Managing Your Marijuana Stock Portfolio
The bull market is alive and well, and marijuana stocks remain among the leaders, as buyers continue to flood into this hot sector in the midst of a growing trend toward legalization.
Fundamentally, nationwide legalization will be a boon to the marijuana business, enabling “normal” banking practices by the companies in the industry and sparking a wave of consolidation as well. But, as I’ve mentioned before, the odds are very good that when that switch is finally thrown, the stocks will peak, just as they have on previous legalization events in California, Colorado and Canada.
That day, however, is still somewhere in the future. Today, my main concern is staying fully invested in the best stocks in the sector as long as the trend is strong—while preparing to move substantially to the sideline when the inevitable correction arrives.
Right now, trends look fine, but the fact is, the 50-day moving averages of these stocks are substantially below the stocks’ current levels, so there’s potential for a major correction, especially if the stocks are still in this elevated state as the calendar turns and investors shift to profit-taking in January (thus delaying the tax bill a year).
If such a correction would hurt you, I suggest taking some partial profits now (or at least setting mental stops). There will be lower-risk buying opportunities in the future. On the other hand, if you’re still working to get into the sector, buying now could work out fine—though if the correction develops, you’ll need to choose between taking a quick loss and standing pat.
Today, I’m making no changes to our portfolio.
On the bright side, six of our eleven stocks have hit new highs this week: Curaleaf (CURLF), Green Thumb (GTBIF), Jushi (JUSHY), TerrAscend (TRSSF), Trulieve (TCNNF) and Turning Point (TPB). I’d like to average up in Jushi someday, but as the portfolio is fully invested now, that would require selling something, and there are no obvious contenders—so I’ll wait a while longer. If you have cash, however, and you can handle the risk, you can buy any of these six here.
As for the others:
Canopy Growth (CGC), our lone pure Canadian stock, has been building a nice base in high 20s, and could be bought here if you’d like the diversification. Canopy today announced some cost-cutting measures (closing four indoor grow sites and cutting about 220 jobs) as part of a plan to move closer to profitability; there was no big reaction to the news.
Cresco Labs (CRLBF) hit a new high last week and has corrected minimally since. There’s no selling pressure here.
GrowGeneration (GRWG), which we took partial profits in two weeks ago very close to the top (we were heavily overweight the stock), is in the steepest correction of all, but still not halfway back to its 50-day moving average. If you haven’t taken profits yet, it’s not too late. The company this week announced a follow-on public offering to raise $150 million.
Innovative Industrial Properties (IIPR), which has been basing over the past five weeks, attempted a breakout this morning, but as the market weakened during the day, the breakout didn’t quite succeed. Still, it’s a positive sign for the REIT.
Village Farms (VFF), the smallest company in our portfolio, our most recent addition and perhaps the riskiest stock, has lost some of its momentum and if this continues, I will cut the loss short. In retrospect, I didn’t need to add VFF, but I was attracted to the potential for more diversification, and the strength of the chart was impressive. It still may work out. But the portfolio didn’t really need more than 10 stocks, and in the tug-of-war between the desire for concentration (great on the way up) and the desire for diversification (safer on the way down), combined with the all-too-human attraction to shiny new things, sometimes the shiny things win.
FYI, our portfolio is now up 70.1% YTD, while the Marijuana Index is up 26.7%.