Shares of The Green Organic Dutchman (TSX:TGOD) are trading at $0.99 and reached a record low of $0.97 yesterday. The stock has lost 83% in market value since March 2019. TGOD stock has declined 72% in the last three months.
TGOD has been impacted by overall weakness in the cannabis sector. Shares of cannabis giants such as Aurora Cannabis, Hexo, Aphria, and Canopy Growth are trading 65%, 75%, 61%, and 62%, respectively, from their 52-week highs.
We have seen cannabis stocks have been driven lower due to the overestimation of product demand as well as competition concerns from the illegal market in Canada.
TGOD lost over 50% in market value last month after the company announced that it is struggling to raise debt capital. Several banks in the U.S. are apprehensive to lend to marijuana companies, as the product is still illegal at a federal level.
TGOD was further impacted after Aurora Cannabis sold its 17% stake in the firm.
Has TGOD stock bottomed out?
After a massive decline in share prices in 2019, has TGOD stock bottomed out? TGOD stock went public in May 2018 and closed trading at $3.95 per share on May 4, 2018. The stock then rose to a record high of $8.25 in September last year, driven by rising optimism before recreational cannabis was legal in Canada.
This means that TGOD stock is trading 88% below its all-time-high price. The company is valued at $273 million in terms of market cap, or 10.3 times forward sales, which is in line with other cannabis peers. Analysts continue to remain optimistic and have a 12-month target price of $3.28, which is 231% from the current price. But what will drive the stock higher?
Last month, TGOD announced a strategic plan to reduce its financing requirements, which will lower capital expenditures, boost profits, and result in optimal production capacity. TGOD CEO Brian Athaide stated, “These actions are logical next steps in TGOD’s road to profitability. While we are committed to — and our strategy continues to leverage — our unparalleled scale as an organic producer as well as our international assets, we have identified areas where our scale would not provide for meaningful returns in the near term given the slower pace of legal market conversion.”
He added, “We will optimize our operating efficiency by deferring excess capacity and expenses, whether they center on production facilities, international expansion projects or technology.”
With the new plan, TGOD is expected to reach a positive operating cash flow in the second quarter of 2020. It will adopt a new construction and operating plan to reduce the capital requirement, which will drive cash flows higher.
TGOD, like several other cannabis players, also overestimated demand. However, as we know, marijuana is a highly regularized industry, and the slow rollout of retail locations in key provinces has impacted product demand. The revised plan will allow TGOD to optimize the demand with supply and right-size production facilities.
Upcoming quarterly results remain critical
TGOD is expected to announce its third-quarter results on November 14. Analysts expect the firm to post sales of $4.32 million with adjusted earnings per share of -$0.04. Investors will also closely be looking at its guidance for the December quarter and beyond.
TGOD is estimated to post sales of $26.38 million in 2019 with EPS of -$0.17. In 2020, the company’s sales are expected to rise by 572% to $177.3 million. Any significant deviation from these figures will send the stock lower.
Though cannabis-infused edibles, vapes, and concentrates have been legalized, they will be available on retail shelves starting mid-December. TGOD is ready to commercialize its portfolio of new products such as organic teas, vapes, and infusers.
TGOD is reportedly working with multiple co-packers to successfully launch liquid beverages and topicals in 2020, as Health Canada licenses these facilities.
