The analysts say the Canadian organic cannabis grower and producer is fully funded to capitalize on multiple international opportunities
Analysts at Canaccord Genuity initiated coverage of (TSX:TGOD, OTCQX:TGODF) Thursday with a price target that's double its current value and a Speculative Buy rating.
“The Green Organic Dutchman offers investors exposure to the Canadian organic cannabis market while also being well established and fully funded to capitalize on multiple international opportunities,” wrote Canaccord Genuity analysts Derek Dley, Matt Bottomley and Alexander Diakun.
The company recently launched its brand of organic cannabis, grown naturally in Canadian soil without the use of synthetic pesticides, herbicides or fertilizers and wrapped in eco-friendly packaging.
The new coverage sent Green Organic Dutchman shares flying 3.8% higher to C$3.85 on the Toronto Stock Exchange. Cannacord has set a C$7 target for the shares.
The analysts wrote that the licensed producer is fully funded with “$355 million in cash after including the impact of in-the-money warrants, to achieve annual capacity of approximately 195,000 kgs (excluding hemp production).”
“We estimate that Green Organic Dutchman’s fully funded production capacity translates to approximately $1.1-1.4 billion in annual revenue. While TGOD’s current focus is on increasing production capacity in Ontario and Quebec, we expect the company to be free cash flow positive in 2020 as it plans to build a portfolio of organic cannabis brands that will serve legal recreational and medical markets around the world,” wrote the analysts.
READ: Green Organic Dutchman receives medical sales license from Health Canada
The company’s laser-focus on organic cannabis products, they wrote, would allow it to develop a “differentiated brand positioning” from other cannabis producers. According to Hill and Knowlton, 43% of Canadian recreational cannabis consumers prefer organic cannabis.
“We expect the negative impact of consuming cannabis containing pesticides will continue to generate strong demand for organic product,” wrote the analysts.
“Additionally, we believe these customers who prefer organic products are "stickier" and less price elastic, basing consumption patterns on quality, not price. This has resulted in organic cannabis commanding a pricing premium of 29% as compared to regular cannabis, according to CannStandard. We expect this to continue as organic products typically command a pricing premium in excess of 25%,” it added.
The analysts applauded the company’s acquisition of HemPoland, a manufacturer of organic CBD oil with sales in 14 European countries.
“The Green Organic Dutchman has established a solid international footprint with operations in 17 countries across 2 continents. While cannabis regulation remains ambiguous globally, CBD oil is generally legal across Europe,” wrote the analysts.
“We believe TGOD's unique positioning as a provider of legal CBD in Europe provides the company with a first mover advantage, should further legalization of cannabis continue,” they added.
Contact Uttara Choudhury at [email protected]
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