TGOD stock has been tanking on the TSX this week. At its current selling price of $3.59, The Green Organic Dutchman (TSX:TGOD) dropped below its IPO price of $3.65 per share yesterday.
No doubt investors aren't going to be happy. It also doesn't help that Aurora Cannabis (TSX:ACB) (NYSE:ACB) has been divesting most of its TGOD shares in recent months. Why might that be?
TGOD Stock and Aurora Cannabis
In October, Aurora made an announcement saying it would not exercise its option to acquire more TGOD stock. This was despite being offered it at a discount rate to the then market price.
In fact, Aurora has actively been selling off what TGOD stock it does have, reducing its stake in the company to only 11%. Most recently, Aurora Cannabis sold 4.5 million shares at prices ranging between $2.48 to $2.62.
Now, Aurora only has 28.8 million shares left in TGOD in addition to 19.8 million warrants. But analysts believe the selling will only continue.
Shareholders Beware
According to Seeking Alpha, TGOD stock is now a risky play:
"It has become obvious that TGOD represents nothing but an equity investment at this point. In fact, Aurora's position in TGOD has gotten too large and too volatile at times [...] Aurora management is likely trying to cash out while it can in case TGOD continues to tank, which speaks to the lack of confidence from Aurora on this particular investment."
What's Happening at TGOD?
But why is The Green Organic Dutchman losing money for Aurora? One of the main reasons is a disappointing run in Canada in which the company has acted too slowly. TGOD failed to secure any supply agreements with Canadian provinces, and this is a necessity if you want to survive in this crowded space. It also missed construction deadlines on more than one occasion and now "does not expect to reach production until mid-2019."
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The Green Organic Dutchman's most recent quarter highlighted these issues as the company showed zero revenue and further delays on construction.
However, is there a light at the end of this dark tunnel? TGOD recently secured a cultivation license for Denmark. It may be too late to compete in Canada, but perhaps Europe will be the company's saving grace. There is something here for optimists to hold on to.
TGOD Stock: The Bottom Line
Is this a simple matter of keeping up with the pack? Where the industry has moved onto international markets and cannabis products such as beverages, TGOD still hasn't even secured distribution channels for its product in Canada when it (eventually) completes its facilities.
As one analyst puts it:
"TGOD was putting too much emphasis on its relationship with Aurora but the latter has left and had no ongoing obligation to keep bankrolling them."
Do you agree? Would you buy TGOD stock? Or will you, like Aurora Cannabis, be ditching the Dutchman?
Featured Image: Canva
