Ted Ohashi's Marijuana Stock Market Review & Outlook
On Wall Street, the major indexes hit new highs while the Canadian markets moved higher but held below record levels. While media focussed on Robert Mueller’s testimony that made Democrats look like a pack of dogs chasing their own tails. Meanwhile, the economy performed above expectations as corporate earnings weren’t as bad and the economy did not slow as much as economists expected. So the major markets continue to provide a stable backdrop that will continue if the Federal Reserve lowers interest rates next week.
The Let’s Toke Business Marijuana Composite set a new record for futility dropping for the 13th consecutive week breaking the previous record of twelve. Of course the issue that dominates cannabis the thinking of investors is CannTrust that is going to leave its mark on the history of cannabis in Canada in a completely negative way. As I warned on several occasions, the two senior executives of TRST, Chair Eric Paul was asked to resign and CEO Peter Aceto was fired for cause. I will say it again. More departures are coming. The cannabis stocks rally sharply when it was announced that Paul and Aceto were history that shows how far and how fast they have fallen. The group will bear watching because the Friday rally might prove to be a dead cat bounce, as in even a dead cat will bounce if you drop it from high enough.
The CannTrust fiasco pulled the rest of the group lower as both the Licensed Producers and the Low-Priced cannabis stocks fell back but outperformed the overall Composite Index by a small margin. The Licensed Producer group shed 1.7% in value while the Low-Priced stocks dropped 2%. Again it shows how widespread the damage from TRST has been. While TRST may have shed over $1 billion in value, it has dragged the general market lower as well. We still don’t know who dreamed up this unbelievable plan at TRST but if it wasn’t management, the senior executives condoned it. It will likely be months before TRST moves from the front pages to the funny pages but the damage has been done.
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 directly above shows the relative performance of the U.S. operators compared to the Canadian operators. The U.S. Index Both indexes lost ground last week with the U.S. side losing more. Of course, the Americans have had their own problems with CuraLeaf receiving a letter from the Food and Drug Administration (FDA) that was far more serious than first reported. (see below) CannTrust and CuraLeaf are the kinds of developments that drive bear markets.
This chart shows that the LTB Marijuana Composite Index has now declined for thirteen consecutive weeks setting a new record of futility for cannabis stocks in Canada. I believe the past two or three weeks have been driven by the TRST scandal. On Friday, the cannabis group rallied strongly in response to the news that Paul and Aceto were sent packing. I believe any rally at this point will be brief. We are still nearer the beginning of the TRST scandal than the end. There is more bad news to come. I would look on it as a selling opportunity in TRST stock.
Conclusion: CannTrust has been and will continue to be a cloud over the cannabis stocks. As time moves on, however, the negative news from TRST will impact TRST more and more and the general market less and less. I anticipated a rebound in cannabis stock prices just about when the TRST scandal came to light. As I said last week, each rebound is the same so it will have to be assessed once it starts. But I sill think it well 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 stocks 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).