Ted Ohashi's Marijuana Stock Market Review & Outlook
The Let’s Toke Business Marijuana Composite Index had a bounce after six consecutive weeks of declines recording a gain of 0.6%. This was apparently a response to the U.S. midterm elections results as prices were higher in the first three days of week but gave up ground in the last two days. We agree with the market’s judgement. The election results were positive but did not constitute what would amount to a cannabis stock market driving “event.” As a result, we back to waiting and there is every possibility we will have one in the near future, say, before year end.
The LTB Marijuana Stock Momentum Index is still in a downtrend and that makes our overall outlook cautious. But the index is poised to respond favorably to any significant event. There are many possibilities including the Acting A-G restoring the intent of the Cole Memorandum to another major inter-industry investment into one of Canada’s leading LPs such as Aurora or Aphria to President Trump acting on his own to legalize medical marijuana and allowing the states to determine local laws on recreational cannabis to one or more the 41 pro-cannabis bills being approved by the Democratic controlled House.
The LTB Licensed Producer Composite Index made a 1.0% advance on the week as the larger LP companies stand to benefit most from a stronger voice in the U.S. by the Democrats. As we said last time, “If the U.S. market receives a boost next week [from the midterms], we anticipate the larger LPs to do well.” Of course as we explain in Marijuana Matters below, there were enough pluses from the election to give the sector a boost but not enough to trigger a major rebound in my opinion. But the potential remains for such an “event” to take place in the not too distant future.
The Canadian Cannabis Composite Index, published by Davis and Associates Capital Corp. posted a gain of 2.3%. This index shows the daily pattern of price changes. The index rose on the Monday, the day before the election, Tuesday, the day of the election and Wednesday, the day after the election. On the last two days of the week, the index was sharply lower. As a result, investors were optimistic in advance of and shortly after the election. But in the sober light of day, the market decided the election results were insufficient to sustain a strong rally.
The LTB Low-Priced Composite produced a more normal gain of 0.6% last week. Although it appears there will be a delay in the index recovering, there is a positive side. If this index is leading the pack on the upside, which it will do before this cycle is over, it spells over optimism and that is negative for the outlook. But when it stands at a low and likely oversold position as it as at present, it indicates a lack of speculative investor psychology and that is positive for the outlook.
Conclusion: the times for taking a shotgun approach to picking stocks for your portfolio are over. What is needed now is a highly selective approach to the task. That is why at this time many investors will benefit from a newsletter like Let’s Toke Business or a guideline for managing your cannabis portfolio such as The Cannabis Report Model Portfolio.