Once its expansion is complete, Canadian marijuana stock Green Organic Dutchman Holdings Ltd. (TSX:TGOD) is expected to be ranked among the Top 5 cannabis producers in Canada
SmallCapPower | June 6, 2018: Green Organic Dutchman Holdings Ltd. (TSX:TGOD), a Canadian marijuana stock listed on May 2, 2018, is one of the more recent entrants into the Canadian cannabis space. Green Organic Dutchman is planning a massive 970,000 sq. ft. of cultivation facilities in Ontario and Quebec for a total annual capacity of 116,000 kg by H1 2019, which would make it one of the largest cannabis producers in Canada.
Shares of Green Organic Dutchman have soared more 92% from its IPO price of $3.65 and are currently trading at $6.99 per share. With an established niche in the organic production of cannabis, coupled with an assured supply offtake agreement with Aurora Cannabis for 20% of its future production capacity of more than 100,000 kgs annually, Green Organic Dutchman is well positioned to ride the recreational cannabis opportunity.
Investment thesis
- Global leader in organic cannabis
- R&D facilities to generate diverse product offerings
- Massive expansion underway
Leader in organic cannabis
One of the key differentiators of The Green Organic Dutchman is its niche in producing quality organic cannabis with sustainable all-natural principles. An ACPMR licensee, Green Organic Dutchman is focused exclusively on organic production that avoids synthetic pesticides, synthetic fertilizers, and/or irradiated products.
Organic foods, including organic cannabis, is a growing market in Canada and globally. According to a survey conducted by Hill + Knowlton Strategies, more than 60% of Canadian consumers considering recreational cannabis believe that consuming organically-grown product is important. Due to the safety aspect, organic products command a nearly 30% price premium over non-organic products. Today, Green Organic Dutchman produces organic cannabis production at its facilities in Ancaster, Ontario, which recently (May 18, 2018) received organic certification from Ecocert Canada.
Low-cost production through strategic partnerships and lower energy solutions
Along with its organic production capabilities, Green Organic Dutchman boasts low-cost production owing to its geographical location, as well as partnerships with key players. One of the Company’s facilities is located in Quebec, home to the lowest power rates in Canada. In addition, TGOD has been granted an economic development rate by Hydro Quebec.
Among key alliances, Green Organic Dutchman has partnered with Hamilton Utilities Corp. for power recycling and Aurora Larssen Projects Inc. for design and consulting. TGOD is also working on a hybrid facility that, once completed, will be capable of precise control of light, heat, humidity and nutrients to produce low-cost, high-quality cannabis.
Alliance Partners
R&D facilities to generate diverse product offerings
Green Organic Dutchman is planning four standalone R&D facilities that would generate diverse product offerings and an IP portfolio. In 2018, the Company completed an oil extraction facility in Ontario (January 2018) and received an oil extraction license (May 2018). The genetics and breeding facility in Quebec is expected to be completed in Q2 2018. The cultivation facilities in Quebec and Ontario are expected to be completed in late 2018 and early 2019.
Expansion underway
To prepare for the impending Canadian recreational cannabis opportunity, Green Organic Dutchman is planning 970,000 sq. ft. of combined facilities that would produce 116,000 kg of cannabis annually. The existing facility at Hamilton, Ontario will be expanded to 150,000 sq. ft. for a total annual production of 14,000 kgs. TGOD has already received a cultivation license in August 2016 and a sales license in August 2017 for the Hamilton facility. In addition, a new 820,000 sq.ft facility will be built on a 72.4-acre property at Valleyfield, Quebec and initial construction permits were granted in December 2017. Both of these facilities are expected to be completed in H1 2019. Once completed, Green Organic Dutchman is expected to be ranked among the Top 5 cannabis producers in Canada.
Production capacity timeline
Purchase agreement with Aurora Cannabis assures supply offtake: Aurora Cannabis, the second-largest cannabis producer in Canada, holds a strategic 17.5% investment in Green Organic Dutchman, including a purchase order for 20% of TGOD’s future production. Additionally, Aurora may support any future capital requirements of The Green Organic Dutchman.
Consumer packaged goods
TGOD’s long-term goal is to become a vertically-integrated producer of cannabis, from strains to oils to edibles and beverages. As part of this strategy, most notably, Green Organic Dutchman recently entered into licensing agreements with Stillwater Brands to license Ripple SC (soluble Cannabinoids) and Beverage & Food Technologies and with CBx Enterprises LLC for Evolab and CBx Sciences.
Outlook and valuation
With an established niche in the organic production of cannabis coupled with an assured supply offtake agreement for 20% of its future production capacity of more than 100,000 kgs annually, Green Organic Dutchman is well positioned to ride the recreational cannabis opportunity. At its current market cap of $1.06 billion, The Green Organic Dutchman could deliver superior returns owing to its competitive advantage in organic production and assured supply offtake.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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