Analysis originally distributed on March 22, 2017 By: Michael Vodicka of Cannabis Stock Trades
If you are the kind of person who loves getting a great deal, the cannabis sector is calling your name.
Cannabis stocks are officially on sale.
This blast of weakness has been driven by two things.
There are still lingering concerns over US drug policy after some questionable comments on cannabis enforcement from White House Press Secretary, Sean Spicer.
I think these concerns are overblown - read my full analysis - but none the less, it has definitely been a lingering concern and weighed on cannabis stocks.
Canada also recently spooked cannabis stocks a bit.
Canada's cannabis czar said the country won't rush legalizing recreational cannabis in order to make sure it is done properly.
This may look like bad news on the surface. For shareholders, it's never fun watching a stock you own do anything but go up. For potential shareholders, it can be intimidating to buy a stock that has been falling.
However, I am hear to tell you this weakness is creating a great opportunity.
The entire sector is on sale, trading 22% below its 52-week high. Many individual stocks have fallen even more.
The cannabis index also happens to be trading at a key area of support on the chart - near the low of the 6-month trading range.
Every time the cannabis sector has tested this area, shares have rebounded. I am expecting both short-term traders and long-term investors to use this area to load up on shares and look for another quick rebound. Take a look at the key level of support below at the red line.
Chart courtesy of MarijuanaIndex.com
In the meantime, while the cannabis sector is down, these cannabis companies have been killing it. Industry sales and earnings have been surging.
There is no better example than Canopy Growth Corp (TSX:WEED), the largest medical cannabis company in Canada.
Since February 15, shares of Canopy are down 26%. Take a look below.
Chart courtesy of StockCharts.com
Despite that weakness, Canopy's third-quarter results from later that month were amazing.
Registered patients grew to 29,000 from 8,000 last year.
Sales were up 180% from last year and 15% from just last quarter.
The only reason the results weren't even better was because Canopy couldn't grow enough product to keep up with skyrocketing demand.
This is an ideal setup - share price is falling while sales and earnings are surging.
In the long run, this cannabis industry is just getting started. The growth projections are unreal. Cannabis research firm Arcview is projecting North American cannabis sales to grow at 30% annually for the next four years and hit annual sales of $22 billion in 2020. Take a look below.
Chart courtesy of New Frontier & ArcView Market Research
Arcview editor Tom Adams commented on the big-time growth.
"The only consumer industry categories I've seen reach $5 billion in annual spending and then post anything like 25% compound annual growth in the next five years are cable television (19%) in the 1990s and the broadband internet (29%) in the 2000s."
If this happens, make no doubt about it I believe cannabis stocks will deliver huge returns.
Focus on the Big Picture and Use Weakness as a Chance to Buy Shares
Even though I am bullish in the long run,there is no question the cannabis sector is going to be volatile.
Volatility is actually completely normal for the broader stock market and particularly cannabis stocks.
But all the volatility is mostly just noise. Don't let it distract you from the long-term goal.
Don't worry about the short-term movement too much.
Stay focused on the big picture opportunity and use these dips as a chance to invest on sale.