Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF) Tumbles 90%: What’s Behind The Dive?

A nearly 90% pullback from its all-time highs has brought Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF) down to its record lows. The selloff in TGODF comes as Canada’s regulated cannabis industry struggles with a number of headwinds.

First, Canadian authorities aren’t approving the opening of new cannabis retail outlets fast enough. For instance, in Ontario, Canada’s most populous province with a population of more than 14 million people, there are just 24 cannabis shops. That means that while there is demand for cannabis in Canada, the shortage of shops, getting the products to customers remains a major challenge. In turn, that limits sales for cannabis producers like TGODF.

In addition to the shortage of cannabis shops, black market is another headwind that Canada’s regulated cannabis businesses like TGODF have run into. Experts estimates that black market accounts for 86% of cannabis sales in Canada, thereby chocking the regulated market.

In response to the sluggish development of Canada’s regulated cannabis market, which is caused by shortage of cannabis shops, TGODF has decided to slow down investment in its production capacity expansion.

Slowing down capacity expansion will see TGODF cut back on spending. In turn, the company expects this move and other actions in plans to take will reduce its cash burn and  set it firmly on the path to profitability in the near-term.

“With the current Canadian legal market being smaller than initially anticipated, mainly due to a slow rollout of retail locations in key provinces, we believe that our revised plan will allow TGOD [TGODF] to right size its production to capture the organic segment, while maintaining optionality to quickly accelerate and expand as more retail locations begin to open,” Brian Athaide, CEO of TGODF stated.

Even as it slows down capacity expansion, TGODF is preparing to take advantage of Canada’s expanded cannabis market. For example, the company plans to bring a range of new cannabis-related products in December. Moreover, TGODF plans to launch liquid beverages and topicals in 2020.

About TGODF

TGODF bills itself as a premium global organic cannabis products company. Initially focused on Canada’s medical cannabis market, TGODF has expanded into recreational cannabis market as well. In addition to Canada, TGODF also operates in Europe, the Caribbean, and Latin America.

Recent developments at TGODF

• TGODF entered the Ontario market to a rousing welcome. TGODF says initial demand for its premium organic cannabis products is exceeding expectation in Ontario. The company launched in Ontario at the end of August, with that marking its entry into Canada’s recreational cannabis market. Canada’s cannabis market is set to expand more in the coming months. The law legalizing sale of more recreational cannabis products such as vape pens took effect in Canada recently.

“We are thrilled to witness such strong sales and positive feedback from retailers and consumers across Ontario, Canada’s most populous province at 14.32 million people,” commented Brian Athaide, CEO of TGODF. 

• Pharmacokinetic study of a proprietary ingredient technology that TGODF intends to commercial returned positive results. The ingredient technology, called Caliper CBD, is owned by a firm known as Caliper Foods. Caliper CBD is a formulation that seeks to simplify adding cannabinoids to any food or beverage. TGODF and Caliper Foods plan to conduct more studies on Caliper CBD, including one that will involve a leading US academic institution. TGODF struck a deal with Caliper Foods to gain exclusive rights to commercialize Caliper CBD in Canada and other international markets outside the US.

“Caliper CBD provides a higher and faster absorption level…it opens a number of possibilities for both the medical and adult-use markets,” commented Rav Kumar, Chief Science Officer at TGODF.

• TGODF has changed some aspects of the agreement it struck with Aurora Cannabis (ACB). Consequently, TGODF expects the change to boost its revenue and profit margin because Aurora will no longer be entitled to take a cut of some of its cannabis products sales. TGODF said the agreement it had with Aurora helped it a lot during its initial development phase. However, changing that agreement became necessary as TGODF matures and its strategies evolve.

Bottom line

The selloff that has set TGODF to its record lows has nothing to do with the company’s fundamentals. TGODF is a victim of the general panic that has gripped Canada’s regulated cannabis industry over the headwinds we’ve discussed. If the measures TGODF has put in place to power its sales are anything to go by, then the pullback provides an opportunity to enter the stock at a steep discount.

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Disclosure: We have no position in TGODF and have not been compensated for this article.