Ted Ohashi's Marijuana Stock Market Review & Outlook
The Let’s Toke Business Marijuana Composite Index reverted to a negative trend posting a loss of 2.7% after a one week rally. Given the behaviour of all of indexes, the cannabis stocks continue to look weak. Our position has been and is that the cannabis stocks need a new event to push prices higher. We were hopeful the midterm elections would be that event but the rather tepid Democratic showing led us to report last week that it wasn’t up to our standards. That is where we stand today – cautiously awaiting an event important enough to rekindle a market rally.
The LTB Marijuana Stock Momentum Index remains in a more pronounced decline that the LTB Composite. This is a more ominous indicator of where prices are headed and a reason we keep urging readers to be cautious when investing including holding some cash in portfolios. This is not an out and out negative forecast. There are some events that could materialize in the short term. Most of these are political and south of the border but anything good for the U.S. should be good for Canada as well.
The LTB Licensed Producer Composite Index that had been leading the cannabis parade has reverted to the mean. Last week, for instance, the index fell 2.6%, or more or less on a par with the composite index. However, I remain optimistic for the group because they are armed with hundreds of millions of dollars, and in Canopy Growth’s case, billions of dollars to create a corporate event that may be enough to move a stock if not the market. So looking beyond the current volatility, we look for the Licensed Producer group to remain in a leadership role.
The Canadian Cannabis Composite Index, published by Davis and Associates Capital Corp. continues to be more volatile than average. Last week it outperformed on the upside but this week gave it back and then some with a decline of 6.6%. The 3Ci lost ground Monday through Wednesday, had a small bounce on Thursday and ended the week on a down day. Again this index seems to be pointing to lower prices ahead and a more volatile pattern at that. It seems to be telling us to be careful.
The LTB Low-Priced Composite might be closer to reflecting an oversold position. This has come about because it has been underperforming for several months relative to the other sectors of the cannabis stock market. If bull markets are born in pessimism as Sir John Templeton said, the low priced stocks are more likely to reach that low point before the License Producers or the average cannabis stock. I am not saying this sector is about to turn into a bull market but simply that it looks closer that point than the rest of the group.
Conclusion: No change in our message this week. Remain cautious with cannabis stock portfolios and remember that stock selection is more important than ever at this stage. This is not a time for random stock picking. In fact it is a good time to weed out some of the stocks you may have picked up along the way without sufficient due diligence.