Cannabis Surges… But 10 Companies Are Still On Sale

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Market Trends

August was a hot month… and not just because of the scorching temperatures.

The Nasdaq, Russell 2000 and S&P 500 were driven by solid second quarter earnings to new all-time highs.

In fact, during the month, small caps on the Russell 2000 rose 4% as tech stocks on the Nasdaq jumped 3.8%. Blue chips on the Dow Jones Industrial Average and the S&P chipped in more than 2%.

It was an all-around solid performance as the gray bull showed it still had some life left.

But those accomplishments were dwarfed by what I still believe will be the hottest market of 2018…

In August, Canadian cannabis stocks roared back to life, surging 35.2%!

And that was after they set a 2018 low on August 14.

For months, cannabis stocks have languished. That’s despite the fact that in June Canada approved the legalization of recreational (adult-use) sales.

There was a vacuum as investors were forced into a wait-and-see holding pattern. Just like the broader markets, investors wanted to see those second quarter earnings results and any all-important forecasts.

For many cannabis companies, these results were cheerworthy.

Plus we got some new deals from beverage companies Constellation Brands (NYSE: STZ) and Diageo (NYSE: DEO) that added fuel to the rally and continued to legitimize the space.

And some of the biggest gains of the past month were more than what many companies will post in a year. In fact, several outpaced the Canadian Cannabis LP Index’s 35.2% surge…

No cannabis company was more explosive in August than Tilray (Nasdaq: TLRY). I’ve discussed Tilray here before and was excited about its IPO on the Nasdaq.

Shares of Tilray gained nearly 175% in August alone!

As has been the story for the broader markets in recent months, great earnings were key.

But despite that fantastic August, don’t fall into the trap of believing cannabis gains are done.

There’s still plenty of room to grow.

We have big-name cannabis companies and some enticing smaller ventures trading at a significant discount to their 52-week highs…

Those 10 companies – including several marquee producers – require at least 50% gains just to get back to the highs they set early this year… and then they’re poised to continue that upward momentum.

This is a broader industry scenario as well.

In fact, the Canadian Cannabis LP Index itself would have to rise another 50% to reach its all-time high of 1,533.76 set in January.

After the tremendous August surge, Canadian cannabis stocks are now positive for the year… though not by much.

When recreational sales in Canada didn’t begin on July 1 – as originally scheduled – there was a lot of dead air to fill. And shares of the world’s best and fastest-growing cannabis stocks got knocked around for several months.

Now those first adult-use sales are on the horizon, starting October 17.

There’s renewed energy and momentum in the sector.

But despite the big run-up, these stocks are just now getting back to where they were in March. And I think the sector is still screaming “Buy!”

Investors should expect volatility. That’s the nature of the game for this nascent industry. But they should also expect a lot of upside, as Canadian adult-use sales begin next month.

Plus, investors must remember that cannabis is on the midterm ballots in a few U.S. states as well, which provides an added boost.

August was a hot one for the broader markets. But it was en fuego for cannabis stocks… a trend that should continue.

Good investing,

Matthew