Last week’s issue of Cabot Marijuana Investor was titled “Buying Opportunity,” and that still seems accurate today. In fact, as summer morphs into fall and Wall Street returns to full operation, I’m seeing some welcome signs of buying in the cannabis sector. So today we’ll join them, by averaging up in two of our holdings, Charlotte’s Web (CWBHF) and OrganiGram (OGI); we’ll double the position size in both.
But not all is rosy; some of the sector’s former leaders continue to hit new lows, as investors who bought too high take their losses and move on. If you bought into those stocks early and have profits, you can afford to sit, perhaps after lightening up a bit.
But if you’re a new investor you should honor one of the key rules of growth investing, which is to cut losses short, perhaps when they reach 20% or 30%. A lot, of course, depends on your own risk profile and portfolio.
Long term, the future remains bright for the cannabis industry.
In Canada, producers are gearing up for Cannabis 2.0, which kicks off in December when selling edibles, oils and beverages becomes legal.
And in the U.S., legalization continues to spread (by fits and starts); new dispensaries continue to open in medical marijuana states; new retail outlets continue to open in adult-use states; and CBD continues to take America by storm! It’s an exciting time.
Details on all the stocks below.
Alcanna (LQSIF) The portfolio’s most recent addition, Alcanna had a big day yesterday, up 10% on no obvious news. Generally, when a stock moves big on no news, we suspect that someone knows something, and the news will leak later. That’s possible here. But more likely, given that LQSIF is thinly traded, is that it was a big buyer getting into the stock, a mite clumsily. Time will tell. Alcanna remains the cheapest of the portfolio’s stocks based on PSR (Price Sales Ratio), with second quarter revenues of $200 million and a market capitalization of just $155 million. So this looks like one of the lowest-risk opportunities in the portfolio—notwithstanding the light volume and the possibility of a retracement to 3.8. If you don’t own any, you can buy some here.
Aphria (APHA) Last week I wrote, “If you’re going to buy one Canadian marijuana stock today, this is the one.” That’s still true today. APHA is not only the cheapest of the big Canadian cannabis stocks by PSR, it also has the largest revenues. Plus it’s got one of the best charts—with the stock now above both its 25- and 50-day moving averages. The portfolio averaged up in APHA three weeks ago, and this is now our largest position.
Aurora (ACB) Aurora is the third largest Canadian producer, and growing fast, but the stock is still expensive and the chart is still quite weak. Last week I reduced the portfolio’s position by half so now we’re well underweight.
Canopy Growth (CGC) Canopy is a lot like Aurora, but more so. It was more famous, and its stock was more overvalued—and those conditions are slowly reversing. The portfolio did very well with CGC early on as its high profile made it the favorite cannabis stock in the world, but the bigger they are the harder they fall, and investors continue to exit the stock like rats from a sinking ship. In the long run, I fully expect the company to be fine, even be a major player, but for now the stock is sinking. The portfolio has been underweight CGC since mid-April and last week I took our weighting down to 1%—where it will likely stay until the chart turns positive again.
Charlotte’s Web (CWBHF) Colorado-based Charlotte’s Web is America’s biggest seller of CBD, with more than 8,000 retail locations. The portfolio sold half its position in CWBHF on August 5, the last day of a very strong eight-day advance, because I judged it to be near a short-term peak, and last week the stock bounced off its 200-day moving average at 15—down 38% in three weeks. And now I’m going to buy back in, doubling our position. The stock is not yet above all its moving averages, but it does have a clearly defined pattern of higher highs and higher lows since June, so is in a definite uptrend.
Cresco Labs (CRLBF) The third-largest multi-state operator (MSO) in the U.S., Cresco is growing at a good pace (second quarter revenues were $29.9 million, up 253% from the year before) and the chart looks good—at yesterday’s close it was above both its 25- and 50-day moving averages. The portfolio averaged up three weeks ago and is now slightly overweight. If you don’t own it, you could buy here.
Cronos Group (CRON) CRON remains the most overvalued of all these stocks, and the chart keeps trending down. The portfolio has taken big profits out previously and continues to hold a small position, banking on the promise that Altria will lend real expertise to the company—plus Cronos has $2.3 billion in cash to play with. But if you don’t own it, there are more attractive stocks to focus on.
Curaleaf Holdings (CURLF) Management at Curaleaf says the company is on track to be the biggest MSO in the U.S.—and the market is starting to believe them, as the stock just advanced for six consecutive days and is now above all its moving averages. The portfolio took profits in May, selling half at 9.05, and bought back in three weeks ago at 7 to become overweighted again, so will now stand pat. If you don’t own any, you could buy here.
Innovative Industrial Properties (IIPR) The only publicly traded REIT focused on the cannabis industry, IIPR has been a big winner for us, but since mid-July the stock has been cooling off. The portfolio sold a third of its position in June at 133, very close to the top, and half the remaining position at 102 just last week when the stock appeared to be at risk falling through support—which it did soon after. Now the stock is very close to its 200-day moving average, which might provide support. But it’s not an attractive buy.
MedMen (MMNFF) MedMen, one of the leading MSOs in the U.S., is the portfolio’s biggest loser, but the loss is tolerable, especially given the stock’s promise—and its cheap valuation. The company released a great second quarter report three weeks ago that sparked some big buying and since then the stock has consolidated that gain to build a short base in the 2.0 region, telling us the selling pressures are over and now we need to wait for the buyers to take charge.
Organigram (OGI) Growth prospects are very good for this second-tier Canadian producer and the valuation looks fair (for the sector). The portfolio took profits at 6.2 last October when the Canadian cannabis stocks peaked and then again at 6.4 in June as they all swooned, but last week OGI became deeply oversold—hitting a low of 4—and this week it’s rebounding, so I’m going to take this opportunity to average up, doubling our position.
Turning Point Brands (TPB) Turning Point Brands is the old-school smokeless tobacco company that’s been successfully transitioning into the cannabis business. Last week I wrote that the stock, “having pulled back 40% from its July high, seems ready to resume its long-term uptrend. If you don’t own it and you like the story, you could nibble here.” Well, that appears to have been premature. The stock is still trending down, below all its moving averages, so new buyers should hold off until we see some real strength.
Village Farms International (VFF) Village Farms International is the Canadian greenhouse grower of tomatoes, cucumbers and peppers that’s diversifying into marijuana (in Canada) and hemp (in the U.S.). Just yesterday the company announced an agreement to supply the British Columbia Liquor Distribution Branch (BCLDB) with cannabis products for the recreational market in the Province of British Columbia. The stock’s correction ended last week and the buyers are once again in charge. If you haven’t bought yet, you can buy here.