Ted Ohashi's Marijuana Stock Market Review & Outlook
It was a holiday shortened week for North American investors as the Canadian market was closed on Monday for Canada’s birthday and the U.S. market was closed on Thursday for Independence Day. On Wall Street most price indexes reached new highs last week while Bay Street fell just short. The chart on top is the Dow Jones Industrial Average over forty years and shows a compound annual growth rate of 8.9% per annum. Add in 2% - 3% a year for dividends and you have an 11% - 12% return. Of course we are measuring at an all-time high so the long term return shown is higher than the long term average return which is usually between placed between 9% - 10% per annum.
The cannabis stocks moved slightly lower for a tenth week in succession as measured by the LTB Marijuana Composite Index. This week the momentum index was weaker than the price index suggesting the price index was painting an unrealistically optimistic picture. However there are some positive signs. The Low-Priced Stock Index was able to post a gain last week and correction approached the all-time record for successive weekly price declines.
he chart below shows the performance of the Licensed Producer group that continues to be better than the average cannabis stock. Whereas the LTB Marijuana Composite Index, the Momentum Index and the Low-Price stock index have all made new lows, the Licensed Producer Index has not which is a positive sign. Even the Low-Priced Index has turned higher on a relative basis as the chat below shows.
What this means is although cannabis stock prices have been generally declining since late January 2019, the Low-Priced cannabis stocks have been outperforming by declining more slowly. Although this may be small consolation to a cannabis share owner, it does help over time. Between the Licensed Producer and Low-Priced stocks, there is some indication of strength.
The charts above use the Marijuana Indexes owned and managed by MJIC. The chart below left plots the share prices of cannabis companies that do the majority of their cannabis business in the United States. The chart to the right shows the relative performance of the U.S. operators compared to the Canadian operators. It shows the U.S. operators have been outperforming their counterparts as we have been forecasting for some time.
In the financial markets, today’s stock prices do not always provide an accurate measure of today’s stock value. But if we are persistent and continue to do the right thing, we will be rewarded. So I encourage you to continue on the path we are on knowing that our confidence will produce above average long term returns.
This chart shows that the LTB Marijuana Composite Index has now declined for nine consecutive weeks. This is the second longest uninterrupted stretch of weekly declines in the five plus years the index has been calculated. Given the developments this week, it is my expectation that a turn up could come very soon – perhaps as soon as next week. This may prove to be a brief rally in a downtrend but that’s a question for a later date.
Conclusion: it is important to understand that short term trends in the stock market are extremely difficult to forecast. But every once in a while, there are enough indications to suggest a change might be in the offing. That is the case as I see it right now. So I believe this is a good time to initiate a position or average down a holding in the following names: 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).