Back on May 8 I suggested cannabis stocks were buyable in the weakness. Positions are up as much as 20% or more, but now is not the time to sell.
I suggested AdvisorShares Pure U.S. Cannabis (MSOS), the 2x leveraged version AdvisorShares MSOS 2X Daily (MSOX), and all portfolio names. I singled out the two ETFs for trading simplicity.
The MSOX is now up 21%. MSOS is up 10%.
Those are some nice gains in a week, but now is not the time to book profits.
There is no less chance now that the Drug Enforcement Agency (DEA) will publish its proposed rescheduling rule than there was a week ago. This will move cannabis stocks up considerably more. It is impossible to predict exactly when the DEA will move. But I believe it should happen relatively soon. At that point it will be time to trim positions or sell covered calls.
What to Do Now
If you bought cannabis stocks back on May 8, I suggest you continue to hold and add on any significant weakness of 4% or more in the MSOX or 2% or more in MSOS. If you did not buy or you have zero exposure, consider starter positions now at current prices and then consider adding on weakness of 4% or more in the MSOX or 2% or more in MSOS. When entering new positions, I generally plan to do so in stages with at least three to five purchases, especially in a naturally volatile group like this one.
Also consider any of our portfolio names.
Portfolio names are: Ayr Wellness (AYRWF), Cresco Labs (CRLBF), Curaleaf (CURLF), Cronos (CRON), AdvisorShares Pure U.S. Cannabis (MSOS), AdvisorShares MSOS 2X Daily (MSOX), ETFMG Alternative Harvest (MJ), Green Thumb (GTBIF), Organigram (OGI), Tilray Brands (TLRY), Trulieve (TCNNF) and Verano (VRNOF). For simplicity, consider getting exposure via MSOS or the leveraged version, MSOX.
In a volatile sector like this, I prefer to add on weakness rather than strength. When or if we do get major rescheduling news from the DEA (proposed rule publication), that will create a rally in which to trim positions, sell covered calls, and de-lever a bit. De-lever in this instance means trimming MSOX and putting the funds into cash or the MSOS.
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The Justice Department (DOJ) has published its proposed rule to move cannabis to Schedule III from Schedule I under the Controlled Substances Act.
While there are other potential catalysts on the horizon like progress on cannabis banking reform or the publication of a “hands off prosecution in states that have legalized” memo from the DOJ, the news today offers an opportunity to sell trading positions in cannabis names and the two exchange traded funds I have been highlighting, the AdvisorShares Pure U.S. Cannabis (MSOS), and the 2x leveraged version AdvisorShares MSOS 2X Daily (MSOX).
There will now be a 60-day comment period on the proposed rule, which suggests a near-term lull in progress on the rescheduling catalyst.
Besides sales of trading positions, consider selling covered calls on the ETFs into the strength. I suggest considering sales of the June 21 MSOX calls at the strike prices of $8, $9, $10 and $11. The bids are currently in the $0.20 – $0.45 range. Likewise, for MSOS consider June 21 calls with $11, $12 and $13 strikes. I do not suggest selling medium-term multiyear positions in cannabis names and exchange traded funds.
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