This Pot Stock Carries an Extraordinary Amount of Risk

After years of promises and months of debate, the wait is nearly over in Canada. In 22 days, on Oct. 17, recreational marijuana will go on sale in licensed dispensaries in our neighbor to the north to adults aged 18 or 19 and older (depending on the province). When legal, the expectation is that demand will be robust and growth will be off the charts, resulting in potentially billions of dollars in added annual revenue.

But as we investors know from following any industry, there will be winners and losers. As we creep closer to the all-important legalization date, one pot stock that’s currently lugging around a nearly $1.8 billion valuation looks downright risky, despite the major role it’s expected to play within the industry…

This marijuana stock has seen plenty of green up to this point…

The Green Organic Dutchman (NASDAQOTH:TGODF) made waves earlier this year with one of the largest pot-based initial public offerings in history. What’s made the company so intriguing to investors are its aggressive capacity expansion plans, its product diversity, and speculative dealmaking potential.

When The Green Organic Dutchman debuted, management cued in Wall Street to expect 116,000 kilograms of peak annual production. This included 102,000 kilograms a year from its Quebec project, and 14,000 kilograms once its Ontario project is complete. Then June hit, and TGOD, as the company is also known, made three capacity-changing announcements in a span of less than two weeks. A partnership with Jamaica’s Epican Medicinals, announced plans to build a division devoted to beverages and edibles, and a partnership with Queen Genetics/Knud Jepsen in Denmark will boost peak production to an estimated 195,000 kilograms a year. That would make TGOD the No. 4 grower in Canada.

Secondly, but also building on the previous point, The Green Organic Dutchman is constructing a 287,245-square-foot facility that it’ll devote to edibles and cannabis-infused beverages. Since we’ve witnessed numerous examples of dried cannabis becoming commoditized in Colorado, Washington, Oregon, and even California, product diversity will be pivotal. Not to mention, alternative cannabis products like beverages and edibles have less chance of facing pricing pressures, and should therefore generate more robust margins

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