Analysis originally distributed on November 23, 2016 By: Michael Vodicka of Cannabis Stock Trades
If anyone thought investing in weed stock was going to be easy, this week was a reality check.
Cannabis stocks collided with two obstacles in the last week.
The first, four of the largest Canadian medical marijuana stocks were temporarily halted because of high levels of volatility.
For example, last Wednesday Canopy Growth Corp (CGC) was surging into a new all-time high above $17 – up more than 20% on the day.
While that was great news for shareholders, it set off the Toronto Stock Exchanges (TSE) circuit breaker. Shares were temporarily halted so the exchange engines wouldn’t melt down like a hunk of warm cheese.
Aphria (APH), the second-largest Canadian medical marijuana company, and Organigram (OGI), the third-largest Canadian medical marijuana company, were also halted last week after hitting new all-time highs.
The trading halts only lasted a few minutes at a time.
However, damage was inflicted.
The halt spooked investors. It triggered a round of profit taking with shareholders sitting on big gains from the last few months.
Canopy is still up 217% since June, but shares are down more than 50% from the recent high. Take a look below.
Chart courtesy of StockCharts.com
Meanwhile, the news wasn’t much better south of the border in the United States.
Trump Nominates Anti-Legalization Senator Jeff Sessions For Attorney General
President-elect Trump has nominated Senator Jeff Sessions for Attorney General.
The Attorney General is one of the most powerful and important political positions in the country. This person is responsible for the enforcement of US federal law all across the country.
For the nascent legal cannabis industry, the office of Attorney General is particularly important.
Cannabis use in any form, medically or recreationally, is still illegal on the federal level in the United States.
That means every company in the United States operating in the cannabis industry is violating federal law.
So far, the Feds have mostly turned a blind eye to the legal cannabis industry – deferring to the states to legislate and govern on a local level.
Today, the Sessions nomination is making the cannabis industry nervous.
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Sessions is no fan of cannabis.
At a Senate drug hearing in April, Sessions said that “Good people don’t smoke marijuana” and “marijuana ought not to be legalized.”
Not exactly encouraging words for the cannabis industry.
Just like the halt in Canada, the Sessions nomination has spooked the US cannabis sector. Investors are taking profits after scoring huge gains in the last few months.
Industry leaders such as Terra Tech (TRTC) and Kush Bottles (KSHB) are also down more than 50% from recent highs.
Chart courtesy of StockCharts.com
When you add these two events together, cannabis stocks had their worst week of the year.
However, despite the shellacking, I see overwhelming evidence for optimism.
It Looks like Bad News, But It’s Actually Good News
What appears to be bad news is actually good news.
I’m proud of the fact that Canopy, one of my favorite cannabis stocks, came close to melting the Toronto Stock Exchanges circuit breakers. It validates my investment thesis.
This tells me that investors are clamoring to get their hands on these shares and there isn’t enough to go around. That is the formula for rising prices.
Shifting into the United States, I view the Sessions nomination as a roadblock to legalization, not a death sentence.
The industry has plenty of experience battling powerful political rivals – and taking them down.
Since its inception in 1996 in California, the U.S. cannabis industry has thrived through democrat and republican administrations, more than 20 Attorneys General and hundreds of legal battles.
Today, the legal cannabis industry is bigger and better than ever. It has more credibility, stronger allies, deeper pockets and passionate customers.
Furthermore, Sessions is merely a nomination at this point.
He will have to pass a grueling interrogation to make it official.
Even if Sessions does secure the appointment, I expect him to defer to Trump on legal cannabis, and Trump has clearly supported the industry and states’ rights.
Earlier this year Trump told the Washington Post “In terms of marijuana and legalization, I think that should be a state issue, state-by-state… Marijuana is such a big thing. I think medical should happen – right? Don’t we agree? I think so. And then I really believe we should leave it up to the states.”
In February Trump told Bill O’Reilly he’s “in favor of medical marijuana 100%.”
This sentiment makes me confident the legal cannabis industry will continue to prosper under a new regime.
Don’t Sweat Volatility – Buy Dips And Focus On The Big Picture
It was a tough week for cannabis stocks. Anyone who jumped into the fray has been slaughtered.
That’s why great investing is all about anticipating sentiment instead of responding to it.
Looking forward, I remain optimistic.
I see plenty of growth ahead for the legal cannabis industry.
The recent sell-off has provided an attractive entry point to invest in industry leaders trading more than 50% below the recent 52-week high.
Disclosure: At the time of original publishing, Michael Vodicka owned shares of CGC, APH, OGI, TRTC, KSHB
The information contained in this post is for informational and educational purposes only. The trading ideas and stock selections represented on the Cannabis Stock Trades website are not tailored to your individual investment needs. Readers and members are advised to consult with their financial advisor before entering into any trade. Cannabis stocks carry a certain level of risk and we accept no responsibility for any potential losses. All trades, patterns, charts, systems, etc. discussed are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author and do not necessarily reflect those of the publisher.