Coronavirus Crash Continues
With the market down more than 30% since it peaked a month ago, it’s worth reviewing the reasons for the quick crash. Reason one is that the market was high (after a 12-year bull market) and thus ripe for a correction. Reason two is the coronavirus, which has prompted unprecedented defensive measures worldwide. Reason three is the intentional recession that those measures will bring, sending GDP lower, sending the unemployment rate higher, and decimating numerous industries like travel and recreation and education and sports that traditionally succeed by bringing people together. Reason four is plain old uncertainty and fear, which precedes every market bottom.
Looking ahead, there’s no question that this bear market will bottom someday and I have little doubt that there will be some big up days, as good news sparks buying by opportunistic bargain hunters.
In fact, a quick look at the price-earnings ratios of our marijuana stocks says some of these stocks are now in bargain territory (I’ll mention a few in the updates below). However, that alone isn’t reason to buy if the trend is still down. The old market adage says you should never try to catch a falling knife.
Instead, today I’m going to get even more heavily into cash by selling two more stocks, Akerna (KERN) and Planet 13 (PLNHF), and selling half of Curaleaf Holdings (CURLF). After these moves, the portfolio will be roughly 65% in cash. Details below.
Stock Updates
Akerna (KERN) to Sell
Curaleaf Holdings (CURLF) to Sell Half
Grow Generation (GRWG) to Hold
Innovative Industrial Properties (IIPR) to Hold
Planet 13 (PLNHF) to Sell
Note: The table reflects the state of the portfolio holdings before acting on any new recommendations.
Akerna (KERN) Based in Denver, Akerna is the most lightly traded stock in the portfolio and thus the most “flighty.” Of course, lately it hasn’t been flying but falling. The attraction here was that Akerna has the potential to be the leading provider of software that tracks cannabis plants and products from seed to sale. But the stock has been hitting new lows in recent days and our loss has simply grown intolerably large. Hoping to return in better times, the portfolio will now sell. SELL.
Canopy Growth (CGC) Canopy too has been hitting new lows, but we still have a decent profit, we’ve taken out big profits three times previously, and the company is still a favorite to lead the Canadian market, thanks to the involvement of Constellation Brands (STZ). HOLD.
Cronos Group (CRON) Cronos is one of the smaller Canadian marijuana providers—but tobacco giant Altria owns 45% of the stock, so long-term prospects are good. And the chart looks better than those of the bigger Canadian marijuana companies; it was actually up in the three days before yesterday and remains above Monday’s low. So buyers are starting to take charge here! Of course, it’s hard to fight an outgoing tide, but the signs are promising. HOLD.
Curaleaf Holdings (CURLF) Massachusetts-based Curaleaf, which has 53 dispensaries in 14 states, was the biggest legal seller of marijuana in the U.S. in the third quarter and results for the fourth quarter will be released after market close on March 24. One data point that might be relevant: Thanks to a shortage of legal supply, Massachusetts wholesale flower prices are among the highest in the country ($3,800/pound for average quality indoor-grown). In the meantime, the stock looks pretty sad, hitting new lows every day of the past week, and our loss is growing. We took out a profit of 90% in the stock last year, and will now lighten up by selling half the position. SELL HALF.
GrowGeneration (GRWG) GrowGeneration operates the largest and fastest-growing chain of hydroponic and organic garden centers in North America, all catering to commercial growers of cannabis, and the stock’s chart looked great until a month ago. But then it joined the broad market’s slide and now we’re under water—rather deep. Still, there’s hope. Yesterday the stock held above Monday’s low, and a look at the fundamentals shows a P/E ratio of 12 times 2020 estimated earnings—for a company that grew revenues 159% in the third quarter. I’ll downgrade to Hold and give it a little more rope. HOLD.
Innovative Industrial Properties (IIPR) IIPR is the only publicly traded REIT in the U.S. that caters to the cannabis industry, and its stock looked good until a month ago, but now it looks like a disaster, down 58% from those highs. Of course, the broad market is the main culprit, but there’s also a possibility that investors are seeing the possibility that IIPR’s tenants won’t be able to pay their rent. The PE is now just 8, while revenues grew 270% in the latest quarter. We took profits out previously and now have a fairly small position left, so will hold on and look for a bounce. In the meantime, I’ll downgrade it to Hold. HOLD.
Planet 13 (PLNHF) Planet 13 operates the world’s biggest cannabis store, located in Las Vegas, Nevada, and that means business has dried up dramatically as the travel industry has imploded. Also, the stock’s price has fallen below a buck—not a good thing. SELL.
Trulieve (TCNNF) Trulieve is the market leader in Florida, with 45 medical dispensaries, as well as nascent operations in California, Massachusetts and Connecticut. And prospects are bright, as this is one marijuana company with positive earnings. Also, it has a forward P/E ratio of 9. As for the stock, it’s had a rough month, though the past few days have seen the stock find support at the 6 level. We can afford to hold a bit longer. HOLD.
Turning Point Brands (TPB) TPB is one of our oldest holdings (along with Canopy), so we have a bit of a sentimental attachment to it. But the stock is a good value too; earnings grew 17% in the latest quarter, and the stock now has a P/E ratio of just 6. We’ve taken profits out previously so will now simply hold. HOLD.
Final note: These are tough times for numerous reasons, but the market always looks ahead, so I have no doubt that as it sees a path to economic recovery these stocks will perk up and provide great opportunities for wise (and brave) investors who have been waiting patiently for the start of the next uptrend. Rest assured that I’ll be ready to guide you to the best of those stocks.