Will This Low-Priced Pot Stock See Massive Upside Ahead?
If you’ve been following the cannabis industry, you’ll know that most companies are telling a growth story. While some tales are more exciting than others, it remains to be seen whether these cannabis companies can reach their full potential.
On that front, one small pot stock just made a big progress toward reaching their target.
I’m talking about Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF, TSE:TGOD), a Canadian cannabis producer headquartered in Toronto, Ontario.
As the name suggests, the focus of Green Organic Dutchman is organic cannabis. Because of shoppers’ preference for organic products these days, pot companies are able to sell organic marijuana at a higher price. For instance, the industry average price for cannabis is CA$9.20 per gram, while the average price for organic pot is around CA$12.22 per gram, translating to an organic premium of around 32.8%. (Source: “Making Life Better,” Green Organic Dutchman Holdings Ltd, last accessed August 19, 2019.)
In other words, the business is very lucrative. But because Green Organic Dutchman was focusing primarily on serving medical customers in the past, its business was quite small and TGODF stock remained relatively unnoticed.
But now, things have changed.
Entering a New Market
On Friday August 16, Green Organic Dutchman announced that it has made its first shipment to the Ontario Cannabis Store, marking the company’s entrance into the Canadian recreational pot market. (Source: “The Green Organic Dutchman Completes First Shipment to Ontario Cannabis Store,” Green Organic Dutchman Holdings Ltd, August 16, 2019.)
This is a big deal for the organic pot producer. Canada legalized recreational marijuana for adult use nationwide on October 17, 2018. By entering this new market, Green Organic Dutchman could significantly expand its business.
Now, I should point out that despite being a relatively small player in the pot industry at the moment, the company could get much bigger once it ramps up production.
In particular, Green Organic Dutchman is building a 1.3-million-square-foot state-of-the-art hybrid greenhouse facility in Valleyfield, Quebec. At full capacity, the facility will be able to produce 185,000 kilograms (407,855 pounds) of pot annually. (Source: “Making Life Better,” Green Organic Dutchman Holdings Ltd, op. cit.)
Business is already booming at this organic pot producer. In the second quarter of 2019, Green Organic Dutchman delivered CA$2.9 billion in revenue, marking a 20% increase from the prior quarter. (Source: “The Green Organic Dutchman Reports Q2 2019 Results,” Green Organic Dutchman Holdings Ltd, August 13, 2019.)
Notably, the company has entered into supply agreements with Alberta Cannabis and BC Cannabis Stores during the quarter. So it is well-positioned capitalize on the booming demand for pot in Western Canada.
Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF) Stock Chart
Chart courtesy of StockCharts.com
Trading at $2.37 per share, Green Organic Dutchman stock looks quite cheap in terms of nominal stock price. The company also appears to offer good value for money when you look at valuations.
According to the company’s latest investor presentation, the average enterprise value to expected 2020 revenue of Canadian licensed pot producers is around 10 times. For Green Organic Dutchman, the enterprise value to expected 2020 revenue is 4.2 times, significantly lower than its peer average. (Source: “Making Life Better,” Green Organic Dutchman Holdings Ltd, op. cit.)
By entering the Canadian recreational marijuana market, Green Organic Dutchman Holdings will likely deliver much higher growth rates than before. When that happens, I suspect TGODF stock wouldn’t be trading this cheap.