This Week In Cannabis Investing November 22nd

In last week’s edition of TWICI, we closed with the following remarks.
 

…and what have we seen this week? Perhaps the start of the Next Rally.

It was a very full week in the world of cannabis. And we rolled up our sleeves to cover as many of these major developments as possible.

Monday, we took a look at the latest U.S. state that is opening up a legal market for cannabis: Michigan. It should be cause for celebration for the U.S. cannabis industry.

The fly in the ointment? It’s the same problem we’re seeing in many U.S. states: local governments freezing-out legal cannabis. As Michigan moves to full legalization on December 1st, nearly 80% of local governments in Michigan (including Detroit) are blocking legal cannabis stores from operating. It provides a greater incentive to ‘invest’ in the cannabis black market rather than the legal industry.

We then provided our own take on what is being called “a Congressional vote on marijuana legalization”. Why did The Seed Investor refer to this as “disgusting political posturing”?

It’s not legalization, merely decriminalization.

Decriminalization is great for the cannabis black market. It does nothing (immediately) for the legal cannabis industry. And this partisan bill (only one Republican sponsor) has zero chance of even being voted on in the Senate. Meanwhile, Americans continue to get sick and die from tainted black market cannabis products.

Tuesday, we led off with what we’re calling “one last bitter pill” for cannabis investors: end-of-the-year tax-loss selling. Given the steep losses in cannabis stocks this year, these stocks are strong candidates for tax-loss selling.

At the same time, we warned investors not to become so wrapped up in tax-loss selling that they miss out on current buying opportunities. Those remarks proved to be immediately prophetic.

Illustrating the upside potential here, U.S.-based Trulieve Cannabis (CAN:TRUL / US:TCNNF) delivered another strong quarter for its shareholders. This is one of the few North American cannabis stocks that has been able to buck the tide in recent months. TRUL has been moving steadily higher now for the past three months.

Wednesday, we alerted cannabis investors about a potential late entrant as a Democratic presidential candidate. Michael Bloomberg is the Ultimate Anti-Cannabis Idiot. We documented how he earned this title – despite extremely stiff competition from a number of other Americans.

Then it was time to start covering the major positive news from the cannabis industry this week. After reporting a strong Q3 after-hours on Tuesday, U.S. industry leader Curaleaf Holdings (CAN:CURA / US:CURLF) powered higher on Wednesday.

Then we saw something that we have not been seeing – at all – in the cannabis space this year: follow through. Curaleaf was up strongly again on Thursday, before some profit-taking came in on Friday.

We had equally big news in Canada on Wednesday, when Bank of American Merrill Lynch put out a “buy recommendation” on Canada’s industry leader: Canopy Growth (US:CGC / CAN:WEED). The big news was that CGC jumped by 15% that day. And it rose even more on Thursday. More follow through.

Previously, cannabis companies had been getting zero traction throughout 2019 on analyst “buy” recommendations, price targets, and positive reports.

Thursday, we published Part 2 on What is REALLY Happening in Cannabis (we were waiting on the quarterly reports of a couple of these companies). The final installment was on “capitalizing on the carnage”.

Some investors will conclude that our timing could not have been better. We called Meta Growth (CAN:META / US:NACNF), formerly National Access Cannabis, “cheap, cheap, cheap”. It rose 26% that day — on no news. Is this (finally) a “bottom” in cannabis stocks?

Friday, we addressed the question above. Is this the Next Rally, or a possible “head-fake” (as suggested by veteran trader Todd Harrison)? We offered our reasons as to why cannabis investors may want to do at least a little bargain-shopping with cannabis stocks before the end of the year.

We ended this eventful week stepping back to take a look at “the economics of cannabis”.

In short, those economic could not be simpler. The legal cannabis industry must be supported with industry-friendly regulation and moderate-to-low taxation if it is ever going to be able to wrestle away market share from the cannabis black market.

It’s simple. It’s obvious. And most of our so-called “leaders” are consistently doing the precise opposite of this. The performance of the legal cannabis industry – in spite of this relentless political stupidity/incompetence – has been commendable.

What will happen if governments ever start to support the legal cannabis industry? We’ve answered that question before.

This was a very exciting week for cannabis investors. And (as a pleasant change) most of this excitement has been from positive news and rising cannabis share prices.

Next week? Will this week’s gains be clawed back, or will stronger cannabis companies build on those gains? We’ll see if this week’s cautious optimism concerning the cannabis sector is justified.