A Pot Stock for the Bargain Hunters
In today’s market, few things get investors going more than a solid pot stock trading at a discount. After all, the cannabis industry is known for having huge growth potential, but valuations are also on the higher end. If an investor can get in on a solid marijuana company at a good price, they could see some serious returns ahead.
With that in mind, let’s check out Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF, TSE:TGOD).
Headquartered in Toronto, Ontario, Canada, Green Organic Dutchman focuses on the medical cannabis markets in Canada, Latin America, Europe, and the Caribbean, as well as the adult-use market in Canada. The marijuana company completed its initial public offering (IPO) on the Toronto Stock Exchange on May 2, 2018, raising CA$115 million in the process.
Green Organic Dutchman currently trades under the ticker symbol “TGOD” on the Toronto Stock Exchange. For American investors who want to get a piece of the action, they can purchase the company’s shares over the counter under the symbol “TGODF.”
Green Organic Dutchman Holdings Ltd
As the name suggests, Green Organic Dutchman Holdings Ltd is committed to producing organic cannabis. The company’s cultivation practices have received certified organic status by industry leading certification bodies, including Ecocert, Pro-Cert, and Ekogwarancja PTRE.
Why is the organic focus so important? Well, because consumers today love organic products. In the company’s latest investor presentation, management used Amazon.com, Inc.’s (NASDAQ:AMZN) $14.0-billion acquisition of Whole Foods Market Inc as an example to show the significance of selling organic products in today’s consumer market. (Source: “Making Life Better,” Green Organic Dutchman Holdings Ltd, last accessed June 13, 2019.)
Also, Green Organic noted that organic pot is the preferred choice by 61% of medical marijuana users and 50% of recreational users. Thanks to this consumer preference, companies that specialize in growing organic cannabis can often sell their products at a higher price. For instance, the industry average price for marijuana is CA$9.20 per gram, while the average price for organic pot is around CA$12.22 per gram. That’s an organic premium of 32.8%. In other words, focusing on organic weed can be very, very lucrative. (Source: Ibid.)
Of course, the number one reason why investors are so enthusiastic about the marijuana industry is its growth. And on that front, Green Organic Dutchman Holdings Ltd does not disappoint.
Because the company has only been reporting positive revenue since the fourth quarter of 2018, we only have one quarter-over-quarter comparison to make at the top line. In the fourth quarter, Green Organic earned CA$1.88 million in revenue. Fast forward three months and we see that the company generated CA$2.41 million in revenue in the first quarter of 2019, marking a sequential increase of 28%. (Source: “The Green Organic Dutchman Reports Q1 Fiscal 2019 Results,” Green Organic Dutchman Holdings Ltd, May 14, 2019.)
As for the bottom line, the company’s net loss narrowed from CA$0.07 per share in the fourth quarter of 2018 to CA$0.05 per share in the first quarter of 2019.
What’s a lot more exciting, though, is what TGODF plans to do going forward.
You see, Green Organic Dutchman Holdings Ltd is not exactly the most well-known company the cannabis industry today, but it is building facilities that could make it one of the biggest players in the business. For instance, the company has a 166,000-square-feet facility in Hamilton, Ontario that is near completion. At full capacity, the facility could produce 17,500 kilograms (38,581 pounds) of certified-organic marijuana annually.
Furthermore, the company is constructing a 1.3 million square feet hybrid greenhouse facility in Valleyfield, Quebec. Once completed, the facility would have an annual organic cannabis production capacity of 185,000 kilograms (407,855 pounds).
Add up, and you’ll see that when both facilities come online, Green Organic Dutchman Holdings Ltd would be the largest producer of certified-organic cannabis in the world. Factoring in the market price premium on organic marijuana, the company could make oversized profits down the road.
A Value Play in the Pot Industry?
As I mentioned earlier, pot stocks are generally pretty expensive when it comes to valuation. However, TGODF stock could be an exception.
According to the company’s latest investor presentation, its peer group—which includes the likes of Tilray Inc (NASDAQ:TLRY), Canopy Growth Corp (NYSE:CGC), Cronos Group Inc (NASDAQ:CRON), and more—has an average enterprise value to 2020 earnings before interest, tax, depreciation and amortization (EBITDA) multiple of 66 times. Green Organic, on the other hand, has an enterprise value to 2020 EBIDTA multiple of just 10 times. (Source: Green Organic Dutchman Holdings Ltd, Op. cit.)
Moreover, Green Organic Dutchman Holdings Ltd’s enterprise value to 2020 revenue ratio (4.2 times) also appears to be substantially lower than its peer group’s average (around 10 times).
In other words, based on their expected performance next year, TGODF stock seems to be undervalued compare to many other players in the industry.
Green Organic Dutchman Holdings Ltd (TGODF) Stock Chart
Chart courtesy of StockCharts.com
From the above chart, we see that Green Organic Dutchman stock had quite a rally after its IPO last year, but fell into the doldrums as the market entered a downturn in the fourth quarter. While TGODF stock made a sizable comeback in the beginning of this year, its recent performance has been rather choppy.
At the time of this writing, TGODF stock trades at just $2.57 apiece.
Therefore, what we have here is a relatively cheap marijuana company that has big plans ahead for its business. Once construction is complete and those two facilities start producing organic cannabis at a massive scale, Green Organic Dutchman Holdings Ltd’s financials would be substantially improved. At that point, investors who bought TGODF stock at a cheap price will likely be laughing all the way to the bank.
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