When a cannabis company reports a strong cash position, investors in the sector are ecstatic. Green Organic Dutchman Holdings (TSX:TGOD) is seeing green, and this weed stock is rapidly taking over the marijuana industry. We’re finally hearing positive catalysts more than distressing ones.
Industry players, including the giants, are building out the production facilities and waiting to become operational. Also, bigger peers have higher valuations than TGOD. A company with a lower market cap has more room to grow when things go well. As earnings come, the price can be jacked up with lesser outstanding shares available.
Scalable leadership position
TGOD’s market cap is less than a million, but the company ranks number five in terms of potential growing capacity. About $450 million was sourced to date to construct the facilities that would yield 170,000-219,000 kilograms annually. The objective is to build a leading global organic cannabis brand.
Aurora Cannabis is a strategic investor with a $78 million investment in TGOD. There is an option to purchase 20% of TGOD’s high-quality organic product at wholesale prices. In a way, it’s a healthy competition with the largest cannabis producer. Besides, Aurora likes the regenerative and sustainable growing techniques of TGOD.
TGOD is estimating an annual production of 65,000 kilograms of cannabis from year-end 2019 to late 2021. By then, annual production capacity could be 219,000 kilograms. About 20% of the said total will be used in edibles and cannabis-infused beverages.
Organic has a premium
Organic has its place whether in food, beverages, and certainly in cannabis. Many analysts are not yet completely sold on TGOD. However, they are anticipating the company to hit the promised milestones when the big facilities are fully operational.
TGOD’s last-traded price is $3.21, and analysts have set the median target at $5.68 (+77%), although the potential upside could be as high as 183.4% or a climb to $9 in a year or so.
Analysts like TGOD’s play more than the bigger players. Certified organic products will have more value added than regular cannabis. Consumers would be willing to purchase them at a premium.
Last month, the internationally recognized leader in organic certification Pro-Cert issued an organic certification to TGOD’s flagship Valleyfield facility. This latest certification is the company’s third after the other facilities in Canada and Europe were issued the same certification.
CEO Brian Athaide knows where the company’s advantage lies. He said, “The proprietary methods our team has developed leverage the benefits of growing in living soil and guarantees the organic integrity of the products throughout the entire production chain.”
TGOD can grow certified organic cannabis at scale and will likely emerge as the leading global organic cannabis brand. But even with such a bright prospect, the cannabis industry might be consolidating soon. Given the relationship with the largest cannabis producer, TGOD is also a potential acquisition target.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.