It’s been a tough stretch for Green Organic Dutchman Holdings Ltd (TSE:TGOD) (OTCMKTS:TGODF) in recent times. The stock is down ↓39.61% from early June highs, demonstrating relative under-performance in the mid-major cannabis space. We dive into the probable causes of such malaise, as well as technical support levels we’re watching as the stock attempts to find a bottom.

Just how pronounced has TGOD’s under-performance been vis-à-vis its peer group? As the table below indicates, the Green Organic Dutchman is lagging all of its closest valuation competitors by double-digits in percentage terms, and almost double that of OrganiGram Holdings—another aspiring organic cannabis producer.

Company (valuation peer) June 6 Price (High) Current Price % Gain/Loss (10:30am) Green Organic Dutchman $8.28 $5.02 –39.32% Cronos Group $7.93 (USD) $5.84 (USD) -26.35% CannTrust Holdings $9.35 $6.70 -28.34% Hydropothecary Corp $5.25 $4.07 -22.47% OrganiGram Holdings $5.93 $4.74 -20.06%

While the outgoing tide has grounded many boats this summer, the market isn’t solely to blame for TGOD’s salty performance. In my estimation, two clear factors have continued to weigh on the stock price.

The first involves a sanguine announcement the company made back on June 4th. With TGOD shares soaring ↑70.48% in a 5-day window from May 29-June 4, the Industry Regulatory Organization of Canada (IIROC) asked TGOD to comment on the recent increase in the trading volume and price of the Company’s common shares. Although much of the move was generated from a technically-inspired break of post-IPO highs in the $4.20/share range, it certainly didn’t explain all of it.

What the company said next was somewhat paradoxical. While the IIROC rebuttal press release exclaimed, “The Company is not aware of any material change in its business or affairs that has not been publicly disclosed and that would account for the recent increase in volume or price…”, it also went on to say this:

“The Company is in advanced negotiations with multiple international companies, one of which is a completely vertically integrated company.”

Leaving aside the fact that being in “advanced negotiations with multiple international companies” would usually qualify as a “material change in business affairs”, the statement led the market to believe some material event was forthcoming. Was TGOD about to sign a game-changing supply agreement? Were they in outright talks to be acquired at a premium? Perhaps a beverage maker like Diageo PLC would stake a minority position in the company—following the model Constellation Brands Inc. and Canopy Growth Corp. employed last October?

Although this vague proclamation left much to the imagination, the company amplified market expectations despite giving no assurance that a transaction would be consummated.

Well, we’re almost two months out from that fateful decree—and there’s still no deal. While TGOD’s proclamation helped boost shares in its immediate aftermath (the sector was strong as well), I reckon the lack of follow-through has helped anchor shares now that it’s become apparent negotiations have lost momentum. Perhaps the company will clarify where those “advanced negotiations” stands at some point soon.

TGOD’s second anti-catalyst has fomented on the operational front. On July 11th, Hamilton City Council voted to reverse the positive decision by the Planning Committee of Council, thereby throwing the company’ Hamilton Phase Two greenhouse expansion plans in doubt. The planned expansion represents approximately 6.5% of TGOD’s total planned 170,000 kg annual production.

Despite this, the company is still forging ahead with its Hamilton production, oil extraction and Phase One facilities while the appeals process plays out. Its Phase Two greenhouse expansion may need to be relocated to Valleyfeld, QC pending a positive appeals decision outcome.

Irrespective of outcome, it doesn’t sound like it will be a game-changer for the company. But it will add unnecessary inter-province transportation and logistical hurdles if the Council’s decision is not reversed.

TGOD Technical Take

With persistent outflows dogging the market (more or less distributed evenly) over the past several weeks, we’ve de-emphasized our recent charting focus. There’s few actionable technical disparities at the present time, outside of a monolithic swing trade here & there. Even then, traders need to be quick and precise. The cannabis sector is not in a forgiving mood to those who lack solid entry points.

But TGOD may be entering into what I call an “interesting zone”. Not only have shares been raked through the fiery coals, but downside volume remains unimpressive as it enters into an important technical backstop of support.

While it’s certainly possible prices may continue to grind lower through the defined points mentioned above—especially if the big boys like Canopy Growth again turn south—I believe TGOD is entering a zone which will be heavily defended.

Should the broad market stabilize, TGOD may be poised for some initial out-performance—provided it can stay north of the delineation zone. Deep, low volume moves characterized above are usually good reversal candidates heading into important support zones, providing there’s no overarching and overtly negative catalyst dominating the action.

Final Thoughts

While the two anti-catalysts in the article remain (for now), both have the potential to become catalysts on the turn of a dime. Perhaps TGOD’s “advanced negotiations” start bearing fruit; perhaps the appeals process challenging Hamilton City Council bears fruit in the end—who knows. But we do know that TGOD has under-performed its immediate valuation peer group by a wide margin, suggesting the anti-catalysts are fully priced-in. Traders and investors don’t want to be on the selling side of the ledger if either side flips.

Midas Letter will have continuing coverage of the Green Organic Dutchman as further news and technical events warrant.