Just over halfway through the first month of the new year, and we're starting to get a clearer picture of how the cannabis market might shape up in 2020. Over the last 12 months, we have seen pot stocks soar to new highs in the early days of the nascent industry and subsequently come crashing back down to earth as scandals, supply, and a host of other problems threaten to derail even some of the biggest hitters in the market. TGOD stock was one such pot stock where this rings true, but has The Green Organic Dutchman (TSX:TGOD) (OTCQX:TGODF) finally hit rock bottom?
TGOD Stock in 2019
The Ontario-based pot producer saw its share price rocket to a peak of $5.50 in March, despite being ditched by Aurora Cannabis (TSX:ACB) (NYSE:ACB), as it pursued an aggressive capacity expansion policy in an effort to bring its total annual capacity to 219,000 kilograms by the end of 2020. TGOD stock remained a favorite of investors in the early months of summer, despite a broader downtrend in the cannabis market off the back of the CannTrust (TSX:TRST) (NYSE:CTST) scandal and the ousting of Bruce Linton from Canopy Growth (TSX:WEED) (NYSE:CGC) as its losses spiraled above US$1 billion.
While the lack of supply was an issue in the early days of legal cannabis, with Canada nearly running out of product within the first few days, the inverse became true in the ensuing months. Like The Green Organic Dutchman, almost every other major player in the field was busy building massive cultivation facilities to produce as much cannabis as possible, to the point where supply outstripped demand by about 30:1 in August. By this time, TGOD stock had fallen nearly 45% from that March peak to around $3.00.
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This is where TGOD's strategy of building as much cultivation space as quickly as possible came back to bite it in the bud. With a massive amount of capital spent building its facilities in Ancaster and Valleyfield, but cannabis sales stagnating, the company quickly began to run out of money to finish these sites. This led it to segment the construction of the Valleyfield facility and seek a sale-leaseback agreement on the Ancaster facility. By December 30, TGOD shares were trading for just $0.66.
The Case for 2020
With financing secured for the Ancaster facility, The Green Organic Dutchman moved to streamline its leadership earlier this month as part of "a comprehensive review of our operations to reduce costs and improve cash flow," which will "result in significant G&A savings and a leaner more efficient organization," according to CEO Brian Athaide. With the launch of its new cannabis 2.o portfolio, Athaide expects his firm "to be one of the first cash flow positive cannabis companies as early as second quarter of 2020."
Will this year prove more fruitful for holders of TGOD stock? What do you think?
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