I am a big fan of the Green Organic Dutchman (TGODF). First, the industry will eventually be a $500 billion industry worldwide and the Canadian companies are at the forefront of this movement. This gives me the confidence to invest heavily in this industry. But, when you look at valuations throughout the landscape you find mispricings in company’s stocks where the true value may not be represented at the current price. I believe that The Green Organic Dutchman is one of those stocks that is not only mispriced, but is considerably below value:
What is The Green Organic Dutchman Worth?
If you keep things simple, it is easy to see what can happen with the value of The Green Organic Dutchman. As I mentioned, the cannabis industry is burgeoning and will ultimately become a $500 billion industry. The nascent cannabis segment will disrupt alcohol, tobacco and pharmaceuticals to get to these levels.
There is plenty of room for organic cannabis as a market segment, The Green Organic Dutchman’s niche. Organic cannabis is thought to be about 10% – 15% of the entire industry which could mean The Green Organic will be competing for a potential $50B – $75B of revenue. Even if TGOD was only able to get 10% of that – 1%-1.55 of the entire industry – that is still a sizable amount of revenue.
For now, TGOD will have some 200,000 kg. of cannabis production capabilities come online over the course of the next 6-9 months as their main production facilities begin to produce product. The current wholesale rate of cannabis is $5.20 per gram giving the company the potential of ~$1 billion in revenue at full potential. If the company were to earn a respectable 17% net margin (The average rate for cannabis companies) and investors were to bid up the stock to a 20-times multiple (The average for the overall market is currently 29.5-times), then TGOD’s valuation would be some $3.5 billion. The company currently has a $650 million market capitalization.
As you can see, there is a lot of potential with this company. But, this is the beginning stages of investing in cannabis and some mispricing may be expected until these companies start hitting their full potential. Investors need to take a long-term approach to investing into the cannabis scene. Investors need to look at the picture from where the industry will be in 5, 10, or even 25 years out. As I mentioned, this industry will likely become a $500 billion industry.
Until these companies reach these levels of revenue, investors need to focus on the bigger potential of the company instead of the revenue being generated at this very moment. TGOD is generating revenue right now but the levels are small when you consider what the company’s potential truly is.
Canada was the first industrialized nation to fully legalize cannabis across the country. This country is very likely paving the way for the rest of the industrialized world to begin the process of decriminalizing cannabis. The Canadian companies that are just getting going are the companies that will have a large foundation to use to expand into newer markets as additional countries go through their own legalization process.
I am long The Green Organic Dutchman for a multitude of reasons. The most important to me is that the company has the ability to produce 200K kg. of cannabis yearly in a segment of the economy that has tremendous demand; Canada ran out of pot on the first day of legalization. Given TOGD’s ability to produce the amount of product they can, and the revenue they will be able to generate from that, I firmly believe that eventually the stock price will reflect the true potential of this company. It will take about a year, but I believe that TGOD’s stock price will see a sizable move higher from this.
Check out the articles in this category focused on cannabis stocks. By gaining a strong foundation in both the fundamentals and technical details usually involved in cannabis stocks, you’ll be able to invest with greater confidence.