Is Green Organic Dutchman (TSX:TGOD) Really the Best Pot Stock for 2020?

Green Organic Dutchman Holdings Ltd (TSX:TGOD) stock has been hit hard this year, but it’s putting the pieces in place for a massive 2020.

edit Cannabis leaves of a plant on a dark background

Image source: Getty Images

Green Organic Dutchman Holdings (TSX:TGOD) was once one of the hottest stocks on the market. After debuting in mid-2018, shares almost immediately doubled in value. Investors were attracted to the rapidly evolving cannabis market, with analysts expecting global market sales for marijuana to hit $100 billion within a decade. Some forecasts eventually called for $200 billion in global sales, up from just a few billion at the time.

Since Green Organic had its IPO, much has changed. In 2019, the cannabis market is down more than 50%. The stocks of once-lauded competitors have been hit hard. Smaller companies are down 80% or more. This sudden downturn has caused many investors to jump ship, but if you know what’s really going on, you should be prepared to act.

All early stage markets go through difficult times. In reality, occasional downturns are healthy for the market. As the industry matures and consolidates, it can be helpful for investors to realign their expectations and reassess what will actually work over the long term.

This year, Green Organic has been pummeled just like every one of its competitors. Since March, the stock has lost an astounding 80% of its value. With a market cap of just $300 million, the company is being left for dead.

Note that industry-wide forecasts are still intact. Many respected analysts expect massive increases in cannabis demand over the next decade and beyond. Most sales growth expectations are between 20% and 30% per year. Market hype can change from year to year, even month to month, but eventually, the fundamental drivers of profits and cash flow will determine the stock prices of these companies.

If Green Organic can figure out how to capitalize, it could easily be the best-performing pot stock in 2020. Can the company really pull it off?

Adrift at sea

Last year, Aurora Cannabis, which was worth more than $10 billion, took a 17% stake in Green Organic. It also agreed to purchase 20% of Green Organic’s output. This deal was pivotal for Green Organic. It gave it a well-financed partner with proven expertise, plus a cornerstone customer to soak up its new output as well as vouch for its quality and consistency.

“Teaming up with Aurora, the industry’s innovation leader, provides us with a stable, supportive shareholder, through whom we have access to best-in-class technologies and industry know-how,” noted Green Organic executives at the time.

In 2019, it all fell apart, as Aurora sold its stake and cancelled its pot purchasing agreement. Green Organic was stripped of its partner’s resources and clout, not to mention its biggest customer. With nothing guaranteed, the stock has drifted lower and lower. It now has one of the cheapest valuations in the industry but also the most uncertainty.

Here’s the deal

According to management, Green Organic will have two production facilities online by the end of the year. It seems like the company is finally ready to generate real revenue, but without a cornerstone partner, it will likely be selling directly into a flooded market. Pricing is uncertain, but at least large volumes will be shipped.

This fiscal year, analysts expect Green Organic to generate around $20 million in revenue. Next year, that figure could approach $200 million, at which time the current stock price would be a steal. In order to get there, however, Green Organic will be at the whims of the market, hoping for reasonable pricing, ample demand, and lacklustre supply from its competitors.

This stock may be the best-performing cannabis company next year, but the factors for success are largely out of its control. Pot is still one of the best opportunities in Canadian investing history, but I’m sticking with better-positioned competitors.

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 Ryan Vanzo has no position in any stocks mentioned. 

More on Cannabis Stocks

Pot stocks are a riskier investment
Cannabis Stocks

The Single-Best Pot Stock to Buy in November 2022

Profitable pot stocks such as Green Thumb are well positioned to deliver market-beating gains to long-term investors in 2022 and…

Read more »

Cannabis smoke
Cannabis Stocks

These 3 Meme Stocks Could Have Legitimate Long-Term Upside

These meme stocks were once a volatile mess of share prices, but now are looking far more valuable these days.

Read more »

A cannabis plant grows.
Cannabis Stocks

5 Things to Know About Cannabis Stocks in November 2022

Cannabis stocks are on the move once more, with U.S. decriminalization and legalization potentially happening across the country.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

WEED Stock Skyrocketed 62% in 1 Week: Should You Invest?

WEED (TSX:WEED) stock surged 62% in the last week of October, so what's going on with this top pot stock?

Read more »

A cannabis plant grows.
Cannabis Stocks

2 Top Cannabis Stocks to Buy for the Long Haul

U.S.-based cannabis stocks such as Green Thumb and Cresco Labs are top bets for long-term investors with a high-risk appetite.

Read more »

Cannabis smoke
Cannabis Stocks

If I’d Invested $100 in WEED Stock at the Start of 2022, Here’s What I’d Have Now

Shares of Canopy Growth (TSX:WEED) stock are down 70% in 2022. Despite the pullback, it remains a high-risk investment.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Biden’s Pot Pardon: Where Will Canopy Growth Be in 5 Years?

Joe Biden’s big pro-cannabis push bodes well for Canopy Growth (TSX:WEED) and others this decade.

Read more »

A cannabis plant grows.
Cannabis Stocks

The Single Best Pot Stock to Buy in October

If you can take the wait, this pot stock could be well worth it in the next decade or more,…

Read more »