Ted Ohashi's Marijuana Stock Market Review & Outlook
The major North American markets that looked to close higher on the week came crashing down mid-morning on Friday when China announced they would impose a round of retaliatory tariffs and President Trump said he would respond. This to and fro on tariffs unsettled the markets. The Dow swung from a mid-morning gain to close with a 623 point loss. All of this happened as the world’s central banks met for their annual summit at Jackson Hole, WY. We think it is clear that given a possible trade war on top of an extended economic uptrend, the stock markets will continue to be volatile.
I get tired on saying it but The Let’s Toke Business Marijuana Composite extended its record setting downturn again last week. Last week, the LTB Marijuana Composite dropped another 2.2% while the Marijuana Index Canadian Index wiped off 6.5% in value. The LTB Index now stands at 17 weeks of lower cannabis stock prices as the cannabis stock bear market gets more and more ensconced in investor thinking. CannTrust (TSX: TRST) (NYSE: CTST) was there with more depressing news as more senior employees left. TRST did not confirm the Financial Post report that master grower Brady Green, operations manager Cameron Fletcher and vice-president of quality operations Andrea Kirk only saying that a number of departures had taken place. In a cannabis bear market, prices will be predominantly on the downside.
The Let’s Toke Business Licensed Producer Composite Index outperformed in falling 1.5% on the week as the news from TRST was not as bad as it has been. I imagine that is a backhanded compliment. It also shared the stage with Canopy Growth (TSX: WEED) (NYSE: CGC) I must say former CEO Bruce Linton did his best to talk CGC up. But for last week, he was unsuccessful. Linton disclosed he had been a buyer of Canopy Growth shares and promised to announce in September which “…three or four…” companies he will work with moving ahead.
The Marijuana Indexes owned by MJIC show the U.S. based companies continue to outperform their Canadian counterparts in a down market. The U.S. Marijuana Index chart (latest 12 months) shows the U.S. operators were generally lower in price but were not down as much as the Canadian operators. The financial press tends to ignore these trends because it doesn’t console readers to be told how wonderful it is to be down only half as much as everyone else. But it is important and here’s why. Most people are invested in the cannabis sector because they expect the group to do much better than average. For example, if the average long term return from common stocks is 9% and investing in cannabis stocks should do much better than that over the next ten years. Long term stock market returns are calculated including good times and bad. So if your investments do better during bull markets when stock prices are generally rising and during bear markets when prices are generally falling, you will be surprised at how much better you will do.
When I talk about a cannabis stock bear market, this chart shows the picture. It shows the Let’s Toke Business Marijuana Composite Index has now declined for 17 weeks in a row. The last time the LTB Index rose was the week ending April 26, 2019! Since that time, this index is down 23.6%. And the LTB Index is one of the better performing. The Canadian MJIC Index is down 43.9% at the same time. A traditional bear market measured by the major indexes is a decline of over 20%. The cannabis stocks are more volatile so they will decline even more. The cannabis stocks are clearly in a bear market by any measure.
Conclusion: With Sunniva (CSE: SNN) (OTCQB: SNNVF) in the penalty box for the time being, here are the other four stocks that I think are strong buys. Readers should be alert for buying opportunities. As the indexes continue to show, the U.S. and internationally based operators continue to outperform. With that in mind, these are the ones to watch: 1933 Industries (CSE: TGIF) (OTCQB: TGIFF) is an American based operator with outstanding growth prospects, Cannabis Growth Opportunity Corp. (CSE: CGOC) provides investors the opportunity to buy cannabis equities at a 40% to 50% discount to Net Asset Value, Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF) is totally international with its cosmeceutical products being introduced into the U.S. and Lexaria’s (CSE: LXX) (OTCQX: LXRP) DehydraTECH™ bioavailability technology is not bound by borders.