This is an unscheduled interim update with three goals.
- To help my numerous new subscribers get off on the right foot as they begin investing in the fastest-growing industry in America
- To update you on my latest thinking about investment strategy and the movements of specific stocks.
- To review a few changes specific to this advisory (mainly name and publication frequency).
So, from the top, the most important thing for new readers to keep in mind is that this is a marathon, not a sprint. The long-term trends for the industry are extremely positive, and we are still in the first innings, so my goal is to get you invested in the stocks that will be industry leaders one year, five years, even 10 years from now.
In the long run, investing success in this sector should be easy. The tide will be coming in for a long time.
But in the short run, investing success in this sector can be difficult, and that’s not only because these companies are young and their management teams are learning fast, but also because the stocks are young and low-priced and thinly traded and lacking institutional sponsorship. Volatility can be extreme.
Thus, a key focus in the short term should be on reducing risk—and there are a few ways to do this.
First, keep an eye on the chart of the sector and try to invest in sync with it.
Marijuana Index
As I write, the sector has been positive since August 15, when Constellation Brands (STZ) announced that it would invest $4 billion to increase its ownership of Canopy Growth (CGC) to 40%. That “blastoff” marked the end of an eight-month consolidation phase for the sector, so this new uptrend is likely to persist for some time, perhaps many months—perhaps even until year end, as professional investors engage in “window-dressing” by buying the best-performing stocks of the year (cannabis stocks) so their portfolio looks good to prospective investors.
At the same time, however, it’s important to remember that while it pays to follow the crowd in the middle of trends, it also pays to act contrary to the crowd at the end. Thus, today I’m wondering if the official date of legal adult-use cannabis across Canada (October 17) might mark the point of peak perception and thus the end of the current uptrend.
Time will tell, but given a choice, I’d rather invest now than closer to October 17.
As to what stocks to buy, remember that the goal is not to buy at the bottom and sell at top, and the goal is not to own the biggest winner. The goal is develop a diversified portfolio of marijuana stocks (not just Canadian growers) that are acquired at attractive risk-reward points and then hold the best long-term.
Charts are definitely helpful in this endeavor, and if your chart-reading skills are rusty, fell free to refresh your knowledge here: https://cabotwealth.com/reports/technical-analysis-stocks-relative-performance-works-trading-volume-important-chart-reading-lessons/
Cabot Marijuana Portfolio
Stocks To Buy Now
So, what stocks look good now?
In last week’s update, I noted that stocks that offered fairly decent entry points were Aurora (ACBFF), Organigram (OGRMF), iAnthus (ITHUF) and CV Sciences (CVSI), which was added to the portfolio the next day.
CVSI and ACBFF are still on corrections and still attractive, while ITHUF and OGRMF are still strong and fairly early in new uptrends—so all four can still be bought.
Canopy (CGC) remains the undisputed leader in the sector, but the advance since August 15 (a gain of 113% as I write) is losing steam and buying volume is fading, telling us the odds are growing that a correction will begin soon. However, since everyone investing in the sector seems to want to own the leader, the correction may be mild. (Note: We sold half our position at the end of August for a profit of 552%, but CGC still represents 12% of the portfolio.)
Aphria (APHQF) too has been very strong since the blastoff, but I wouldn’t buy it up here. It’s still below its January high.
Cronos (CRON) is above its January high, but peaked two weeks ago and has been working on building a very loose base since then—volatility has been high.
HEXO (HYYDF) (previously known as Hydropothecary) has blasted off over the past few days on no particular news. This, actually, is quite auspicious, and aggressive investors could try to buy on pullbacks. (HEXO is the Canadian marijuana grower that has partnered with Molson Coors to put cannabis drinks on shelves in Canada as soon as they’re legal.)
Turning to what I consider the “peripheral” stocks, which add diversification and balance while reducing risk:
Innovative Industrial Properties (IIPR) is one of the portfolio’s “low-risk” components and has a healthy chart. If a growth-oriented REIT that serves the U.S. cannabis industry would fit your portfolio, it’s worth considering, especially if you can buy toward 38. (Note: We sold a third of our position at the end of August for a profit of 127%.)
KushCo Holdings (KSHB) (previously Kush Bottles) remains in a long-term uptrend but well below its January high. It can be bought here if your portfolio would benefit from diversification. (Note: We sold half of our position at the end of August for a profit of 177%.)
Turning Point Brands (TPB) is the smokeless tobacco company morphing into an industry-leading vaping retailing platform—and just last week it announced the acquisition of International Vapor Group, an acquisition that TPB expects to be immediately accretive. We took profits of 107% on a third of our TPB position at the end of August, but it remains a stabilizing part of the portfolio and can be bought here—carefully. The acquisition news sparked buying that kicked off a new uptrend.
Last but not least are the two stocks that I profiled in the latest issue that are not in the portfolio yet.
Tilray (TLRY) has been hot as a pistol, and is still very close to its record high of last week. I’d like to own it, but won’t buy here, mainly because the short-term risk-reward looks sketchy; the stock’s 25-day moving average is down at 47 (almost 50% from below its current price!).
MedMen (MMNFF) doesn’t look as sky-high as TLRY. On the other hand, as a $4 stock, it’s got less institutional support. MedMen is the biggest cannabis retailer in the U.S. and aims to run the “Apple Store” of the industry, so I’d like to own it. But I’ll wait for a better entry point.
Cash. The portfolio’s cash level now stands at 13%, cash that came from the four end-of-August sales (less last week’s buy of CVSI), and I’ll stand pat for now, giving CVSI a little more time to work. Remember, diversifying your buying over time can help reduce risk.
Finally, long-time readers will note that the name of this service has changed from Cabot’s 10 Best Marijuana Stocks to Cabot Marijuana Investor—though the former name will still be used for an occasional Special Report.
With this name change the advisory will now be published monthly on the last Thursday of the month.
Unfortunately, because I had a late September vacation planned before we made this schedule change, the next full issue will be on October 4. Thereafter, however, we will publish regularly on the last Thursday of the month.
In addition, I will continue to send you interim updates when I think it will help. But try not to get too wrapped up in the day-to-day movements of these stocks; keep your focus on the long term.