Buy, Hold or Sell?
There hasn’t been any real news about our stocks in the past week, but I’ve been watching the charts carefully, trying to decide whether it’s time to put some of our 35% cash back into the market, or to take more out, or to simply stand pat. And today I’ve decided to stand pat, though the decision is a tough one.
Technically, our stocks’ charts don’t look bad—but they don’t look strong either. The Canadians (APHA and CGC) are still flat, as if they’re being ignored. And of our four U.S. producers, two (CRLBF and CURLF) have fallen below their 50-day moving averages (a bit weak), GTBIF is sitting right on its 50-day moving average, and only TCNNF is still healthily above, though trading in a tightening range while volume shrinks—and thus the odds are good that it too will eventually meet up with its moving average.
What has me itching to buy is the chart of TerrAscend (TRSSF), which has been on my watch list for some time. Headquartered in Toronto, TerrAscend sells marijuana all across Canada, just like the other Canadian major producers—but it also has a major office in New York and retail outlets in California (it acquired the Apothecarium dispensary brand over two years ago) and Pennsylvania, and will soon open for business in New Jersey. Thus it’s the first company to legally sell marijuana in both the U.S. and Canada. Second-quarter revenues were $47.2 million (which is less than half the revenues posted by each of the four U.S. producers we already own). But that was up 169% from the previous year, so growth is fast, comparable to those big four. Also, the company reported its first positive adjusted EBITDA, $11.4 million, or 24% of net sales—and is focused on growing that by expanding carefully while controlling costs.
As for the stock, it came public in late 2017, peaked at 10 in 2018, bottomed at 1.2 in March, and topped at 5 in early September. Since then it’s pulled back gently with minimal selling pressure, and if this were a strong bull market, I’d say this looks like a great entry point.
But this is not a strong bull market.
Yes, Cabot’s trend-following indicators are still positive, and yes, growth stocks seem to have begun recovering from their sharp two-week correction. But the Cabot analysts as a whole have been noting signs of investor sentiment that are unusually high (a condition that often precedes major corrections) and I’m concerned that the two strongest charts in our portfolio belong to the stocks that are traditionally viewed as the safest (IIPR and TPB).
In short, money isn’t really flowing back into marijuana stocks now, so I’m going to continue to wait and watch. If the market weakens, we’ll sell more, and if it strengthens, we’ll buy.
FYI, our portfolio is now up 16.3% YTD while the Marijuana Index is down 11.2%.