Stay patient on The Green Organic Dutchman $TGOD
Question: “I invested in The Green Organic Dutchman #TSX: $TGOD. I own a lot of shares (for me) and it hasn’t worked out as the price has gone down. Any advice?”
Vancouver, Washington, USA.
Answer: “In the stock market, certain patterns can develop that provide opportunities for a short period of a year or two. With the cannabis stocks, one such pattern involves companies that are going public for the first time. The shares move up rapidly in price when first listed and after a period of four to eight months, the price has come back down again. I can think of several companies that have had this experience.
Part of it stems from the fact that investors recognize the pattern and try to profit from it. So they become aggressive buyers of new issues. Part of it stems from the fact that the issuing companies realize what is happening and they also take steps to ensure it happens because they prefer to have their newly issued shares well received with a rising share price. Companies will make sure there is lots of publicity surrounding their company at the outset and they will also try to restrict the ability of existing shareholders to sell.
Perhaps the best recent example is Tilray #NASDAQ: $TLRY, a company we discussed recently. As we reported in Let’s Toke Business on July 20, 2018, TLRY went public with some 90 million shares outstanding. Of this amount, approximately 81 million or 90% are owned by Privateer Holdings, the controlling shareholder, and 10 hedge funds that all agreed not to sell for six months. So, in fact, there are only around 9 million shares that can be traded currently. Brendan Kennedy, the Chief Executive Officer of TLRY did a series of road show presentations prior to going public holding hundreds of meetings in 15 cities on four continents to drum up interest. The Company planned an Initial Public Offering (IPO) as part of the going public process and reported to the U.S. Securities and Exchange Commission (SEC) the expected pricing was US $14 to US $16 per share. The offer was priced at $17 and opened for trading at $23.05 and closed the following day at US $29.77 per share. But the hedge funds (typically not your most loyal shareholders) will be able to sell their shares just after New Year’s. We suspect they will begin selling as soon as they can and being financially sophisticated, they may figure out how to sell earlier. At that point an under-supply of stock relative to demand could well become an over-supply.
Back in May 2018 when TGOD started trading, we were considering writing them up to let our readers know we thought this was an excellent investment opportunity. But we decided to pass because the stock had already gone up a lot. The shares started trading around $4 and by the time we started doing due diligence the price had risen to the $5 to $6 range and would eventually reach nearly $8 a share. Since then it has trickled back to just over $5 per share. From our perspective, we might recommend them after Labour Day when we anticipate the cannabis stocks will be performing better. We thought TGOD was an excellent company in June and we still think that way. Now that the stock is returning to a more reasonable price, don’t be surprised to see us talking about the company more actively. So our advice? Hang on! We expect things to work out well for you.