The Green Organic Dutchman – What a Week

by JDH on November 3, 2018

The market for cannabis stocks in Canada has been, to put in mildly, a roller coaster, and no stock exemplifies this more than TGOD.TO – The Green Organic Dutchman.

It started trading after it’s IPO at around $3.50 in May, bounced to $8 in June, pulled back to $5 in August, and then hit $10 in September.

On Friday the low for the day was $2.45

What the hell happened?

Allow me to explain.

The hype in advance of legalization on October 17 drove all pot stocks to unrealistic highs, with TGOD being no exception.  It was not worth $10 in the summer.

When legalization happened, the world realized that legalization was only the first step.  Producers have to actually produce the stuff, and at the moment the supply is limited.  Numerous news reports indicate that customers are waiting weeks from when they place their order with the legal dispensaries to get their orders. Rotating strikes by Canada Post aren’t helping.

It was a classic case of “buy on rumor, sell on news”.  Legalization was the reason to sell, and everyone did.

But there is more to the TGOD story than that.

Their IPO in May contained a 6 month hold period for all original investors (all of whom purchased their initial shares for a lot less than the $3.65 IPO price).  The hold period expired and the shares became free trading on Friday November 2.

Who was the biggest shareholder?

Aurora Cannabis Inc.

According to TGOD:

Aurora’s investment portfolio was valued at approximately $698.6(1) million of which TGOD accounted for a significant portion, approximately 55%. The recent sale of shares represents a fraction of their TGOD ownership and they still own approximately 15% of our Company on a fully diluted basis. Aurora remains our single largest shareholder and an important partner. They currently own 33,333,334 common shares and 19,837,292 warrants totaling 53,170,626 shares and warrants.

So Aurora didn’t want to have 55% of their portfolio tied up in one company; that’s not great diversification, so when their shares became free trading, they dumped them, which cratered the stock price.  (Probably would have made more sense to sell at a slower pace, but that’s not for me to say).

TGOD is certainly worth more than $2.50, so the smart guys saw a great opportunity, and started buying, so by the end of the day TGOD closed at $3.49.

So what is TGOD worth?

Cannacord has a $7 target price, based on forward earnings.  It was higher than that two months ago, so that seems conservative to me.

I was a buyer on Friday, and I already have a large holding, and I plan to continue to hold into 2019 when their Ancaster facility is fully operational.

These are early days, my friends.

The bubble may appear to have burst, but the production has yet to begin, and there will be real value.

So, if you want a double, by it now.

Or not, I don’t give investment advice, I just write this silly little blog, so govern yourselves accordingly.

Thanks for reading; more next week.