Ted Ohashi's Marijuana Stock Market Review & Outlook
The U.S. market indexes had a volatile week ending on the downside. President Trump began to threaten China in a series of Tweets in the days leading up to trade negotiations in Washington, It seems the Chinese have as hard a time as the Americans in figuring out what the President means. Pundits report Chinese negotiators overplayed their hand expecting Trump to back down. Instead, Trump refused to budge and a 10% tariff increased to 25% on $200 billion worth of goods from China. As a result, both the S&P 500 and the NASDAQ Composite had their worst one week performance since before Christmas. In terms of the economy, Canada is sharing a bed with an American elephant and although it wasn’t a terrible week, it was also the largest one week setback in 2019.
The cannabis markets as measured by the Let’s Toke Business Composite Index lost 0.7% last week. This was a relatively modest decline as other major cannabis stock price indexes dropped even more. Momentum continues to be a drag on prices turning in an even weaker performance on the week. As regular readers know, I have been concerned about the Liberals losing the election on October 21, 2019 and things continued to point in that direction this past week. Navy vice-admiral Mark Norman was the second highest serving officer in the Canadian armed forces when he was relieved of duty by Prime Minister Justin Trudeau’s government. It was another of those government contract matters that apparently blew up in Trudeau’s face and an internal probe led to a charge that Normal had leaked information. Speculation has it that Trudeau went looking for a scapegoat and settled on Norman that was charged with breach of trust. Well known top lawyer Marie Henein forced the government to withdraw the charges but not before making a masterful argument that basically toasted the Prime Minister and the Liberals. It isn’t clear what happens next but it won’t be good for the government.
Meanwhile the latest CBC Poll Tracker numbers give the incumbent Liberals only an 8% chance of forming government after the next election compared with a 36% the Conservatives will. These results will weigh more and more heavily on the larger Canadian cannabis market oriented operators as the election nears.
The LTB Licensed Producer Index underperformed last week with a decline of 1.0% while the LTB Low-Priced Composite outperformed in a generally down market with a loss of 0.6%. The looming change in government from the cannabis supportive Liberals to the strongly anti-marijuana Conservatives would hit the Licensed Producers the hardest. With the Low-Priced Index as depressed as it is, I am turning my attention to couple of low-priced cannabis opportunities for the first time since my initial recommendations of Lexaria (OTCQX: LXRP) (CSE: LXX) that I still like a lot and Namaste (TSXV: N) that I have been off for some time. I don’t know whether I will be as successful because last time the stocks went from pennies to dollars and LXRP is still there but there is no reason to believe the candidates I am looking at won’t be as good.
The U.S. Marijuana Index owned and managed by MJIC dropped 3.8% last week but unlike last week did not outperform its Canadian counterpart that gave up only 1.0%. However the trend of outperformance of the U.S. group remains intact. If the government news in Canada is negative, it is just the opposite for cannabis in the U.S. There is even one story going around that President Trump will support legalization before the end of June. Short of that it seems at least one pro-cannabis bill will pass the House and be sent to Congress in the reasonably near future.
Conclusion: No major change in my outlook for the cannabis group of the stocks I like. These include: 1933 Industries (CSE: TGIF) (OTCQB: TGIFF), Cannabis Growth Opportunity Corp. (CSE: CGOC), Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF), Lexaria (CSE: LXX) (OTCQX: LXRP) and Sunniva (CSE: SNN) (OTCQB: SNNVF). At the present time, I am engaged in due diligence on a couple of very exciting, low priced prospects in the cannabis group.