The cannabis sector continues to struggle in a bear market after Canopy Growth Corp (WEED, CGC), the largest cannabis company in the world, reported disappointing second quarter results after the bell yesterday.
Today I am going to provide a sector update and share my outlook for the rest of the next few weeks.
Cannabis stocks were hot early in the year. The cannabis ETF (MJ), a fund that tracks the north American cannabis sector, was up almost 50% on the year in March. But since then it’s been a steady trend lower. Today, the index is basically even on the year. Take a look below.
The recent leg lower has been driven by Canopy’s disappointing second-quarter results – with revenue falling short of expectations and the company taking a big, one-time write down of $1.28 billion.
Here’s a link to the full press release if anyone wants to take a closer look.
Canopy shares were up almost 100% early in the year but now they are down 8% on the year. Pretty big swing here.
#1 industry still in the very early stages of growth: the cannabis industry is still in the very early stages of growth and this kind of volatility is actually normal for young, high-growth industries.
#2 we’ve seen 50% pullbacks in each of the last three years: The cannabis sector is prone to extreme volatility. The sector has seen a 50% pullback in each of the last three years. These pullbacks have not meant the party is over.
#3 sector still in a bull market on chart: despite he recent pullback, the cannabis sector and Canopy are both still in upward, bull markets on the chart. You can see that longer trend in the Canopy chart below.
#4 sector looks hugely over sold: The cannabis sector and Canopy are both the most oversold they have ever been.
#5 weakness has typically been the best time to buy: In the last four years, the best time to buy cannabis stocks is when the sector is down.
So as you can see, despite the bumpy ride there are still plenty of reasons to be optimistic, because realistically we are still in the very early stages of this opportunity.
How to Proceed in Cannabis Stocks
Long-term Investors: stay patient and stay focused on the big picture. Use weakness as an opportunity to buy on a dip.
Short-term investors: if the volatility makes anyone nervous think about trimming your cannabis holdings. That means taking profit on winners and selling losers.
The Big Picture on Cannabis
2019 has been a bumpy ride for cannabis stocks. Despite he recent pullback, the sector is still about even on the year and I see a number of catalysts on the horizon. Stay focused on the big picture. That is where the real opportunity is happening and where the best gains can be made.
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading. Michael Vodicka owns shares of Canopy Growth Corp (WEED) at time of writing.
