Selling a Little More
Fundamentally, the only recent news regarding the marijuana industry is that the U.S. House of Representatives will vote on the MORE Act, which would deschedule marijuana and thereby legalize it federally, the week of September 21. Passage is likely. Getting through the Senate is not.
But that legal fight plays no part in my investment analysis, as it’s merely one small event in the positive long-term trend that will eventually lead to legalization.
What does play a major role in my analysis today is the technical action of the stocks: the charts—and that’s because we saw a big kickoff to a well-deserved market correction last week.
Marijuana stocks, of course, began their correction early, peaking back on August 14; I recommended taking partial profits right before the peak and again last week, taking the portfolio to a 32% cash position. But the high-profile market selloff last week kicked the correction into high gear—and that’s great because it gives us a chance to compare charts!
When all the marijuana stocks were going up, making money was easy. And we increased our gains over the Marijuana Index (which is still in the red YTD) by overweighting the strongest stocks.
Now that the correction is in force, we can look at those charts again, and see which ones are resisting the downward pressure best—or even advancing. That’s where the money is going, so that’s where we’ll go too—though I don’t think there’s any reason to hurry. In general, I think this correction needs to run a little longer, so that some of the high spirits that sent stocks like Tesla (TSLA) and Zoom (ZM) to the stratosphere can dissipate.
But there’s often room for tweaking, and today the tweaking consists of selling our entire remaining position in Cronos Group (CRON), which we’ve held since November 2017.
CRON has the weakest chart in our portfolio, it’s our smallest position, and it’s the smallest (by a long shot) of our three Canadian stocks. The sale of our remaining CRON shares will take our portfolio to roughly 35% cash.
As for the other stocks, our two other Canadians, Aphria (APHA) and Canopy Growth (CGC), are still building long bases dating back to May, neither strong nor weak. I wouldn’t buy them here, but for investors with long-term profits, holding is still advised.
In the U.S., where our four multi-state operators had great blow-off tops a few weeks ago, all four are now correcting normally, but with significant differences.
Curaleaf (CURLF), the industry leader, has fallen the hardest (on heavy volume), and is now below its 50-day moving average, showing no real sign of buying power but perhaps building a base at 7.
Cresco Labs (CRLBF) and Green Growth Brands (GTBIF) look quite similar; both stocks have pulled back to touch their 50-day moving averages but not fallen below them. That’s textbook corrective action in a bull market and possibly a decent entry point.
And Trulieve (TCNNF) is the strongest of the four, still well above its 50-day moving average and building a base at 20, where it has support dating back to mid-August. If I had to buy one marijuana stock today, I’d buy TCNNF.
As for the non-plant-touching companies that provide welcome diversification to our portfolio:
GrowGeneration (GRWG), our hydroponics supplier, looks great. It’s pulled back from its post-earnings peak at 22 and is now building a base at 14, well above its 50-day moving average, which is now approaching 11. Impatient investors could buy here; patient investors might get it lower—but maybe not. Long-term, the future is bright for this company and stock.
Innovative Industrial Properties (IIPR), our REIT, had a big one-day dip last Friday that brought it close to its 50-day moving average but quickly reversed, and now it’s back near its all-time high. Very impressive.
Turning Point Brands (TPB) actually weakened early (at the start of August) and hit its 50-day moving average on August 14, but it’s higher now, crawling back up with its 50-day moving average—still a fine low-risk (dividend-paying) piece of diversification.
What Comes Next?
From here, anything is possible, and I’ll take my cues from the action of the stocks.
Technically, our Cabot market timing indicators remain positive, telling us the bull market remains intact and that this correction will pass—but I tend to think that we need a longer correction to calm some of the speculative forces that have built up since March. In any event, I’ll be watching the charts closely, and I’ll keep you posted.