Ted Ohashi's Marijuana Stock Market Review & Outlook
The major markets in the U.S. and Canada took slightly different paths last week. The Dow Jones slipped 0.7% on week while the TSX was down 0.4%. The driver on international markets was China’s move to devalue their currency in response to additional tariffs by the Americans. Chinese officials tried to calm the markets by stating that this was not a currency devaluation campaign that might have led to retaliatory devaluations and general confusion. It appears the market will remain volatile as the forces of good and evil bargain back and forth.
The Let’s Toke Business Marijuana Composite recorded a 15th consecutive week of lower prices. The LTB Index has not recorded an up week since April 26, 2019. To the lower left, the momentum index moved very much in line with prices. Of course the picture is a little misleading because of CannTrust. In the last 15 minutes of trading on Friday afternoon the stock rose 41% on the Toronto and New York Stock Exchanges for reasons that have not been shared with the public yet. Even though the correction is well into record territory, developments with TRST continue to weigh heavily on the cannabis group. Although there may not be a reason to expect the trend to change, a bounce at some point will not be surprising.
The Licensed Producer group has been particularly hit with volatile developments. Last week it was Aphria that rose on the heels of a financial report that indicated the company was “profitable” and a weak report from the normally reliable Bloomberg that incorrectly reported this was the first time a Canadian LP had reported a profit. We warned that the market would likely reverse most of the gains on Aphria and it did. This week we have CannTrust rising 41% in the last 15 minutes of trading on Friday. As I explained above, the whole thing smells fishy to me but on this one, we’ll have to wait. I am sure there will be some further information next week. It will probably be negative as almost everything to do with TRST has been.
We take a slightly different look at the performance of the Canadian based cannabis operators compared to the U.S. based companies. The charts use the Marijuana Indexes owned and managed by MJIC. This time we look at the short term comparative performance and the longer term performance. The reason for this comparison is that the short-term chart shows the U.S. operators have been outperforming but the long-term chart shows the advantage to date has been quite limited. In other words, the next twelve months can see a significant acceleration in the outperformance of the U.S. based operators.
This chart shows that the LTB Marijuana Composite Index has now declined for fifteen consecutive weeks extending the string of losing weeks in the cannabis stocks in Canada. I don’t expect any major moves in the cannabis stocks until after Labour Day. We are now into the summer doldrums and I expect things to remain quiet through August. September could prove to be an important month for cannabis and cannabis companies operating in Canada. The Federal election campaign will be in full swing and the subject of cannabis will be raised. Stocks will fluctuate according who says what. The CannTrust Scandal should have moved off the funny pages by then. We may not like what we see but at least most of the unknowns will be out in the light of day.
Conclusion: Given that the superior performance on the American and internationally based operators can improve their relative advantage, I continue to recommend the following companies that are focused on U.S. and international operations. I have some new names that I am concluding due diligence on that should be ready to introduce shortly. In the meantime, this group has shown some strength against the trend and are candidates for growth portfolios. 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.