Ted Ohashi's Marijuana Stock Market Review & Outlook
Despite a general rally on Friday, the major markets continue to be disturbed by the threat of trade wars. The Dow dropped for the fifth consecutive week making it the longest slump since 2011. Both the Standard & Poor’s and the NASDAQ recorded their longest streak of losing weeks this year. The optimism in Canada when it appeared tariffs from the U.S. would be lifted on steel and aluminium was short lived and the TSX reverted to the downside. The weakness in Canada was related to lower prices in the resource markets, especially crude oil that dropped almost 7% on the week. As Canadians know, the economic relationship with the U.S. is both a blessing and a curse. We are frequently collateral damage to what is happening south of the border. That is certainly the case these days.
The cannabis stocks are looking decidedly edgy as the LTB Composite has now declined in six of the past sever weeks. As regular followers know, we believe we are in the trading phase of a cannabis bull market. This is marked by more volatile price action that will lead eventually to a bear market. It’s a little bit like walking toward a cliff in the dark. I have been looking for one more rally in prices before the October 21st Federal election in Canada but time is passing. I still think there may be room for a leg up before the election but we have to conclude it will be shorter and less robust. In the meantime, this is a good time to make sure you have some cash reserves and the stocks in your portfolio are the crème de la crème.
The LTB Licensed Producer Index is looking much better than average. This group is tough to gauge right now because although they are the larger, revenue generators, many of them sport the higher, sometimes outrageous valuations as well. In the meantime, the Low-Priced sector seems to have missed out completely. Although I have been expecting that every dog would have its day, the clouds have been forming very fast of late. I remain very concerned about the Canadian cannabis group as Prime Minister Justin Trudeau and the Liberals stumble blindly into the next election. Trudeau finds himself in the awkward position of having to fight off the Conservative Opposition and members of the Liberal party as well.
The U.S. Marijuana Index owned and managed by MJIC is not doing any better as it has been falling faster than the Canadian Index since mid-April. I can only say that over the past twelve months this has been a recurring pattern. The U.S. focussed stocks have tended to outperform when prices are rising and underperform when prices are falling. Overall, however, the companies with operations concentrated in the U.S. have outperformed over the past twelve months and I think they will continue to do so.
Conclusion: The individual stocks we have focussed on are performing well all things considered. For example, last week in a generally declining cannabis stock market, three of our six recommendations rose in price, one was unchanged and two were lower. In the next four to six weeks, I believe the market will give us a better indication of the direction in which it is headed. I would keep portfolios concentrated in 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, prospects in the cannabis group.