Spoiler Alert: The Green Organic Dutchman Beats the Shit Out of Aphria and Canopy!
Today, Marketwatch reported “Cannabis stocks were a sea of red on Monday, weighed down by Aphria Inc. after it swung to a wide loss in the third quarter that outweighed a surge in revenue.” “Aphria Inc. slid as much as 16 percent Monday, the most since early December when the cannabis company was under attack by short-sellers, after reporting a writedown and revenue that missed expectations.
The company’s results for the quarter ended Feb. 28 included a significant reduction in gross margin, to 18 percent from 47 percent in the prior quarter, and a decrease in kilograms sold. This was partly due to packaging and distribution challenges in the early days of Canada’s legal recreational pot market, and a transition to new growing methods.
Investors shouldn’t expect much change in the company’s next quarterly report, the Leamington, Ontario-based pot producer cautioned Monday. Aphria is investing in automation and the development of new growing facilities, but said those won’t take effect until the “mid term.” The company expects to reach C$1 billion in annualized revenueby the end of calendar 2020 as new growing facilities come online, up from an estimated C$218 million in the fiscal year ended May 31
Aphria booked a C$50 million ($38 million) non-cash charge on the value of its Latin American assets, the main subject of the short-seller allegations which accused Aphria of paying inflated prices to buy assets from insiders. An impairment test, which was requested by the Ontario Securities Commission, found that the assets had lower margins and higher-than-expected expenses than originally forecast.”. — Bloomberg
“Aphria’s earnings show a quarterly loss exceeding $100 million, negative margins, decreased production volume, regulatory scrutiny and a large write off for its Latin American acquisition, which we think will be the first of many,” Gabriel Grego of Quintessential told MarketWatch on Monday.
“As our research showed, the company’s actual performance was not what they were telling the market. We respect the new management team, which is undertaking the challenging job of fixing the dire situation left behind by their predecessors.”” — Marketwatch
“First of all, the company seems to be setting up, if our thesis is correct, for a giant asset write off,” said the founder of Quintessential Capital. “We believe they’re going to have a hard time raising new cash, and of course long-term the survival of the company depends on cash’s oxygen.”
With glaring governance issues, there’s no need to take a risk with Aphria stock, especially since another pot stock gives you even better upside at a discounted price. Green Organic Dutchman is better positioned.
If you’re looking to buy Aphria or Green Organic Dutchman stock, the latter appears to be the clear winner”! — Motleyfool
“Canada-based Canopy Growth Corp (WEED:TSX) is the largest cannabis company on the stock market today. I first heard about Canopy in 2014 when they purchased the abandoned Hershey’s chocolate factory in Smiths Falls, Canada and turned it into a massive greenhouse for growing medicinal cannabis. Their share price was hovering around $2 at that time, and what a ride it’s been for investors with the share price reaching a high of $67.74 in October last year just before legalization in Canada. Today, it opened at $55.74. With popular brands like Tokyo Smoke and Tweed, Canopy is well-positioned to blaze a trail in the now-legal recreational market. Alcohol maker Constellation Brands, who we profiled in our St. Patrick’s Day showdown, recently made a USD$4 billion investment in Canopy.
But how sustainable is Canopy? Not very, according to this report from sustainable investment research firm Sustainalytics. Canopy scored poorly on several measures, including energy intensity and the use of pesticides. Canopy does not publish an annual sustainability report, so lots of important data goes unreported. A quick look at their Corporate Social Responsibility webpage shows a focus on educational partnerships with groups like Mothers Against Drunk Driving (MADD) and the Canadian AIDS Society, which is laudable. However, the only environmental initiative I found was a partnership with TerraCycle to develop recyclable packaging. With a lot of question marks around energy/water consumption and a lack of policies that ensure safe growing practices, investors have cause to be paranoid.
A much smaller Canadian company, The Green Organic Dutchman (TGOD:TSX) is a medicinal cannabis producer that only grows certified organic product. It, too, has yet to deliver a formal sustainability report to date, but they do publish specific sustainable principles like recyclable packaging (their glass jars should avoid the overpackaging backlash that Ontario Cannabis Store products have faced), and a commitment to efficient technologies like heat transfer and water reuse. Most importantly, all of The Green Organic Dutchman’s farms and greenhouses are certified organic. They’ve just started selling to medicinal customers and have short-term plans to enter the recreational market. Sadly, stoners won’t be able to smoke a legal organic joint from TGOD this weekend.
You’ll notice on our scorecard (below) that both companies have pretty high CEO-to-worker-pay ratios, but Canopy’s has definitely raised eyebrows. Canopy’s CEO Bruce Linton collected over $6 million in total compensation in 2017, equivalent to 15% of the company’s $40 million revenue that year. Love that TGOD’s CEO pay was only $1 in 2018, but some will argue that the $2.5 million in shares he earned as a bonus that year tipped the scales, considering the company had yet to earn any revenue or launch their IPO. In contrast, the median total compensation of 101 other high-growth companies at IPO (including Linkedin, Yelp, and Google) was US $564,000 (C$750,000), according to Crunchbase.
There’s no doubt that The Green Organic Dutchman wins this week’s Sustainable Stock Showdown, but a big question remains. Will cannabis consumers live up to their tree-hugging stereotype? If so, then I expect the organic certification to be valuable as consumers should be willing to pay more for The Green Organic Dutchman’s product”. — Corporateknights
Who’s left to compare against TGOD? Tilray? Don’t make me laugh! My thought is, if it’s on CNBC everyday being hyped by Cramer and friends, stay away! Fuck those guys.
As time goes on and people realize they’ve accidentally or purposefully hopped aboard a hype train running out of power, investors will likely shift their allocations to something they see more potential in.
Potential can be broken down into many different things like management, capacity, revenues, etc. Every investor has to “do their own DD” in each case. Place your bets blindly and you’ll likely be swindled (Aphria).
The short term bullish catalysts for TGOD include the finalization of the Hamilton expansion approval on April 25th and Q1 earnings report on May 14th. There’s also a plethora of news that could come out regarding TGOD’s current partnerships, Joint Ventures, TGOD Acquisitions, and perhaps most anticipated, their Beverage Division.
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