Ted Ohashi's Marijuana Stock Market Review & Outlook
On Wall Street, the Dow Jones Industrials, the Standard & Poor’s 500 and the NASDAQ Composite Index all ended two weeks of rising stock prices that saw the Dow topping 27,000 and the S&P above 3,000. In Canada, the TSX/S&P Index joined in the correction but hovered around its all- time high without breaking through. Markets were impacted by rising gold prices as Iran seized two oil tankers in the strait of Hormuz. Meanwhile stock prices remain sensitive to U.S. and China trade and the possibility of lower interest rates.
The Let’s Toke Business Marijuana Composite extended its string of consecutive weekly declines to 12 which is the record as seen at the end of this market report. The index gave up a scant 0.2% on the week which was confirmed by the momentum index. In fact, some of the narrower cannabis index actually had small gains last week. CannTrust (TSX: TRST) continued to weigh down cannabis share prices last week and extend the bearish tone of the cannabis markets. A more complete review of the TRST scandal follows.
I think that without the additional negative investor psychology drummed up by the events surrounding CannTrust, the cannabis markets would have been recovering. Looking at the Licensed Producer Index that gained 1.2% and the Low-Priced Index that lost 0.9%, a pattern of normality is evident. Of course, the LPs are rebounding from the negative investor response to the TRST news that hit this group the hardest. Still, looking ahead, we may see a rally in prices. By our definition this would be a bear market rally that won’t last long or rise as much but after the previous twelve weeks, anything on the upside would be a relief.
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. The U.S. Index posted a gain of 1.7% last week but this did not keep pace with the Canadian index that advanced 2.8%. Still the chart shows that the U.S. based operators have been strongly outperforming their Canadian counterparts for almost all of the past year. We expect this trend to continue.
This chart shows that the LTB Marijuana Composite Index has now declined for twelve consecutive weeks matching the longest stretch of consecutive losses since we have been keeping records. You may wonder how the LTB Index can be down when the MJ Canadian and U.S. Indexes are up. The main reason is the LTB Index is based on the price changes of nearly 125 cannabis stocks compared with only 24 for the MJ U.S. Index and 23 for the MJ Canadian Index. In stock market parlance, the LTB is a more broadly based index.
Conclusion: as the LTB Index has been declining for twelve consecutive weeks that happens to match the previous longest downward streak back in mid-2017, we are overdue for a rally. I think it might have started two weeks ago had it not been for the CannTrust scandal that caused quite a setback in investor sentiment. We will have to assess the rally once it begins but chances are it will be a rally in a bear market and that will make it a little shorter and more subdued. With that in mind, there might be a trading opportunity in our recommended list. Buy now and look for an opportunity to take some profits in two to four weeks. Those stock are: 1933 Industries (CSE: TGIF) (OTCQB: TGIFF) as well as Cannabis Growth Opportunity Corp. (CSE: CGOC), Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF), Lexaria (CSE: LXX) (OTCQX: LXRP) and Sunniva (CSE: SNN) (OTCQB: SNNVF).