Green Organic Dutchman (TGODF): The Risk/Reward Is Attractive

Green Organic Dutchman (TGODF) is one of those cannabis stocks that it seems either investors love or hate. Even those who give some props to the company, it is usually presented in a way that the negative catalysts outweigh the positive catalysts.

Most of that comes from the lack of revenue as a result of the company building out facilities that, for the most part, have yet to become operational.

That is rapidly changing. The company estimates it should produce about 65,000 kilograms of cannabis a year by the end of 2019, and by the latter part of 2021, it guides for production capacity to soar to 219,000 kilograms a year. That would place it in the top 5 of Canadian producers as they stand today.

Of that total, about 20 percent will be used in edibles and infused beverages.

Negative catalysts

There are several key negative catalyst that have been expressed toward Green Organic, including lagging its competitors in implementing its strategy, uncertainty in regard to whether or not the beverages and edibles market will be as robust as expected, and the suggestion its plans may be too ambitious.

As far as falling behind the general market, I'm not as concerned here as I would be with most other cannabis producers. The major reason for that is it's competing in the specialized premium organic pot market. That market is in earlier stages than the general recreational and medical cannabis markets, so it isn't as important to garner share as quickly as companies that compete in multiple segments of the cannabis market. Demand from organic cannabis users will seek out quantity and quality, and Green Organic Dutchman, once it starts delivering product at significant levels, should be very attractive to that market.

Concerning beverages and edibles, that is a legitimate concern. That said, the Canadian market is different than the American market, which has struggled because of mixed signals from authorities concerning infused drinks and edibles. Canada is probably going to be a lot clearer in those areas because of being more accepting of cannabis in general.

As for its plans being too ambitious, I don't see that as an issue. Those that end up being market leaders on the production side of the business are going to have to produce a lot of cannabis to enjoy the flexibility it offers them. I don't see how, over time, the smaller producers are going to be able to survive once recreational cannabis demand approaches a ceiling.

Overall, the major problem I see for Green Organic is it simply has to show the market what it can do. That means it'll take patience to see how the company is able to perform once it starts generating revenue.

Positive catalysts

Probably the most important positive catalyst for Green Organic is its business model itself. The decision to compete primarily in the premium organic segment at a high production level does set it apart from most of its competition.

Once it ramps up production, and assuming it can sell at wide margins and generate positive earnings and cash flow, it will be rewarded by investors. It doesn't even have to do that immediately; it only has to show it's clearly heading in that direction.

Another huge positive catalyst for Green Organic is its expanding international presence, which is seems many financial pundit, writers and commentators aren't aware of or are discounting at this point.