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 investors 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 recreational cannabis market in Canada.
The marijuana company completed its initial public offering (IPO) on the Toronto Stock Exchange on May 2, 2018, raising CA$115.0 million in the process.
Green Organic Dutchman Holdings Ltd
As its name suggests, Green Organic Dutchman 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 shoppers 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 of 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 preference, companies that specialize in organic cannabis can often sell their products at a higher price.
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: “Making Life Better,” Green Organic Dutchman Holdings Ltd, op. cit.)
Of course, the No. 1 reason why investors are so enthusiastic about the marijuana industry is its growth. And on that front, Green Organic Dutchman 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 almost CA$1.9 million in revenue. (Source: “The Green Organic Dutchman Reports Q1 Fiscal 2019 Results,” Green Organic Dutchman Holdings Ltd, May 14, 2019.)
Fast forward three months and we see that the company generated CA$2.4 million in revenue in the first quarter of 2019, marking a sequential increase of 28%.
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 the company plans to do.
You see, Green Organic Dutchman is not exactly the most well-known company in the cannabis industry today, but it has been building facilities that could make it one of the biggest players in the business.
For instance, the company has a 166,000-square-foot 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-foot hybrid greenhouse facility in Valleyfield, Quebec. Once completed, the facility will have an annual organic cannabis production capacity of 185,000 kilograms (407,855 pounds).
Add it up and you’ll see that, when both facilities come online, Green Organic Dutchman Holdings Ltd will 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 mentioned earlier, pot stocks are generally pretty expensive when it comes to valuation. . TGODF stock, however, 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 earnings before interest, tax, depreciation, and amortization (EBITDA) multiple of 66 times for the calendar-year 2020.
Green Organic, on the other hand, has an enterprise value to EBITDA multiple of just 10 times for 2020. (Source: Ibid.)
Moreover, Green Organic Dutchman’s enterprise value to revenue ratio (4.2 times) for 2020 also appears to be substantially lower than its peer group’s average (around 10 times).
In other words, based on the pot sector’s expected performance next year, Green Organic Dutchman stock seems to be undervalued, compared to many other players in the industry.
Green Organic Dutchman Holdings Ltd (TGODF) Stock Chart
Chart courtesy of StockCharts.com
In 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 the 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 stock of a marijuana company that has big plans ahead. Once construction on its two facilities is complete and they start producing organic cannabis on a massive scale, Green Organic Dutchman Holdings Ltd’s financials should be substantially improved.
At that point, investors who bought Green Organic Dutchman stock at a low price could be laughing all the way to the bank.