 million –which I think is a reasonable value for the FL licensethat must be subtracted as it wasn’t sold.Note: I believe the Ohio operation (license)is worth much more as the $$$ amount contributed. Ohio is heating up and it would have been a good thing for LHS to keep it.I’m convinced it was a requirement from the buyers for the deal taking place at all.
stivi_1 (Reddit, Twitter)2019-08-24A review of land transfer records in Florida showthat the buyer were the Schottensteins (who own the other half of the JV in Ohio). As backers of $GGB one can count the days till they announce they sell/lend the land to $GGB. The price tag will be interesting, I guess.Let’s see if they pull a DeFrancesco on $GGB shareholders.SummaryAs one can see -LHS as it exists today was built-up by DeFranceso and friends. They’ve been raping it financially multiple times since it’s inception, on the back of retail shareholders. The millionsof nearly free shares(roughly 80 million LHS shares)they issued themselves directly at the beginning have a goodchance of being the explanation for the constant share pricedownward pressure we are seeing with LHS. For a company like LHS with very low volume, it takes a long time to cash out such huge amounts of shares.The average price paid per LHS share at issuance was CAD $0.41.I can only suggest that everybody looks up the story and share-structure of the companies he’s invested in –to not get caught with bad surprises. A lot of companies in the sector face similar issues.In my opinion LHS itself is a good company and has a bright future ahead. I’m curious if and when they find a new CEO,if he’s somehow related to DeFrancesco–In that case I’m out. I’m also curious if future deals are still structured against retail shareholders and if the practice of setting up man-in-the-middle shell companies to rob shareholders continues in connection with LHS. If it does, I’m out too.As DeFrancesco together with Bray Cobb now runs his own company, SOL Global Investments ($SOL) soon to be renamed Bluma Wellness, I’m going through all their deals in the following weeks too. But seeing black on white how they robbed shareholders again and again in the past, solely to enrich themselves, makes me believe holders of their stock suffer serious Stockholm syndrome–I’m sorry.There are so many connections between a lot of these people, they all can’t be summarized in onedocument. I would urge everybody interested to read through the relevant documents (see sources) and cross check informationand names.