First, two important notes.
First, I will probably not put out an update next week, as I will be in New Orleans at a Marijuana/Hemp conference.
Second, the following week, I will be conducting a Webinar on Marijuana Investing on June 19. For details click here.
Now, on to today’s Big Question. Is the correction in marijuana stocks over?
My answer is no.
Yes, the broad market has advanced nicely since mid-day Monday when news that the Fed might lower interest rates sparked a wave of buying.
But the buying volume has not been impressive. Plus all major indexes remain below their 50-day moving averages.
Also, our intermediate-term trend-following indicator, the Cabot Tides, remains negative.
Now, there have been some impressive moves. Cronos (CRON), for instance, surged yesterday on big volume when Bank of America Merrill Lynch upgraded the stock to Buy.
But overall, the group still has a weight on it.
In fact, the portfolio’s best-looking charts belong to our two safest stocks, IIPR and TPB.
Long-term, of course, the future is bright. But short-term, the portfolio is happy holding a cash level of 23%, deferring new buying until the sector strengthens. Patience.
NEWS
Illinois has become the 11th state to legalize marijuana—effective January 2020.
Oregon lawmakers have given the Oregon Liquor Control Commission more leeway to deny new pot-growing licenses based on supply and demand, a measure aimed not just at reducing the state’s surplus but also at preventing diversion of unsold legal marijuana into the black market.
Last but not least, the FDA hearing on cannabis (mainly CBD) last Friday didn’t help short-term, as it “highlighted the messy state of the industry, with widespread use of CBD products with minimal standardization, evidence for benefit and understanding of safety profile,” according to Evercore ISI analysts led by Josh Schimmer. Long-term, I expect it to lead to studies that help reveal the benefits of CBD.
Updates
Aphria (APHA) Aphria continues to base between 6.5 and 7. It’s still cheap—but it’s not strong. Hold.
Aurora Cannabis (ACB) Aurora pulled back to its 200-day moving average last Friday and has stuck to it since, so it’ll likely to build a base here. Hold.
Canopy Growth (CGC) Last week I noted that if Canopy were to fall through its 200-day moving average, it would be a bad sign for the entire marijuana group. Well it has. And it remains below that moving average, held down by the selling of investors deciding they’re not so fond of the most popular marijuana stock after all. Hold.
Cresco Labs (CRLBF) Chicago-based Cresco doesn’t have a 200-day moving average yet; it’s too young. But it remains on a normal correction. Hold.
Cronos Group (CRON) CRON blasted off from its 200-day moving average yesterday after Bank of America Merrill Lynch upgraded the stock from Underperform to Buy with price target of $20. This is good. But we can’t call it a new uptrend until we see some follow-through buying. Hold.
Curaleaf Holdings (CURLF) Massachusetts-based Curaleaf released its first quarter report last week. Total revenue for the quarter was $35.3 million, up 288% from the year before. Pro forma revenue (accounting for the pending acquisition of Select) was $75.1 million. In the quarter, the company opened seven new dispensaries in Florida, Maryland and New York. As for the stock, it fell on the report, rebounded yesterday, and remains below both its 25- and 50-day moving averages. Hold.
Elixinol (ELLXF) CBD stocks fell after the FDA’s Friday meeting, and ELLXF fell even more when the company raised $50 million by selling additional shares. (The proceeds will be used to accelerate growth as the CBD market booms.) As I’ve mentioned before, Elixinol is the lowest-priced stock in the portfolio and it has the second-lowest market capitalization, so volatility is to be expected. Hold.
Green Thumb Industries (GTBIF) Green Thumb’s first quarter report, released last week, revealed revenues of $27.9 million, up 155% from the year before. In the quarter, the company opened four new Rise retail stores in Ohio and Florida (it now has 19 stores across the country—and should have 40 to 45 by year-end). And it closed on two acquisitions, and then closed on another yesterday. As for the stock, GTBIF remains under its 200-day moving average, building a nice base between 11.5 and 12. If you don’t own it, you could nibble here, but officially I’ll stay on Hold.
HEXO Corp. (HEXO) HEXO remains on a normal correction, below both its 25- and 50-day moving averages, but above its 200-day moving average. Hold.
Innovative Industrial Properties (IIPR) Cannabis REIT Innovative Industrial Properties has become increasingly popular as investors have fled to safety. It closed at a record high yesterday and climbed higher today. If your portfolio would benefit from a REIT, you can get on board.
KushCo Holdings (KSHB) KSHB has rebounded strongly in recent days but remains below all its moving averages. Hold.
Organigram (OGI) OrganiGram has one of the best charts of the plant-touching marijuana companies; the stock is right on its 25- and 50-day moving averages, trending slowly higher. Part of this strength likely relates to the stock’s recent listing on the Nasdaq, but that doesn’t invalidate the chart. If you don’t own OGI, you could nibble here.
Turning Point Brands (TPB) TPB is the stock the portfolio most recently bought more of, because of both the chart strength and a perception that investors’ flight to safety might persist longer than expected (as trends tend to). It’s now close to its early May high. If you don’t own this tobacco/cannabis company, and you want a lower-risk entry into the cannabis industry, you can consider buying here.
Village Farms International (VFF) VFF looks fine, trending right on its 25- and 50-day moving averages while the 200-day moving average catches up. If you don’t own this tomato/peppers/cucumbers/hemp/marijuana company, you can buy here.