Beyond the Bong: Election Day, Earnings and ETFs

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Beyond the Bong
This is individual research and does not constitute investment advice.

It’s official… The S&P 500 is now negative for the year.

Over the past two weeks, all of the index’s gains for the year were wiped away. And now more than 70% of the S&P 500’s components are in correction territory… or worse.

For cannabis investors, it’s been an even more difficult pill to swallow.

The Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ; OTC: HMLSF) is now in bear territory…

Since its peak on October 15, the Marijuana ETF – a barometer for the cannabis sector – is down more than 25%!

As a little refresher, a correction is defined as a 10% decline. A bear market is double that, a drop of 20%.

So we are officially in a bear market.

The ETF would still have to tumble another 25% to hit those 2018 lows we saw back in mid-August. But it feels like we’re bottoming out here.

And some industry executives don’t appear too worried… at least not yet…

Scrabbling for a Bottom

In last Monday’s edition of “Beyond the Bong,” I mentioned that the level to watch on Canopy Growth Corp. (NYSE: CGC) was its 50-day moving average and the lower end of the Bollinger Band.

Shares broke through those levels and tumbled all the way down to $36.62 before recovering.

Canopy CEO Bruce Linton told CNBC that the company’s products are selling out and it is having to ship more. “Probably, the sell-off is the stocks have gone up and people took profits,” Linton said. “There’s probably a transitional period from retail holders to institutional holders. Because institutional is thinking this is going to be a global outcome…”

With pot stocks down so heavily – and with so much potential upside ahead – it may be a good time for investors to seriously review their personal wish list of “Buys.”

Even though some bets are already paying off handsomely…

The Short Guy’s Big Payday!

The start of legal, adult-use sales in Canada hasn’t been kind to investors.

Well, at least not to those who are going long.

Shares of cannabis companies have been in free fall since October 16.

And this past week, the North American Marijuana Index fell nearly 20% from Monday to Friday.

Of course, short sellers have been cashing in. And they reportedly made $450 million in just the first two days of the week!

Pot Stocks to Be Wary Of

  • New Age Beverages Corp. (Nasdaq: NBEV): Down 45% since October 16
  • India Globalization Capital (NYSE: IGC): Down 45% since October 16

They’re down even more than that since I warned investors about plowing into these companies back on October 6.

Weed on the Ballots

This week, I traveled to Cambridge, Massachusetts, to sit down and talk with one of the medical field’s leading cannabis specialists.

It was a truly educational experience.

We delved deep into a wide range of topics, from what to look for in a vaporizer and busting myths about pot, to the future of the medical marijuana market.

This last one is often overlooked. We discussed where medical cannabis will be five and 10 years from now, as well as what we think is going to happen at the federal level.

So be on the lookout for those interviews.

Here’s the deal… Recreational cannabis is driving enthusiasm. But it’s medicinal use that really has the biggest upside.

Put it this way: There might be 25 million to 30 million recreational pot smokers in the U.S., but there are 150 million Americans who are approaching their senior years. These are the ones who can truly benefit from cannabis.

The global medical marijuana market could be worth as much as $55.8 billion by 2025.

There are four states that will have cannabis initiatives on the ballot next week: North Dakota, Michigan, Missouri and Utah.

Missouri and Utah are voting on medical use. If the measures pass, they will bring the total of states where medical marijuana is legal to 32.

In New York, medical marijuana home delivery is on the way. And liquor stores want in on the market. A bill to legalize adult-use in New York should be introduced in 2019.

U.S. Weed Watch for Election Day

  • MedMen Enterprises (OTC: MMNFF)
  • MariMed (OTC: MRMD)
  • Terra Tech Corp. (OTC: TRTC)

Cannabis Earnings Trickle In

The market volatility has been fueled by earnings.

And that’s pretty common for earnings season.

We also heard from a couple of cannabis standouts this week as they posted quarterly results…

HEXO Corp. (OTC: HYYDF) reported CA$1.4 million in fourth quarter sales. This was received from more than 152,000 dried grams and gram equivalents sold. And the company enjoyed an increase in revenue per gram to CA$9.26.

It also has the largest announced forward supply contract with Quebec at 20,000 kilograms in the first year.

MedMen (OTC: MMNFF) reported fourth quarter revenue of $20.6 million. This was driven by legalization in California, where the company’s retail stores averaged $6,257 in sales per square foot.

The company is entering fiscal year 2019 with operations in 12 states. In those states, it operates 67 retail locations and 14 factories.

Not to mention, during the quarter, MedMen launched its first cannabis product line, called [statemade]. This represented 90% of the products sold in its stores.

Earnings That’ll Move the Sector

  • Canopy Growth Corp. (NYSE: CGC)
  • Tilray (Nasdaq: TLRY)
  • Cronos Group (Nasdaq: CRON)
  • Aphria (OTC: APHQF)

It’s been another wild week for the markets. Full of yo-yoing, panic and pops. For the cannabis sector, the moves were even more exaggerated at times.

They prove once again that when you’re a cannabis investor, there’s never a dull moment.

If you have a pot stock in mind that you’d like me to discuss here, leave the ticker symbol in the comments section.

Here’s to the week ahead – and another edition of “Beyond the Bong”!

Good investing,

Matthew