Green Organic Dutchman Holdings (TSE:TGOD) Lockout Expiration Fears Dissipate

Benjamin A. Smith
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In one fell swoop, much of the retail anxiety surrounding Green Organic Dutchman Holdings Ltd. (TSE:TGOD) (OTCMKTS:TGODF) (FRA:O1GA) lockout expiration fears evaporated on Friday. The burgeoning organic cannabis LP exploded higher on-open, erasing a↓12.49% gap-down within minutes, while simultaneously changing price action sentiment in the company. We take a closer look at TGOD’s post-free trading picture.

To briefly recap, Green Organic Dutchman Holdings stock had been under pressure since late-September, as a trifecta of unfavorable factors weighed on the company. This included the issuance of a $75 million bought deal financing announced on October 1st, as well as Aurora Cannabis declining an important milestone option on October 12th. More recently, the post-legalization cannabis sector selloff hit every LP in the space, irrespective of past performance in the lead-up. And of course, TGOD was certainly under ‘invisible hand’ selling caused by 100 million free-trading shares coming unrestricted on November 2nd, as the 6-month post-IPO lockout window came to a close. Early round investor purchasing subscription receipts at $0.50, $1.15, $1.65 and accelerated warrant holders were eligible to sell common share holdings carte blanche.

All told, these factors—each exerting disproportionate influence at various moments in time—hammered TGOD stock to the tune of ↓72.09%, peak-to-trough, from the September 20th close. To put that into context, Horizons Marijuana Life Sciences Index ETF (HMMJ) dropped just over half that amount on a peak-to-trough basis during that time period (↓37.03%). No major Canadian cannabis stock performed as tepidly during that stretch.

While it comes as no surprise that TGOD was due for a sizable bounce, the timing of such appeared to catch everybody off-guard. That event took place on Friday, when prices exploded out of the gate, cresting at ↑34.37% gains intraday before seizing ground towards the close. The much-anticipated 100-million free trading share deluge feared by investors actually ended up being a terrific short covering and bottom fishing opportunity. The extra supply gave shorts ample opportunity to lock-in profits and cover quickly, while TGOD investors readily scooped up shares at previously unseen prices.

Perhaps the greatest byproduct of Friday’s Green Organic Dutchman surprise is the shift in sentiment such action provided. While it doesn’t guarantee early-round selling is complete, the 21.12 million shares traded does clear a sizable chuck of would-be sellers from the equation. It also provides powerful evidence that buyers are willing to step in at depressed levels, irrespective of potential latent selling ahead.

Technically speaking, the reversal brings TGOD to its post-IPO May lows and October price break divide. A higher-low has formed, halting the immediate bearish slide on the hourly chart. Volume upstaged anything TGOD has ever seen, finishing ↑38.49% higher than its benchmark session encountered on September 19th. The buying was powerful enough to conclusively exert a short-term trend change in prices. Further evidence is needed to gauge the voraciousness of the move, but I’m looking at $3.51 as a defacto psychological divide between near-term bullish and bearish control.

Ultimately, the doomsday scenario some retailers held will not occur. The market used retail capitulation to its advantage, prying cheap shares from the brokerage accounts of weak-minded retail investors.

Green Organic Dutchman Provides A Post-Mortem Shareholder Q&A

Capitalizing on the buoyancy provided by Friday’s trade, TGOD Vice President of Investor Relations, Danny Brody, disseminated a Shareholder Q&A to investors. While it provided a reiteration of known talking points, it also rebutted several persistent misconceptions within the marketplace. Mainly, that Green Organic Dutchman is a non-producing, non-revenued LP devoid of supply agreements and disadvantaged due to its ‘late start’ in the marketplace. Investors can separate the spin from the facts for themselves, but the explanation (mostly) sounded well-reasoned.

The Green Organic Dutchman Holdings Ltd. CEO Brian Athaide shares the company’s seed-to-sale vertical integration strategy

Particularly interesting was Mr. Brody’s verbiage related to the Aurora Cannabis declined milestone option. He argues that had Aurora exercised their option to acquire an additional 8% of TGOD, the acquisition price would have been ~$4.75, adding significantly more dilution for the same amount of capital. Furthermore, Brody wrote that Green Organic Dutchman becomes a more attractive partnership option to various multinational CPGs, “without having the overhang of a third-party competitor LP able to acquire control of our Company.” A interesting perspective to an event which was unanimously regarded as negative.

We encourage investors to read the entire document for themselves. Either way, it was a well-timed dissemination that reinforces the company’s investment thesis, which to some, had become lost in translation. Mission accomplished.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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