Ted Ohashi's Marijuana Stock Market Review & Outlook
With May being the first down month in 2019 and the worst month of May in nine years, June rebounded smartly and posted the best start for the month since 1940. Last week tacked on another 2.4% to the Dow Jones as investors saw the trade war with China easing off as President Trump and China’s President Xi Jinping agreed to meet at the G20 meeting later this month. The Toronto Stock Exchange Index has also been recovering and rose 1.4% last week. Part of the rally in Canada came on the heels of a strong rally in gold prices as Middle East tensions rose with Iran shooting down an American drone.
The Canadian cannabis stocks declined for an eighth week in row as we warned might be the case. The current decline in the LTB Marijuana Composite Index is now the second longest in the comparatively short history of cannabis stock trading in Canada. As is evident from the chart to the right, momentum remains in a pronounced decline. So although the cannabis stocks are overdue for a rebound, I continue to expect prices to remain weak.
The chart below left show the performance of the Licensed Producer group and the chart to the right shows the Low-Priced stock index. Both indexes also declined last week but less than the LTB Composite. As a result, these subsets are starting to outperform the overall index. If this persists in the weeks ahead, it could evolve into a reason for optimism. In the meantime, however, it is an important dynamic we will keep an eye on.
The charts below are two of the Marijuana Indexes owned and managed by MJIC. Below left is the chart of companies with a substantial share of their cannabis business based in Canada while the chart below right records the stock price performance of companies concentrated in the U.S. compared to the Canadian counterparts. Although the recent comparisons have been the comparative rates of decline in price, last week the U.S. oriented index rose while the Canadian index fell. This is the strongest indication in many weeks that the American based companies are the place to be as we have been saying. The market was probably influenced by the fact that the U.S. House of Representatives passed a measure to block the U.S. Department of Justice from interfering in state and territorial marijuana laws including those legalizing adult use. I believe this will have positive repercussions for our recommended stocks ranging from a lot in the case of TGIF and SNN to somewhat less in the case of WEED, KHRN, CGOC and LXX, So let’s stick to our knitting and exercise some patience at this point. I am confident we will be rewarded.
I am repeating this chart again this week as it now establishes this is the second longest uninterrupted decline in the LTB Marijuana Composite Index in the over five years it has been published. At some point in the not too distant furure, I wouldn’t be surprised to see an up week to break this streak. But without additional evidence, my guess is we will not break the trend in prices which is remain down.
Conclusion: as I said last week, I have been actively investigating a couple new opportunities that fit our strategy. In answering the Question of the Week below, I point out that when a market goes down, almost all stocks follow suit. As a result, all of my recommendations have fallen in price recently and I believe all of them are at or near good points to buy or average down. The names are: 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).