Taking on Water
Fundamentally, all is well in the marijuana sector as the industry’s leaders continue to grow, both organically and by acquisition. The average rate of revenue growth for the plant-touching companies in our portfolio in the most recent quarter was an amazing 132% from the previous year.
But technically, the picture has worsened for the sector, with every one of our plant-touching stocks falling to new lows in recent days (The only stocks holding up are those of the two totally legal companies, Innovative Industrial Properties (IIPR) and GrowGeneration (GRWG)).
Now, some investors may look for a fundamental reason to explain why the stocks are so weak, but there is no simple answer. What there is is a lack of buyers, combined with sellers who are increasingly motivated to abandon a ship that is taking on water.
Of course, the ship won’t sink. Somewhere, someday, the buyers will take control. This industry still has great growth ahead. But right now, the prudent thing to do with our portfolio is to reduce risk so that we have capital to use when the climate is more supportive.
How you do that depends in part on how exposed to this sector you are—and what your risk tolerance is.
In my issue of Cabot Stock of the Week today, which had only one marijuana stock, Trulieve (TCNNF), I recommended selling and taking the profit of 140% (which is less than half what it used to be), because that service has no obligation to hold any marijuana stocks.
Here in Cabot Marijuana Investor, the case is different—obviously. Plus, I’m very eager to get you invested in the best and strongest stocks in the sector when it turns positive again. So I’m still inclined to hold the industry leaders long term.
But short term, my focus is on plugging the leaks, so today the portfolio will sell two stocks. The first is our biggest loser, Columbia Care (CCHWF), and the second is our weakest stock, Jushi (JUSHF). Both, interestingly, are also our lowest-priced stocks, reminding us once again of the risks of investing in low-priced stocks.
After these sales, the portfolio’s cash level will be roughly 35%, and that’s cash that I’ll put into the strongest stocks, once the sector turns positive again.