Ted Ohashi's Marijuana Stock Market Review & Outlook
After strong rallies post-Christmas, the major markets in the U.S. and Canada appear to be consolidating. This should not be surprising. Markets never go straight up. At this stage, I would not worry about a correction that stays under 5%. That would be quite normal. Many of the problems are on the political front. In the U.S. you don’t have to be a political pundit to know that President Trump continues to be surrounded by controversy but now the Democrats have newly elected representatives who appear to be showing some Socialistic and anti-Semite views. In Canada, Prime Minister Trudeau appeared unbeatable a year or so ago now seems very vulnerable. Trudeau has to face the voters first so we will see what happens before attention swings to the U.S.
The Canadian marijuana stocks have been flat. In the last seven weeks, the Let’s Toke Business Marijuana Composite Index has changed direction six times after one week and one time after two weeks. Momentum has more or less kept pace with prices although it has been slightly weaker.
The Licensed Producer group gave up 1.1% last week while the Low-Priced Index outperformed with a decline of -0.4%. I am at least a little concerned about the LPs right now. With Prime Minister Trudeau disintegrating before our eyes, a Liberal loss in the October 21, 2019 election will negatively impact the licensed producers the most. There is probably still a couple of months before we have to think about running for cover as the polls give us a better picture of voter intentions. We should remember that six months is a lifetime in politics so we shouldn’t jump to conclusions. Yet!
Although the U.S. based cannabis companies outperforming the Canadian based companies has not really take hold, I believe it will. My expectation is based on the Democrats taking control of the U.S. House in November and the number of bills currently working their way through the legislatures at many levels. As one of the major bills hits the floor of the House, investors will become increasingly optimistic as a bill receives approval of the House, then the Senate and finally, President Trump’s signature. This process can start at any time.
Conclusion: As I have been saying, investors should stay focussed on companies such as Khiron Life Sciences (TSXV: KHRN) operating in Colombia. 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. Keep an eye on 1933 Industries (CSE: TGIF) which recently accelerated the exercise of a series of warrants. (see below) When this happens the underlying stock often sells off because some investors need to sell some shares to generate the money needed to exercise their warrants. The good news is this “forced selling” often creates a unique buying opportunity. I will be watching closely to pick a time to bottom fish. Sunniva (CSE: SNN) announced guidance of $55 to $60 million in sales from branded CBD products in California in 2019. This was updated to include $15 to $20 million from other operations so the target revenue is $70 to $80 million.