As we draw closer to October 17, the day cannabis is legal across Canada, there are growing projections that the supply of legal cannabis will be insufficient to meet demand in the early months. But that’s the least of my concerns; the black market will fill the gap.
What I am still concerned about today is that the sector is likely to peak this month as investors enthuse about legalization, and then go through a cooling off period. And if the broad market itself is in a downtrend then, there could be serious damage done to some of these stocks. (We’re still only a couple of weeks off the broad market’s top, so despite the current nasty plunge, the long-term trend is still judged up.)
On the other hand, if the broad market finishes its correction soon—prospects for the end of the year are still positive—marijuana stocks could be the sector that leads for the rest of year!
In short, anything is possible, especially with these lower priced, less liquid stocks. So I continue to advise against buying extended stocks. I recommend taking profits when appropriate. And I continue to remind you to try to cultivate a long-term perspective.
As to the individual stocks:
Aphria (APHQF)—Yesterday’s big news is that Altria (formerly Philip Morris) is talking about taking a big stake in Aphria. This is no surprise; in fact, it makes total sense, as Altria is the last of the big three not to have a big deal (real or rumored). The stock surged on the news, but remains below its January high. I wouldn’t buy here, though I might buy in the 12s, and definitely at 11. And if you’re overweighted, you should consider lightening up.
Aurora Cannabis (ACBFF)—Aurora’s rumored deal with Coca-Cola is still just that, but the stock is hanging on to the gains that followed that rumor, and that’s a good sign. Overall, ACBFF looks a lot like APHQF; I wouldn’t buy here, though I might buy around 8—and definitely at 7. And if you’re overweighted, you should consider lightening up.
Also, Aurora has announced that it will soon be trading on the NYSE under the symbol ABC, likely before the end of this month.
Canopy Growth (CGC)—Canopy remains king of the hill, both fundamentally and technically, with its chart well above its January high and in a decent consolidation pattern. If you don’t own it, you could wait for a pullback toward 40, but I think your odds will be better in some of the less popular stocks.
Cronos Group (CRON)—Cronos is less famous than the big three, and the lack of institutional support means the stock has drifted lower recently—which might be good news for buyers. In last week’s issue I said that you could aim for an entry point at 9, though it would be more prudent to wait until a bottom is better defined, and that is still true. The stock has given up roughly half of its August-September gain, so should stabilize somewhere in this area.
CV Sciences (CVSI)—As the leading CBD vendor in the U.S., CV Science’s stock to some extent seems to enjoy the support that Canopy’s stock does as the leading marijuana vendor in Canada. But CV Sciences is a much smaller company and it has no big corporate suitor yet. Still the stock looks quite healthy, tracing out a narrowing consolidation pattern. In last week’s update, I said, “if you haven’t bought yet, the prudent course is to wait for a bottom, ideally at 4, but perhaps as low as 3.” I haven’t changed my opinion.
HEXO Corp. (HYYDF)—HYYDF has been impressive in the way it’s held onto its August-September gains, but in this treacherous market, that means there’s a risk of falling to 5, or lower (even all the way to 4.2). So, if you’ve got an oversized profit, you should consider taking some off the table here. And if you’re not on board yet, and you can handle the volatility, buying below 6 might make sense.
iAnthus Capital (ITHUF)—As a U.S. company, iAnthus should be less affected by what happens in Canada, so I like this stock long-term. However, you’ve got to contend with volatility. In last week’s update about the stock, I wrote, “if it can find support around 5.5, where the stock topped in June, that would be a good spot to start nibbling.” Well it didn’t find support there; this morning’s low was around 4.5, and there is some support there. But there’s also risk of a pullback to 3.7 (the stock’s 200-week moving average). Buy carefully.
Innovative Industrial Properties (IIPR)—The REIT in the group provides good diversification while still promising growth as the industry booms. But rising interest rates are a wild card here as the stock’s dividend is part of its luster. The stock has bounced well since last week’s low, and if it pulls back again into the 42 area, you could nibble there.
KushCo Holdings (KSHB)—KushCo is another diversification play. Since hitting a high in January, the stock has been in a consolidation pattern all year. Last week I suggested trying to buy on a pullback, perhaps to 5.20 or below, and that still applies.
MedMen (MMNFF)—MedMen was added to the portfolio just last week, and because we bought after a big selloff, we still have a profit. If you don’t own it, wait for another pullback, even as low as 4.0.
Organigram (OGRMF)—OGRMF has been in a classic consolidation pattern since hitting new highs in September. Last week I said it could be a decent buy between 5.0 and 5.5 if the sector holds up, and that’s still true. But take it slow; if the sector weakens (especially the Canadian growers) it could see 4.5 or even 4.0.
Turning Point Brands (TPB)—Straddling the worlds between tobacco (a classic defensive sector that benefits when the overall stock market wobbles) and cannabis (today’s hottest investing sector), Turning Point has looked pretty attractive to investors this week; the stock broke out to a record high Tuesday! I wouldn’t buy here, but if you’re looking for diversification, you might be able to buy on a pullback to 40, or even 38.
CONCLUSION
Remember, investing in the marijuana sector is a marathon, not a sprint. So start slow, manage your risk, have a plan to keep losses small, and look long-term.