Since my earlier article suggesting the weed stocks look like they’re bottoming out, and discussing the two more liquid cannabis ETF’s for the US and Canada, it seems I may have been right on. Shaky at first (the article was published Feb 6) these EFT’s have been on a rampage upward for the past 5 days. HMMJ (CDA) is up almost 9% and MJ (US)has risen over 7% (as I type this at around 11:00AM Feb. 20).

Of course, because their ETF’s they each hold a number of marijuana and related industry stocks (even Miracle Grow fertilizer is held in one of the funds) there are companies doing better than others, and some in dire straights indeed.  In my own long experience as a portfolio manager, I find that the very successful holdings more than outweigh the laggards over the long run and contribute to the bulk of the performance.

The action in the stocks was sparked by the surprisingly good reported results from Canopy (a large weighting in such funds) which offset poor results from Aurora.

Canopy CGC, +5.70% WEED, +6.39%  logged fiscal third-quarter net revenue of C$123.8 million ($93.5 million), well higher than the FactSet consensus of C$105 million reflecting strong year-over-year and sequential growth. Canadian cannabis companies have struggled to produce those types of results of late, including Aurora Cannabis Inc. ACB, +1.40% ACB, +2.65%  , which is No. 2 in marijuana sales behind Canopy and issued earnings the day before. Canopy’s U.S. shares closed up 13.4% to $22.13 Friday after the numbers were announced, and sparked a rally for other marijuana companies’ beleaguered stocks.

Source: MarketWatch February 14, 2020

It’s always impossible to know just what the catalyst might be to turn a trouble sector around, so patience is what portfolio managers develop as the most valuable skill in their analyst toolbox.  What is easier to determine (by stock chart or simply lack of interest by retail and institutional investors alike) is when an industry or stock has no more sellers.  All that’s need then is for a reason to attract buyers and the stocks go up.

https://s3.tradingview.com/tv.js

var tradingview_embed_options = {};
tradingview_embed_options.width = ‘400’;
tradingview_embed_options.height = ‘250’;
tradingview_embed_options.chart = ‘idcfrMTD’;
new TradingView.chart(tradingview_embed_options);

 

https://s3.tradingview.com/tv.js

var tradingview_embed_options = {};
tradingview_embed_options.width = ‘400’;
tradingview_embed_options.height = ‘250’;
tradingview_embed_options.chart = ‘EyHJVUTb’;
new TradingView.chart(tradingview_embed_options);