Shares of The Green Organic Dutchman (TSX:TGOD) fell over 3.3% on October 21, 2019. The stock is currently trading at $1.15, which is 80% below its 52-week high of $5.81. TGOD has almost 45% in market value this month and has burnt significant investor wealth.
TGOD investors have become increasingly wary of the stock ever since Aurora Cannabis sold its 10.5% stake in the company last month. On October 9, TGOD’s management also announced that it is struggling to raise debt capital on favourable terms resulting in a significant sell-off of company stock.
TGOD’s press release had then stated, “As previously disclosed, the company had been engaged in discussions for ordinary course commercial bank facilities and equipment leasing.
However, because of changing market conditions, those sources of financing have been unavailable on acceptable terms within the time frames required, leading the company to commence a review of additional alternatives.”
But if TGOD is unable to raise the required capital, it will have to revise the construction schedule of its licensed facilities at Ancaster and Valleyfield. TGOD’s Ancaster facility is close to competition and has supply agreements with Canadian provinces of Ontario, Alberta and British Columbia.
TGOD announced that debt capital will also be used ramp up production and build its product portfolio to be ready for cannabis 2.0. Cannabis-infused edibles, vapes, and concentrates will be available for retail purchase starting December 16, 2019.
Several cannabis companies are finding it difficult to raise debt funding from U.S.-based banks, as cannabis is still illegal at the federal level, and as a result, banks are unwilling to pump in millions of dollars.
TGOD will cut its capital expenditure
TGOD stock has been trading lower over the last two days after the company unveiled a strategic plan to reduce financing requirements and grow profitability as it continues to look for capital.
The company believes these plans will lower capital expenditure and result in optimal production capacity. TGOD is optimistic about achieving positive cash flow by the second quarter of fiscal 2020 (year ending in July).
It also stated that the Ancaster greenhouse is complete while the processing facility is five weeks away from completion. TGOD’s Valleyfield facility will be “demarcated into smaller phases, with more to be completed once the market further develops.”
These two facilities will increase TGOD production between 20,000 kilograms and 22,000 kilograms of cannabis in 2020. TGOD has also employed a strategic advisor to evaluate funding options and raise between $70 million and $80 million.
There’s a good chance that TGOD will have to dig into operating cash flow to fund its projects. It also claimed that it can raise funds after proven sales from the Ancaster facility. TGOD has attributed the lower capex forecast to the slow rollout of retail locations in major Canadian provinces — this forecast sent cannabis stocks lower on Friday.
The company like several other cannabis peers seems to have overestimated the legal marijuana market, which is struggling with cannibalization from illegal sellers.
TGOD ready for cannabis 2.0
TGOD has announced that it’s ready to commercialize cannabis-infused products such as organic teas, vapes and others by mid-December. It’s working with several co-packers to launch liquid beverages and topicals in 2020 after Health Canada licenses these facilities.
Will TGOD’s race to profitability result in a boost in stock price? Well, the company first needs to move closer to operating profitability in the October quarter to keep investors interested.
Analysts remain optimistic about TGOD stock with a 12-month price target of $3.28 for the stock, which is 185% above the current trading price.
