In my last major update about marijuana stocks, I wrote, “odds are the correction is not over yet. Odds are, the correction will go longer, until traders’ enthusiasm for the sector has truly cooled. Happily, the more time passes, the more the fundamentals of these fast-growing companies get to catch up to the stocks!”
Well, that’s still the case today.
But what’s changed over the past six weeks is that the stock market as a whole has turned quite weak, and plenty of bad news has appeared to accompany this weakness.
For the marijuana sector, there is no bad news to accompany the decline; this is just the usual period of cooling off that occurs after a sector becomes red-hot, as marijuana stocks did in December and January.
So what do we do now?
Long-term, my goal remains the same. I aim to develop big, long-term winners that will be just as profitable as investments in MSFT in 1986 and AAPL in 2002. If you began investing in the marijuana sector in August or October, and you’ve kept your exposure to the sector under 10% as I suggested, holding through the current correction shouldn’t be too painful.
If you began investing in the sector closer to the top, however, and have been watching losses mount, cutting those losses short might be the best course. Just yesterday, for example, I issued a sell recommendation for CRON for readers of my Cabot Stock of the Week. It was the one marijuana stock in the portfolio, we had bought late (mid-February), and the loss had hit 20%.
But Cabot Stock of the Week is a much more active advisory; I buy one stock every week, so I’m frequently weeding out my worst performers and those that have tripped my loss limits and stops.
Cabot Marijuana Investor, by contrast, has a longer-term perspective, which I think is the best approach in a young volatile sector such as this.
Thus, my practice to date has been to make no portfolio changes between quarterly issues, and I see no reason to change that policy now.
But it is good to keep informed about how the stocks are doing, so that as time goes by, we are always invested in the most promising stocks. So here they are.
The Big Four Canadian Growers (by market cap)
Canopy Growth (TWMJF) has the healthiest chart of the big growers. Right now it’s showing a triple bottom at 20—which might hold, but might not. Below that, the stock’s 200-day moving average is at 15. Canopy is developing a reputation as a quality investment.
Aurora Cannabis (ACBFF) has good support right here between 5 and 6, dating back to December. Also, the stock’s 200-day moving average is nearing 5.
Aphria (APHQF) has the weakest chart of these four; it fell through its 200-day moving average at 8.35 yesterday. On one hand, the stock looks a bit oversold so could easily find support soon. But on the other hand, the weakness means it’s a candidate for replacement in the summer issue of Cabot Marijuana Investor.
Cronos Group (CRON) actually looks fine from a long-term perspective. I’d love to see it make a double bottom right here, but if it doesn’t the 200-day moving average is at 4.20.
The Smaller Growers/Distributors/ Investors
Emerald Health Therapeutics (EMHTF) released its fourth quarter earnings report this morning. I saw no major fundamental changes, and apparently neither did anyone else; the stock gapped down slightly and is headed for its 200-day moving average at 2.60.
OrganiGram Holdings (OGRMF) is sitting right on its 200-day moving average now, at a level that provided support twice in February and also in December.
CannaRoyalty (CNNRF) also released fourth quarter results this morning, and in response the stock sold off right down to its 200-day moving average at 2.50 where there’s strong support.
The Others (which happen to have the best charts!)
Turning Point Brands (TPB) is the old smokeless tobacco/vaping company that provides some low-risk diversification to the portfolio—and it’s doing its job!
Kush Bottles (KSHB) remains well above its February lows (showing relative strength compared to the sector and the overall stock market), as management continues to make smart moves that grow the company’s footprint in the U.S. marijuana container market.
Innovative Industrial Properties (IIPR) is the cannabis REIT that currently yields 3.8%. The company reported fourth quarter results last week and the stock gapped up in response. Over the past month, it’s the strongest stock in the portfolio.
Conclusion: I remain long-term bullish on the marijuana sector, aiming to build a diversified portfolio of the best U.S. and Canadian stocks. My optimistic reading of the charts (admittedly, I’m usually optimistic) tells me the sector is building a bottom here, though there’s no telling when the main uptrend will resume. Still, when it does, we’ll be rewarded. The only sure thing is that May will bring the summer issue of Cabot Marijuana Investr, and I look forward to sharing with you all the progress these companies are making.