A Big Acquisition
Marijuana stocks as a whole pulled back normally over the past week, but the correction may have ended yesterday, with most of the leaders still well above their 50-day moving averages—and the best have continued to hit new highs. Bottom line, the trend remains up and thus I’m keeping our portfolio fully invested.
The big news in the industry this morning was that two of the major Canadian producers are merging, in a deal that will create (at least for now) the world’s biggest marijuana company as measured by revenues. Specifically, Aphria (APHA) and Tilray (TLRY) will combine in an all-stock deal. Aphria shareholders will receive fractional shares of Tilray in the reverse merger and will end up owning roughly 62% of the shares of the resulting larger Tilray, which will continue to trade under the same symbol.
TLRY famously traded as high as 300 back at the 2018 top, just before Canada began legal sales—but was trading as low as 3 at this year’s March bottom. It had climbed as high as 12 by early November but was down to 8 before this morning’s announcement gapped it up to the 10 area. Interestingly, Tilray has not once reported a quarterly profit.
As for APHA (which we previously owned very profitably, selling half very near that 2018 top for a profit of 227%—the day after marijuana was legalized), it’s been the stronger stock recently, and we may get back into the combined company (trading as TLRY) in the future.
Right now, however, our portfolio is heavily weighted to U.S. stocks, and we’re doing very well there.
Canopy Growth (CGC) has pulled back normally, getting roughly halfway to its 50-day moving average. Interestingly, Mike Cintolo included the stock in last Friday’s Cabot Top Ten Trader update, where he wrote, “CGC looks like it’s emerged from a multi-year downtrend, with great upside power since early November. So far this month, it’s hesitated as the 25-day line (now at 26 and rising quickly) catches up. Nibbling here or on dips should work, though use a loose initial loss limit in the 22.5 to 23 area.”
Cresco Labs (CRLBF) looks similar, but stronger, trading very tightly around 10 (the magic double-digit number where some institutions take note). It can be bought here.
Curaleaf (CURLF) shows a similar pattern but even stronger, with a base forming at 12. It too can be bought here, assuming you get out quickly when the music stops.
Green Thumb (GTBIF) is the champion of the group, now on its ninth consecutive up day, and approaching its record high of 2018. Thus, momentum is strong. But volume is fading, telling us better buying opportunities are likely.
GrowGeneration (GRWG), our hydroponic supplier, broke out to a record high today—and for good reason! Earlier this week, the company announced its seventh acquisition of the year, Grassroots Hydroponics, a three-store chain of hydroponic garden centers in Southern California. With these additions, the company now owns and operates 39 specialty retail hydroponic and organic gardening stores. Following the announcement, the company increased its 2020 revenue guidance to $185 million - $190 million, and adjusted EBITDA to $19 million - $20 million. It also updated revenue and adjusted EBITDA guidance for 2021 to $280 million - $300 million, and $34 million - $36 million, respectively. I previously suggested taking partial profits in the stock, particularly if you’re overweighted (we sold a fourth of our position and it’s still our largest holding), but long-term, the future is bright.
Innovative Industrial Properties (IIPR), our marijuana REIT, has been hot these past two weeks, so hot that I can’t recommend buying here. But it’s a strong hold, and just yesterday the company announced a 6% hike in its fourth-quarter dividend, to $1.24 per share from the $1.17 paid in the prior quarter. This represents a 24% increase year over year and brings the annualized dividend to $4.96 per share, or 2.7%.
Jushi Holdings (JUSHY) is more volatile than most of our other producers, being smaller and lower-priced, but its chart is similar, on a normal correction centered around 4.2. You could buy here.
TerrAscend (TRSSF) has had a good correction, bringing the stock more than halfway back to its 50-day moving average, so it can be bought here. Today’s up volume was impressive.
Trulieve (TCNNF) is strong, hitting record new highs frequently, but volume is fading, so I think there are better entry points ahead.
Turning Point (TPB) is on a small pullback, and I think it deserves to pull back a little more.
Village Farms (VFF) corrected almost exactly half the distance to its 50-day moving average before buyers stepped in yesterday, so if you’re looking for a wholesale grower of marijuana (and vegetables), you can buy here.
FYI, our portfolio is now up 80.0% YTD, while the Marijuana Index is up 26.9%—and the fact that I’m hoping we hit 100% by year-end is one sign of the optimism and greed that now permeates the market.
Final note: As the year end approaches, it’s likely that winning investors will hold their winners (including our marijuana stocks) into the New Year, but after that anything is possible, including a big well-deserved correction. Investing is not always as easy as it has been in recent months. My plan is to ride the trends as long as they last, but to move a substantial part of our portfolio to cash when trends change. It’s just a matter of time—but no one has the timetable.