I’m writing to you from the town of Oban on the west cost of Scotland, where yesterday storm Ali, featuring driving rain and winds up to 80 mph, forced the cancellation of all scheduled ferry tips. Fortunately, we had no trip scheduled. Instead, we were driving 144 miles through spectacular scenery from the Speyside town of Charlestown in Aberlour. And fortunately, we were doing so in a BMW 520d (diesel), so even though we were on frequently narrow and winding and deeply puddled roads—and driving on the “wrong” side of the road—we completed the journey without incident.
In fact, it was rather exciting.
Also exciting has been the action of marijuana stocks, from the interest of Coca-Cola in Aurora (ACBFF) to the “crazy” action of Tilray (TLRY). So I’m writing today to give you a few more pointers on how to handle these volatile stocks so that you can first, avoid major losses, and second, become a long-term winner.
As always, I start with a look at the environment. The Marijuana Index is trending upwards, as it has been since mid-August, but is still short of exceeding its January high, and thus the advance is likely to continue.
Turning to the individual stocks, Tilray has been the hottest of the group, in part because of growing publicity, in part because it’s traded on a U.S. exchange, and in part because of a short squeeze; traders who bet that the stock was too high a week ago (or more) have had to admit that they were wrong and buy the stock back at higher prices—and their buying has forced the stock even higher. This will end eventually—yesterday’s reversal could have been an intermediate-term top—but it’s impossible to know that for sure. So, if, like me, you’re still waiting to buy Tilray, keep on waiting. And if you own the stock with a nice profit, be sure to take all measures to ensure that your profit does not become a loss, the simplest of which is simply to take a partial profit.
As to the others, in alphabetical order:
Aphria (APHQF) is still below its January high and a retreat toward 12 would present a good entry point.
Aurora (ACBFF) popped on the news of Coca-Cola’s interest, but also remains short of its January high. A retreat to support at 8 might provide an attractive entry point.
Canopy (CGC) looks okay, trading well above its January peak, but it has the potential to come down to 40, even 35. That would be a great buying opportunity.
Cronos (CRON) is above its January high and I’d buy on a pullback toward 10.
CV Sciences (CVSI), being mainly in the CBD business, marches to a slightly different drummer than the big growers; it was strong when they were weak, and it’s been calm recently while the growers have rallied. I’d buy on any small pullback.
HEXO (HYYDF) has been among the most volatile of the growers (mainly to the upside) and I’d like to see it calm down.
Innovative Industrial Properties (IIPR) is our REIT that provides welcome diversification. I’d buy on a pullback to 42, but 38 would be even better.
KushCo (KSHB) also provides good diversification and may be the best buy of the bunch today—or on a pullback into the 4s.
Organigram (OGRMF) has been following the other growers and also needs to calm down. A buy at 5 might work, but the stock could fall below that, especially if the sector weakens.
Turning Point Brands (TPB) is another diversification play. It’s done well since its early September blastoff on the International Vapor Group acquisition, and now needs to consolidate its gains by spending more time between 39 and 44. If you don’t own it, you can buy in the low and of that range.
Summing up, trends remain positive, but extreme volatility, combined with the increasing odds of another shakeout/correction, means you need to be smart. Always be aware of the downside risk of all of your positions. Don’t risk more than you can afford to lose. And diversify, not only by business type but also by time. Spread out both your buying and selling.
Your next official issue of CMI will be published October 4th.