LTB updates its cannabis stock momentum index
Updated: Jun 20, 2018
The LTB Marijuana Composite Index turned in an unprecedented result. The index declined 1.7% which means it has changed direction each week for six weeks in a row while remaining virtually unchanged in price. The current excuse is the back and forth of the legislation between the House and Senate. A cynic might say the market is flat lining which in medical terms indicates the patient is close to death. Let’s hope the politicians get on with their jobs and approve Bill C-45.
The LTB Licensed Producer Index posted a dip of 1.8% last week. Compared to the Marijuana Composite, the LPs have been a little less volatile with a mild bias to the upside in prices. We continue to expect improved performance from the group although we conclude that size matters. Unless you are a Sunniva that is in the early stages of development but have established marketing channels in Canada, you could be in trouble. In tackling the issue of distribution, the provinces have turned themselves into the monopolistic wholesalers of cannabis. So the small growers and wannabe’s may have product with no one to sell to.
The Canadian Cannabis Composite Index, published by Davis and Associates Capital Corp. declined 2.4% last week. This continues its established pattern of greater volatility. For example the index has dropped 6.2% since the high made on June 6, 2018. We expect this index which is more heavily weighted toward the larger cap cannabis companies will outperform in the weeks ahead as we expect this group of stocks to be leaders. Watch for developments in the group by following the 3Ci.
LTB Low-Priced Composite swam against the tide last week and was able to post a small gain of 0.8% while the other indexes posted declines.
This does not change our reading on investor psychology. We believe there is a healthy level of investor skepticism that has been driven by the antics of the politicians in the Canadian Senate. Before this cycle is over, we expect the small cap cannabis stocks to lead the way. Our recent recommendations such as Khiron, Lexaria and Sunniva reflect this expectation.
Last week we observed the volatility for cannabis stocks “...is getting ridiculous.” It’s official. It is ridiculous. In the past six weeks, the Composite Index has changed directions six times and in the past 23 weeks, the market has changed direction 15 times. If you believe was we do that cannabis stock prices are headed higher, the appropriate strategy is to focus on the longer term. Shorter term approaches such as jumping on trends or riding moment don’t work in this type of market. It is better to take advantage of the flatness, in prices, especially during the down days and weeks to buy stocks you favor for the long term.
Conclusion: as we patiently await approval of Bill C-45, investors have been sitting on their hands as well. If the bill passes with the amendments the House has returned to the Senate, the major beneficiaries are the large, well established Licensed Producers.