On Tuesday, voters in three states continued the trend toward increased legalization of marijuana: Michigan voted to legalize the recreational use of the plant, while Utah and Missouri voted to legalize it for medical use.
That means there are now 33 states that allow medical use of marijuana, and 11 that allow recreational—or what the industry likes to call “adult-use.”
Then on Wednesday, Attorney General Jeff Sessions—a notable party-pooper on the issue—resigned, increasing the probability that federal legalization will come sooner than later.
Stocks in the sector were notably strong in response yesterday—as was the broad market, which approved of the overall election results.
So the question I’ve been wrestling with is whether it’s time to redeploy some more of the cash that we took out of marijuana stocks on October 16, the day before Canadian legalization.
The portfolio is now 37% in cash, and that’s a lot. Keeping the cash level high would help preserve current profits—the portfolio has gained an amazing 55% so far this year—but preservation is not our main goal, growth is, and if the sector moves up from here, I want to be more heavily invested.
On the positive side, all the stocks are cheaper now than when we sold, the industry continues to boom, and the renewed strength of the stocks is pretty impressive; the two investments we made Tuesday (HYYDF and OGRMF) have done well. Additionally, by buying back in now, we would be averaging up in our current positions, which is a tried-and-true method of building positions in great growth stocks.
On the negative side, Cabot’s two trend-following market-timing indicators are now negative, telling us that the market as a whole is unsupportive. However, on the positive side, some of our longer-term studies say that stocks will be higher a few months from now.
This is as much a portfolio management issue as it is a stock timing issue, and your conclusions may be different than mine depending on your own situation.
But my conclusion today for this aggressive portfolio focused on the sector is that it’s time to reinvest.
(“A ship in harbor is safe, but that is not what ships are built for.” -John A. Shedd)
What to Do Now
We will now take half our cash and split it equally among Aphria (APHA), Aurora Cannabis (ACB), Canopy Growth (CGC), Cronos Group (CRON) and Tilray (TLRY). As usual, we will record our trade at the average price of the day.
The first four stocks are core positions that we have big profits in, and that we sold half of back on October 16. Tilray (TLRY) will be a new investment. The stock came public in July, and became ridiculously overbought in September when it hit 300, but now seems to have completed its bottom.
Final note: I will be traveling next week to Las Vegas to attend MJBiz.com, the biggest event of the industry, so I will not be as connected to the market as usual, but will certainly become better informed!