Since the start of the year, the cannabis industry has been facing many challenges. Analyst downgrades for industry-leading Canopy Growth, regulatory problems created by CannTrust, and dismal quarterly earnings reports from Aurora Cannabis all contributed to the industry’s problems.
The impending Cannabis 2.0 legalization created positive sentiment among investors for the industry’s prospects. While a lot of investors are wary of the cannabis industry due to the industry’s performance following last year’s legalization, there are still plenty of investors who were hopeful about Cannabis 2.0. Of course, that has changed amid further bad news.
The optimism in anticipation for further legalization turned sour, as the deaths of 14 people in the U.S. were blamed on the use of vaping products. At least one of the deaths that occurred was attributed to the use of cannabis vapes, and the latest development has rightly concerned investors.
Despite the negative news, all major cannabis companies in Canada are investing in the development of a slew of cannabis-related products, including vapes. Share prices across the board are trading at 52-week lows for most companies. But, there is one stock that I feel might have overcorrected, and it could be due for a bounce back to better valuation.
The Green Organic Dutchman (TSX:TGOD) shares have declined quite a bit in the last month. Let’s take a look at this stock to see whether or not the TGOD shares from could be a good buy for you in October 2019.
The Green Organic Dutchman
Trading at $2.03 per share at the time of writing, Green Organic stocks are down 32.42% from last month. The current price of TGOD stocks is down 68.42% from this point last year, and the company’s shares have lost a significant portion of their value. There are several reasons why Green Organic stocks continue to underperform compared to other cannabis companies.
The first and perhaps the most crucial reason is Aurora Cannabis’ liquidation of their 10.5% stake in TGOD early in September. The second reason why TGOD went on a decline is Aurora’s decision to terminate the option to buy 20% of TGOD’s production of cannabis. The sale of ACB’s stake in Green Organic created a flood of sell-offs.
The sell-offs triggered even more selling by triggering stop-losses. All of these factors created the kind of situation that TGOD could not find a way out of. So is TGOD possibly a good buy for investors interested in the cannabis industry?
A cheap buy, but not a good one
Despite the massive sell-offs, I don’t think that the Green Organic stock did oversell through September. While TGOD did not oversell, the shares did approach a 52-week low, and that makes the company’s shares an enticing buy for investors. A robust quarterly performance, which shows significant sales growth can be excellent news for TGOD.
The company says that the demand for TGOD’s premium cannabis products is high, and the feedback from shipments sent to the Ontario Cannabis Store is excellent. With this move, Green Organic is finally prepared to make a big splash in the recreational use marijuana market. A strong response by the recreational market could get TGOD out of trouble.
To answer whether or not Green Organic is a good buy, is a simple no, in my opinion. I do not think that TGOD is a good buy right now, despite the seemingly cheap $2.05 per share price. TGOD expects positive results and a stable outlook from the performance in the recreational market.
Investors, however, need to see that positive performance for themselves in the company’s quarterly earnings reports. There is a slight chance we might see the company rally. It all depends on the company’s release of financial results from the next fiscal quarter projected for release in November 2019.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned.