Ted Ohashi's Marijuana Stock Market Review & Outlook
As the major markets continue to advance in the face of much negative sentiment, I am reminded of the old market adage that stock prices have to climb a wall of worry. What this means is stock prices will only turn and start to rise if pessimism is dominant. The reason is that unless investor psychology is negative, stock prices wouldn’t be low. This concept was first introduced by Humphrey B. Neill in his investment classic, ‘The Art of Contrary Thinking’ first published in 1954. This was one of the first investment books I read and Neill’s ideas have been helpful to me for many years. So if the major markets continue to rise and market pundits keep saying this shouldn’t be happening, remember that is good. It’s when everyone says the market should be going up that you have to be concerned.
The marijuana stocks were mixed last week and there were conflicting messages from the popular indexes some of which were up and some were down. The LTB Marijuana Composite Index was in neutral last week posting a gain but unchanged to two decimal places. The momentum index was mildly negative and is demonstrating a tendency to diverge from prices. I will be keeping an eye on this trend that is not conclusive at this point.
One area in which the divergence in prices within the cannabis group is evident is the Licensed Producers. This sector posted a 1.0% gain last week compared with flat performance for the Composite Index and a decline of -0.4% in the LTB Low-Priced Index. Regular readers will recall that having the LPs lead and the Low-Priced group fall is positive, in my opinion. It means the senior quality companies are leading the way while investor psychology remains quiet.
The mild outperformance by Canadian cannabis stocks over their U.S. counterparts continued last week as measured by the Marijuana Indexes owned and managed by MJIC, Inc. I am more bullish on companies with businesses rooted in the U.S. and elsewhere outside of Canada. The main reason for favouring the U.S. is since the midterm elections last November, I believe the political winds have been blowing in favour of their domestic cannabis industry. Looking ahead, I can see much potential for regulatory improvement in the U.S. in 2019.
Conclusion: At this point, I believe investors should stay focussed on companies such those listed below that derive all or almost all of their potential revenue from the U.S. or Colombia/Latin America. Khiron Life Sciences (TSXV: KHRN) is operating in Colombia and after reaching a closing high over $4 per share, it has consolidated back to the $3.30 per share level which I think is a real buying opportunity. If you want to see how well cannabis grows in Colombia, I have included a recent video from KHRN’s grow facility here. Don’t forget about 1933 Industries (CSE: TGIF) which recently announced expanding sales of its CBD health and wellness products into 46 states. Sunniva (CSE: SNN) that announced guidance of $55 to $60 million in sales from branded CBD products in California in 2019. See also the Question of the Week below.