The marijuana industry is buffeted by a whirlwind of news lately — some good, some bad, but all stuff that investors should pay attention to. Here are some very interesting developments …
News Item #1:
Supersize Snack Sales
Marijuana gives people the munchies, right? And sure enough, it’s reflected in the data. Take a look at this chart from Nielsen ratings …
To be sure, Americans are eating more snacks anyway. But where marijuana ISN’T legal, sales of sweet snacks (“confections”) are up 1.3% year-over-year. But where cannabis is legalized for recreational use, confectionary sales are up 2%.
We add in salty snacks to get total sales. And you can see that in areas where pot isn’t recreationally legal, sales rose 6%. But in areas where recreational marijuana is legal, sales rose 7.2%.
And it’s not just marijuana that could motivate snack sales. According to Nielsen, hemp-based, edible cannabidiol (CBD) products could be worth up to $6 billion for the food and beverage industry. CBD is the cousin to THC, but it has medicinal, not psychotropic, properties.
News Item #2:
Canopy’s Broken Neck
We don’t own Canopy Growth (NYSE: CGC) in my, Marijuana Millionaire Portfolio publication, for two good reasons: It’s never been high (pardon the pun) in the Weiss Cannabis Stock Rankings, and it has no path to profitability.
Unlike, say, Aurora Cannabis (NYSE: ACB), which could hit positive EBITDA this quarter, Canopy recently pushed out any hope of profitability until at least 2021.
The market is punishing the stock, as you can see …
That sure looks like a head-and-shoulders pattern to me. The break of that “neckline” gives us a target of $24.40. That’s down 58.8% from its 52-week high of $59.25. Ouch!
Since Canopy Growth is the biggest marijuana stock by market cap, this weighs on the entire industry. It also brings profitability into focus; the market seems to be dividing pot stocks into those with a profit plan and those without.
In the short term, this means general weakness. That weighs on ALL cannabis stocks … including the good ones.
That’s disappointing. But smart investors will continue to pick targets and ease into this space. When the next turn higher in cannabis stocks comes, we will be positioned for it.
News Item #3:
CannTrust Holdings Calamity
CannTrust Holdings (NYSE: CTST) was a shining star in the Canadian cannabis industry. That is, until the government revealed the existence of several illegal grow rooms at the company’s Ontario facility.
Even worse: Canada’s Globe and Mail newspaper reports that the company built fake walls to conceal the illegal grow from regulators!
CannTrust has suspended sales until the brouhaha is settled. The stock is getting pounded as investors wait for the next shoe to drop.
Importantly, this spreads a cloud of fear over Canadian cannabis plays. After all, if CannTrust can mess up this badly, could there be others?
On the other hand, if you have your eye on the longer term, weakness across the industry is a buying opportunity.
Speaking of which …
News Item #4:
Historic Hearings in Congress
There is very little that Congressional Democrats and Republicans agree on. But both sides are looking to legalize marijuana. So, hearings are being held, and different bills are working their way through the halls of power.
The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act is among the most popular cannabis bills. It would amend the Controlled Substances Act and exempt state-approved marijuana activity from federal enforcement.
And the Secure and Fair Enforcement (SAFE) Banking Act, if passed, would allow federal banks to accept revenue from and provide banking services to businesses that profit from the sale of cannabis.
The thing about Congress is it never works quickly. But at least it’s moving in the right direction.
News Item #5:
The Biggest Boom on the Fourth
of July was Cannabis Sales
Independence Day is, of course, a big time for fireworks. But the real fireworks this year happened in cannabis sales. Nationally, legal cannabis sales hit a record high: $400 million for the Fourth of July week. That’s up 60% over the weekly average.
By 2020, analysts predict Americans could spend more on Fourth of July cannabis than they do on wine. This trend could put money in the pockets of cannabis investors.
An easy way to play this big trend is to buy the ETFMG Alternative Harvest ETF (NYSE: MJ), a basket of marijuana-leveraged stocks. This fund is up 19.7% year-to-date, but down 23% from highs it hit earlier this year.
The next leg higher is coming, probably sooner than later. Be ready!
All the best