Ted Ohashi's Marijuana Stock Market Review & Outlook
The major markets in the U.S. and Canada had their worst week in 2019. The Dow fell -2.6% awhile the TSX was down -1.5%. In the U.S. trade concerns led the markets lower as a new 10% tariff was levied on $300 billion of Chinese imports commencing in September. Canadian investors were rattled by the largest one day drop in crude oil prices in four years. All of this on the heels of a Federal Reserve interest rate cut left investors doubting that further monetary easing this year was highly unlikely.
The Let’s Toke Business Marijuana Composite extended its record setting trend of ineffectuality by declining for a 14th consecutive week. By this measure we are in the longest bear market in the history of cannabis stock trading. This despite a 40.1% increase in Aphria (TSX: APHA) on Friday following a positive earnings report. Meanwhile, the news continued to get worse for TRST. Lawyers are now starting to talk about criminal violations implying potential jail sentences for some, As I said on these pages a few weeks ago, law enforcement should grab the passports of former chair Paul and former CEO Aceto. Otherwise, it wouldn’t surprise me to hear that they are residing on a sunny island somewhere protected by the lack of an extradition treaty with Canada. (more on this sleazy scandal below)
The big gain in Aphria at week’s end together with the coattail effect on other Licensed Producers pulled the LP Index up 1.4% as the Low-Priced Composite dropped -1.5%. The market was apparently driven by what Bloomberg referred to as “…First Canadian Pot Company to Turn a Profit.” Unfortunately this is not correct as explained below. What the Aphria rebound tells me is the cannabis stocks are ready for a strong rebound given the slightest excuse. It’s just that an excuse is hard to envision right now. A Conservative win in October is another potential disaster I have been talking about for some time. A readers sent me an article by Conservative biased columnist Diane Francis who blamed the entire CannTrust fiasco on the Liberal government saying they rushed cannabis legalization and the medical applications should have to go through an FDA/Health Canada-type approval process. An anti-cannabis sentiment runs deep in the Conservative psyche and with former Prime Minister Stephen Harper and puppet master behind the scenes pulling new Conservative leader Andrew Scheer’s strings, an unhappy election result could set back Canada’s world leadership role in cannabis four to eight years.
As the charts above show, the U.S. based cannabis operators continue to outperform the Canadian based operators. The charts use the Marijuana Indexes owned and managed by MJIC but a totally international based index would show a similar pattern I’m sure. xxxxis 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 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: Aphria gave cannabis investors something to cheer about after weeks of the ever deepening morass of the CannTrust fiasco. At least APHA gives us some indication that the cannabis stocks are ready to make a big move if someone or something gives people a reason to buy. The U.S. and internally based operators continue to outperform. In these terms: 1933 Industries (CSE: TGIF) (OTCQB: TGIFF) is an American based operator with outstanding growth prospects, Sunniva (CSE: SNN) (OTCQB: SNNVF) is in the process of becoming totally Americanized, Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF) is totally international with its cosmeceutical products being introduced into the U.S., Lexaria’s (CSE: LXX) (OTCQX: LXRP) DehydraTECH™ bioavailability technology is not bound by borders and Cannabis Growth Opportunity Corp. (CSE: CGOC) that provides investors the opportunity to buy cannabis equities including private companies before their going public event at a 40% to 50% discount to Net Asset Value.