TGOD blames small legal pot market for shrinking financing plans

Growers tending to cannabis plants growing (GETTY)

Shares of The Green Organic Dutchman Holdings Ltd. (TGOD.TO)(TGODF) fell more than 16 per cent after the company announced changes to its financing and construction plans due to a smaller-than-expected legal pot market.

Earlier this month, the Toronto-based producer said it was reviewing financing alternatives in order to complete construction at its facilities in Ancaster, Ont., and Valleyfield, Que., as “changing market conditions” made financing prohibitively expensive.

The company said on Friday that it plans to lower its cash needs and separate construction in Valleyfield into smaller phases to be completed as the market develops.

“These actions are logical next steps in TGOD's road to profitability,” chief executive officer Brian Athaide wrote in a news release. “With the current Canadian legal market being smaller than initially anticipated, mainly due to a slow rollout of retail locations in key provinces, we believe that our revised plan will allow TGOD to right-size its production to capture the organic segment.”

Raising capital has become increasingly challenging for cannabis producers as lenders bristle at a steady stream of lacklustre financial results one year into Canadian legalization.

TGOD estimates it will need approximately $70 to $80 million between now and the end of Q2 2020 to undertake its plan and reach positive operational cash flow by Q2 2020. The company said on Oct. 9 that it has no debt and $56.7 million in cash available in Canada, including $40.2 million in restricted cash allocated to capital expenditures.

TGOD said its Ancaster greenhouse is now complete, and its Ancaster processing facility is approximately five weeks from material completion. Once the Valleyfield operation is up and running, the company estimates it will be able to produce 20,000 kg to 22,000 kg in 2020.

U.S.-listed shares fell 16.5 per cent to $0.89 at 12:57 p.m. ET on Friday. TSX-listed shares declined 15.8 per cent to $1.17.

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