With marijuana stocks suffering significant losses this year and the Canadian cannabis market about to open up to a new wave of products, the opportunity could be ripe for investors to scoop up some great deals today. Edibles and derivative marijuana products will start arriving on store shelves in December, and that could give some companies a big boost next year.
One stock that could have a much better year in 2020 is The Green Organic Dutchman Holdings (TGOD.F -55.05%). In just the last six months, more than 75% of the stock's value has been erased, and it's hard to imagine next year being much rougher for the company. The Green Organic Dutchman has been performing significantly worse than its larger peers, and this chart shows just how big the disparity has been since September:
Why has TGOD struggled so much?
While the stock has definitely been impacted by the headwinds facing the industry, with investors showing more conservatism of late, what sent TGOD over a cliff was when Aurora Cannabis (ACB 18.15%) sold its remaining shares of the company. A flood of shares hitting the open markets made a bad situation worse for TGOD, sending the stock into even more of a tailspin. But that wasn't the end of the bad news; in October, the company said it was having trouble obtaining acceptable financing that it needs in order to finish construction at two of its facilities and that it would be reviewing "additional alternatives."
Image Source: Getty Images.
The stock is the lowest it has been since going public in May 2018, and there's been no sign yet that things have stabilized.
Why things could get better
As bad as The Green Organic Dutchman may look today, there's reason to be optimistic that the stock can recover from this epic fall.
For one thing, funding may become easier if the company's application to list on the Nasdaq is successful, giving it a way to reach more investors. Currently, the stock is listed on the Toronto Stock Exchange and the over-the-counter market.
However, the company is also taking steps to lessen its financing needs. In a recent press release, management stated that it plans to be cash flow positive from its operations as early as Q2 2020. The goal is clear: cutting back on any unnecessary expenditures. CEO Brian Athaide said the company "will optimize our operating efficiency by deferring excess capacity and expenses, whether they center on production facilities, international expansion projects or technology."
One of the areas in which the company has noted an opportunity to reduce spending is selling, general, and administrative (SG&A) costs. Over the past four quarters, SG&A has totaled more than 59 million Canadian dollars, representing more than 93% of operating expenses.
The other focus for the company will be on getting ready for the launch of the cannabis 2.0 market, which could open some significant opportunities for TGOD.
Many new products ready to go
One way the company will be able to get investors excited about the stock is to make its numbers look a lot better than they are today. Not only is the company unprofitable, but sales of CA$7.2 million over the past 12 months just aren't going to cut it. That's why the launch of cannabis 2.0 is going to be crucial. Vapes, teas, and infusers present many new growth opportunities that could help both the top and bottom lines.
And once the construction of its facilities is completed, TGOD could become a big producer very soon. Combined, the company's facilities in Ancaster and Valleyfield are expected to produce as much as 22,000 kg worth of cannabis next year.
What this means for investors
There's definitely some risk involved with investing in The Green Organic Dutchman and other marijuana stocks today. There's a danger that the stock could continue to sink lower, as the bearishness in the markets simply isn't subsiding. But over the long term, TGOD could be setting itself up for some big gains later on. At well under $1 per share today, the stock could be a steal of a deal, especially given its potential.
