Since I added cannabis as a Hot slice of my nest egg pie chart at the end of September 2018, companies like Cronos and Aurora have doubled off of their lows earlier this year. Is this the beginning of a rocket ship to the moon, or is the party over for cannabis?
Not since the end of Prohibition has something that the majority of citizens do anyway leaped the red tape fence to become legal faster. Now that the War on Drugs is over (and stoners won), cannabis is hitting the main stream in dozens of ways. Fitness buffs tout it at as a panacea for most dis-ease. Suffers of pain swear by CBD Oil. And you don’t have to get high to enjoy a relaxing cannabinoid bubble bath these days. Check out MedMen’s film The New Normal, by Spike Jonze, to see a history of cannabis and hemp pre and post prohibition.
The investment opportunities are abundant. However, there are still a few penny pot stock scams out there that will take you into the back alley and strip you of your dough. So, it’s a good idea to stick to cannabis companies that are publicly traded on the big boards, and are helmed by talented, experienced C-level executives. Beware of email and social media marketing campaigns as many are pump-and-dump schemes.
Cronos is now 45% owned by Altria (Philip Morris Tobacco). MedMen’s executive team includes leaders from Apple Retail, with former Los Angeles Mayor Anthony Villaraigosa on the board. Tilray’s international advisory board includes Vermont Governor Howard Dean, and senior government officials from Australia, New Zealand, Germany and Portugal. Constellation Brands invested $4 billion in Canopy Growth. The founder and former CEO of Hain Celestial is the chairman and interim CEO at Aphria. The newcomers, Green Growth Brands, features the executive team of Victoria’s Secret. Green Growth Brands has launched a hostile takeover of Aphria, which Aphria is fighting.
The future is green for cannabis, now that it no longer lurks in the shadows. However, the share prices have experienced extreme volatility. Last year, Tilray soared to $300/share, and then sank to $73 within a few short months. MedMen (CSE: MMEN or OTC: MMNFF) was at $7.58/share in late October. It’s now at $2.87. Cronos has doubled since October and Aurora Cannabis has done the same since December. Clearly this has nothing to do with the growth in the industry, and has everything to do with trading. Tens of millions of cannabis stock shares are traded daily.
Once you’ve picked a winning stock that you want to invest in, you still need to purchase it for a good price. Otherwise, you could be on the wrong side of a Tilray or Medmen trade. My personal strategy has been one of taking profits early and often, but never clearing the entire table. So when Cronos and Aurora doubled, I took a large bit of gains off the table, and left some invested. That way if the rocket ship continues, I continue to experience more gains. If the share price implodes, then I can buy more low again. A company like MedMen, which is trading near their 52-week low while experiencing astronomical sales growth year over year of 873% (far above the competition), might experience some swing in share price, even though all signs point to up up up.
And that’s because navigating when to buy and when to sell requires, at minimum, three major considerations. Number one: what is the company capable of doing? (There seems to be no stopping any of these companies, most of which are growing in triple digits.) Number two: what’s going on with the industry? (Cannabis is exploding in growth. In addition to the legacy base of loyal enthusiasts, CBD oil has gone mainstream with consumers.) Number three: what’s going on in the macro economy? This is a huge consideration as we enter the 11th year of the current bull market. A rising tide certainly lifts all ships. But a sinking tide can ground them. On April 26, 2019, a GDP report of 0.4-1.4% growth (what is projected for 1Q 2019) could sink a few share prices.
High growth cannabis stocks like Cronos and Aurora Cannabis were drug down in October and December, when stocks had the worst December since the Great Depression. That is why I rushed to put cannabis as a hot slice on the pie chart on September 30, 2018. It was easy money because you were buying low. Today, when a lot of the cannabis stocks have doubled, the calculation is more complicated.
In addition to having cannabis as a hot in my pie chart, I’ve added Latin America. The cannabis companies are all based out of Canada these days (the second country, behind Uruguay, to legalize recreational marijuana). However, the expert pot and hemp growers are in Latin America – all of the former drug lords…
As the landscape changes rapidly, time proven systems will be your ally. Join me at my Colorado Investor Edu Retreat, where we’ll examine these, and many more, opportunities in far greater detail.
Full Disclosure: As of the printing of this blog, I own positions in Aurora, Cronos and MedMen and a Colombian ETF.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
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15/3/2019 04:48:28 pm
Thank you for sharing your analysis.
18/3/2019 12:53:11 pm
It is my pleasure. You know I love research, analysis & making things easy to understand and act upon! I love my job.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.