When I wrote you last week, I told you I wouldn’t be so connected this week, as I’d be in Las Vegas at MJBiz.com, the biggest gathering of cannabis industry professionals.
But I’ve got so much on my mind—partly from what I’ve learned in the past two days at the conference and partly from what our stocks have been doing—that I can’t stay silent. So here I am once again, with an update on the industry, and a reminder of some of the best practices of investing in these exciting stocks, as well as a quick look at the charts.
Now in its seventh year, MJBiz.com has over 1,000 exhibitors and more than 26,000 attendees, an increase of 137% from the year before. It’s BIG!
Exhibitors include a wide range of companies in the industry, from fertilizer and irrigation experts and greenhouse designers and lighting experts to growers to harvesting equipment manufacturers to transportation services to potency testing companies to security consultants to accountants to retailers to retail software providers to Chinese vape manufacturers to contract manufacturers of edibles to design and marketing companies and more.
My favorite was the manufacturer of this automated brownie-cutting machine that cuts perfect brownies—every time.
The company has been serving the traditional food industry for decades—they also make cookie-making machines—but they’re now targeting this new sector.
As to the industry, trends are strong. The number of states embracing legality ahead of the federal government continues to grow; one speaker noted that my state, Massachusetts, is known for having the slowest rollout, while Oklahoma is moving at the fastest speed of any state yet.
And once federal legality arrives—optimistically next year, but probably later—the financial and legal roadblocks will disappear and the industry will boom in the U.S.
But before federal legality arrives, optimists hope that the “States Act,” which could pass early next year, will allow states greater immunity from the federal law. And once that happens, it will enable a lot of interstate deals that are risky now.
Additionally, the Farm Bill still being haggled over in Congress may make hemp more legal and thus ease barriers to business in that sector as well.
Meanwhile, up in Canada, the first month of legal sales has brought supply shortages, but that will fade—and that’s a good problem to have.
Going forward, many growers continue to focus on reducing costs. But one speaker opined that equal effort should be put into building brands, because in the long run consumers won’t differentiate by the genetic variety of marijuana in a product, they will differentiate by brand. Tobacco smokers don’t care to differentiate between Burley and Cavendish, but they certainly differentiate between Marlboro and Kool—and the premium brands will be able to charge a premium price and thus earn higher margins.
As I’ve said from the start, investing in marijuana stocks is a marathon, not a sprint. My goal is to help you invest in the stocks that will be the industry leaders—and big winners—five and 10 years from now. So there’s no urgency, but you do need to be alert to both opportunities and risks.
The risks are numerous, from low liquidity to low institutional sponsorship to high volatility to the possibility of changes in the law.
As to the opportunities, it’s best to remember that stocks bottom when news is the worst, and they top when the news and public perception is the best. So try to think contrarily, and to be a seller when euphoria reigns and a buyer when the news is terrible.
Also, diversify, not just among companies but among business models, as I’ve done in the portfolio.
Stepping back to look at the environment today, I’m encouraged to see that many of our stocks have built good bottoms over the past two weeks, with many finding support at their 200-day moving averages. If you’re new to chart-reading, I recommend you read our free report on technical analysis of stocks by clicking here.
On the negative side, however, the broad market’s major trends remain down, telling us the market as a whole is unsupportive—and this means it’s possible that these stocks won’t do anything until the start of 2019.
But it’s best not to have preconceived notions. The one certainty is that these are still early days for this fast-growing industry—a lot of investors are still skeptical about the industry and its product—and as opinion of both the public and institutional investors improves, process will soar.
(Note: The next full issue of Cabot Marijuana Investor will be published on November 29 and I’ll provide a full survey of earnings reports then.)
What to Do Now
If you’re not yet invested enough in the sector, this is a fine time to begin to build positions in APHA, ACB, CGC, CRON, HYYDF, ITHUF, MMNFF and OGRMF.
And if you’ve been with me for many months and already have good profits, you can average up now.
But if you’re a recent reader and you’re still underwater in your latest buys, wait until you’re in the black.
Aphria (APHA 10) I previously told you it might correct to as low as 8, but it seems to have found a double bottom at 9.5.
Aurora Cannabis (ACB 6.6) I previously told you it might bottom at 6, and that’s pretty much where it’s built a double bottom over the past two weeks.
Canopy Growth (CGC 35) Canopy, the leader of the pack, bounced off its uptrending 200-day moving average twice in the past two weeks and that’s a great long-term technical buy signal.
Cronos Group (CRON 8.6) Cronos has less institutional support than the first three stocks (I think of them as the Big Three), so its chart is a little wilder. I previously told you a correction could take it down to at 7.2, and it actually overshot that mark and hit 6.5 two weeks ago, but the rebound since then has been impressive.
CV Sciences (CVSI 4.5) Not a marijuana business but a cannabidiol (CBD) oil business, CVSI avoided the big sell-off of the marijuana growers post-legalization, but it has weakened over the past week.
HEXO Corp. (HYYDF 4.9) Another second-tier Canadian major, HYYDF bounced off its 200-day moving average at 4.0, which I had mentioned as a logical correction low, and has rebounded normally since then.
iAnthus Capital (ITHUF 4.7) As a U.S.-based multi-state, vertically integrated operator, ITHUF has been somewhat insulated from the volatility of the Canadian growers, and has the potential to be a major U.S. player years from now. The stock bounced off its 200-day moving average two weeks ago and buying below 5.0 looks sensible.
Innovative Industrial Properties (IIPR 48) Innovative Industrial Properties is a real estate investment trust (REIT) dedicated to the cannabis industry that provides great diversification for the portfolio. The stock has been strong over the past two weeks, but I wouldn’t buy it up here.
KushCo Holdings (KSHB 5.3) Another U.S. peripheral player, KushCo supports the marijuana industry by dealing in totally legal goods and services on a national level. It’s a good diversification play and could be bought under 5.0.
MedMen (MMNFF 4.4) MedMen may become the most visible name in U.S. cannabis retailing. It can be bought under 4.5.
OrganiGram (OGRMF 4.4) Another Canadian second-tier major, OrganiGram has bottomed at 4.0 where we find its 200-day moving average. It can be bought here.
Tilray (TLRY 107) Tilray is too young a stock to have a 200-day moving average, but if you don’t own it, you can buy between here and 90.
Turning Point Brands (TPB 35) Turning Point is the old-school smokeless tobacco company that has been expanding into the cannabis and vaping markets, primarily through acquisitions of the Zig-Zag brand and several vaping brands. I previously told you it had the potential for a correction to 34, and in fact it fell to 33 on Wednesday. You can buy here if you want the diversification, and the 0.5% dividend.