- Regulatory changes and shifting attitudes are contributing to the rapid growth of the legal cannabis sector
- According to a CIBC World Markets report, the industry has many representatives but only a few possess what it takes to dominate the new global market
- Management team strength, brand development, capital allocation, price target and distribution channel information can tell investors who the frontrunners in the industry are
- Based on these factors, The Green Organic Dutchman Holdings is shaping up as a leading entity to watch in 2019 and the years to come
As cannabis is rising to prominence, investors are turning their eyes to industry opportunities that have the best long-term potential. Currently, dozens of small and medium-sized businesses are generating moderate revenues, but only a few have what it takes to dominate the new global market, an Institutional Equity Research report by CIBC World Markets suggests.
The report pinpoints numerous factors that will influence the growth and development of industry representatives as cannabis continues gaining steam. These primary factors include a strong management team, strategy, capital allocation, brand development, distribution channels, price target and production and supply chain, among many others.
The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTCQX: TGODF), a cannabis-focused research and development company, ticks the boxes. For a start, the company has been working hard to strengthen its managerial team. On January 8, 2019, TGOD announced the addition of deep pharmaceutical and medical experience to the board of directors via the appointment of Dr. Caroline MacCallum and Jacques Dessureault (http://nnw.fm/Q63Jm).
MacCallum is a leading cannabinoid-based medicine expert who has published the results of numerous academic trials pertaining to the dosage, use and administration of medical cannabis. Dessureault is known for his extensive pharmaceutical career, including an international role with Novartis.
Also in January, the company appointed Dr. Rav Kumar as its chief science officer (http://nnw.fm/hcPw1). Kumar has over 25 years of experience in the pharmaceutical industry. His international experience in Europe, North America and Asia focused on discovery, formulation, development, quality and compliance. In 2017, Kumar received the Canadian Pharmaceutical Sciences award for leadership.
According to the CIBC World Markets report, strong management teams offer investors the best guidelines in terms of entities that have the potential to become global leaders.
The management’s vision for the future is much more important in this industry than a valuation, the report concludes. While a valuation is still relevant, it matters less than in other industries. It has had little effect on cannabis trading patterns, while regulatory change, external investment and demonstration of operational execution have established themselves as much more important factors.
The industry report also examines potential stock catalysts that are bound to impact the sector even further in the years to come.
Strengthening the Tenth Amendment through the Entrusting States Act (STATES Act) is expected to be the likeliest path to de facto national legalization of cannabis in the United States. Deliberations are set to begin in 2019, potentially contributing to approval in 2020. The aim of the act is to legalize the possession, manufacturing and distribution of cannabis wherever such activities have been authorized by state law. Thus, if usage is permitted on a state level, it would also be granted on a federal level.
The Federal Farm Bill in the U.S. is yet another major step forward. The Federal Farm Bill removed hemp from the list of controlled substances, as long as the THC content remained below 0.3 percent. Complete removal is anticipated, and steps toward this major regulatory shift are expected in 2019 and throughout 2020.
A Global Shift
Progress isn’t just being made in North America. Several important milestones have also been hit globally.
Countries across the globe are starting to redefine their drug policies in an attempt to root out underground economies. A changing public opinion toward the use of cannabis products is also impacting decision-makers.
According to the industry report, countries like Germany, Colombia, Argentina and England will possibly introduce major policy changes in 2019 to ensure adult-use legalization. The report creators believe that Canadian companies who have already passed through a nationwide legislative reform may have an advantage in such international settings.
A final driver for change is the constant influx of information pertaining to the uses and the benefits of cannabis.
Multiple clinical trials are currently in the process of execution, and they’ll begin generating data in the very near future. Significant discoveries are anticipated, shaping up public opinions and fueling regulatory change even further.
As bans are lifted and medical research is carried out, discoveries will benefit cannabis producers. Until now, the medicinal benefits of cannabis had been supported predominantly by anecdotal evidence – a fact that’s rapidly changing.
The report concludes that the future of the industry is bright, regardless of the fact that various challenges are yet to be overcome. It is currently difficult to develop recognizable brands in Canada because of Health Canada advertising and labeling restrictions. There are also product limitations suggesting that companies are stuck within a limited scope of possibilities.
More developed markets, however, do matter, and they do provide chances for growth.
TGOD Eyeing International Markets
Canadian companies like The Green Organic Dutchman are already pursuing international opportunities.
On January 25, 2019, TGOD announced a definitive agreement for the launch of European production. The agreement with Queen Genetics/Knud Jepsen A/S establishes joint ventures in Denmark with a goal of expanding production into future low-cost European jurisdictions (http://nnw.fm/vDv4C).
In October 2018, a HemPoland acquisition was finalized, further enabling the company to expand its international footprint. TGOD has also invested in Jamaica, as well as in Mexico.
Via these strategic partnerships and acquisitions, TGOD is expecting its annual capacity across Canada and Jamaica to reach 170,000 kilograms. The hemp capacity in Poland will contribute even further to the company’s international advantage.
The Green Organic Dutchman is a premium organic cannabis company focusing on the legal recreational and medicinal markets in Canada, Latin America and Europe. Sustainable, all-natural principles are the heart of the company’s corporate philosophy, with all TGOD products being laboratory-tested to ensure quality.
Emerging Industry Leaders
The CIBC World Markets report lists three other cannabis companies among the most likely to secure dominating positions on the global market: Canopy Growth Corporation (TSX: WEED) (NYSE: CGC), Cronos Group Inc. (TSX.V: MJN) (OTC: PRMCF) and Aphria Inc. (TSX: APHA) (NYSE: APHA). CIBC has initiated coverage of all three starting January 17. The report notes that Canopy and Cronos are likely to become leaders in their global fields, mostly due to their strong management, while Aphria, although a manufacturing and automation expert, may face some problems related to capital allocation and corporate governance, which could deter investors.
Canopy Growth, the first North American cannabis company to be publicly traded, is a diversified hemp and cannabis organization that offers a wide range of distinct brands and products. The company operates in more than 15 countries across five continents and runs 10 licensed cannabis production facilities with a production capacity of over 4.3 million square feet, including 500,000 square feet of GMP certified production space. With a declared goal of becoming the number one cannabis company in the world, Canopy Growth is also dedicated to educating the public, as well as health care practitioners, about the benefits of cannabis via robust clinical research, product and process innovation and state-of-the-art market execution.
Cronos Group, a globally diversified and vertically integrated cannabis company, operates across five continents via multiple international production and distribution platforms. The company also runs two wholly owned Canadian licensed producers under Health Canada’s Access to Cannabis for Medical Purposes Regulations. Cronos Group’s goal is to create the most valuable international cannabis community and set best practices in the field by building industry-leading companies and an iconic international brand portfolio while developing disruptive intellectual property.
Aphria, one of the earlier Canadian licensed producers, has a strong commitment to innovation and product quality at a low cost. The company works continuously to bring breakthrough innovation to the global cannabis market and to set the standard for the low-cost production of clean and safe pharmaceutical-grade cannabis. Aphria operates in more than 10 countries across five continents and is dedicated to meeting the needs of every consumer segment while building sustainable shareholder value via its diversified approach to global expansion, innovation and strategic partnerships.
Alongside The Green Organic Dutchman, these companies are likely to become dominant forces in the cannabis market, both nationally and worldwide, due to their strong commitments to innovation, education and global expansion. With powerful brand portfolios and an impressive international reach, each of these companies could provide significant shareholder value for the foreseeable future.
For more information, visit the company’s website at www.TGOD.ca
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