Cannabis is fast becoming big business both in Canada and the US, as companies work feverishly to scale up their production and retail operations.
One company with a boatload of potential is Mississauga-based The Green Organic Dutchman (The Green Organic Dutchman Stock Quote, Chart TSX:TGOD), which could have a lock on the organic cannabis products market — that is, if the company gets its act together.
So says Bruce Campbell of StoneCastle Investment Management, who warns investors to look for red flags concerning TGOD’s stock as well as the operations side of the business.
“If you just look at it from a stock perspective, last fall they had a lot of shares that were coming in free-trading that had been done in previous financing, so that’s had a fairly significant bearing on the stock price,” said Campbell, founder and portfolio manager at StoneCastle, to BNN Bloomberg on Thursday.
“At the same time, [Aurora Cannabis] had a position in the Green Organic Dutchman and they didn’t exercise some warrants and they’ve also been selling down some shares to free up cash for other projects. So that’s put some weight on the stock,” he says.
TGOD, which debuted last May to much fanfare with the largest-yet IPO for a Canadian cannabis company, rode the crest of excitement in the pot space last summer and more than doubled its share value by September. Things have been less rosy since, however, even as the stock participated somewhat in the sector’s recovery earlier in January and February. TGOD currently trades in the mid-$4.00 range, moderately above where it commenced trading a year ago at $3.65.
Campbell says delays in build-out have been an issue.
“If you look at the operations side of things, they’re building this big greenhouse and their facilities have really been delayed and I would guess that they’re probably 12 to 18 months behind where most investors expected they would be at this point in time. So, there’s really a chance for management to prove themselves now,” says Campbell.
TGOD management says that it is planning for a global production capacity of 219,000 kgs with designs on processing facilities in Ontario, Quebec, Jamaica and Denmark. Recently, the company received a long-sought-after exemption from the City of Hamilton to build a 123,000 sq ft greenhouse in Ancaster, Ontario.
“Obviously, with the size of the facility that they’re building they’re going to be a dominant player once they’re done, but they certainly have to get there,” says Campbell. “And we know with these projects that they often take a lot longer and can run over budget as well, so we’re just standing on the sidelines and watching right now.”