As you may know, Cannabis stocks have been on a legendary run lead by Canopy Growth, up 83% from it’s lows a few weeks ago, and up over 400% for the year. Now we take a look at money flow, and how much more these stocks, and this industry as a whole, can run.
With an industry so news driven, a few catalysts remain. In the next year they are; recreational legalization, which could be another sell on the news event, a potential Diageo investment, which would most likely give the sector another boost, and the possibility of other investments by Alcohol, Tobacco, Pharma, and maybe even Snack companies. The other main catalyst will be reporting from the 1st quarter of full legalization, to see which companies are taking in significant cash flow and ebitda. Finally, there is the catalyst of Ontario stores which are opening around April, and edibles and drinkables coming online a year from legalization. Of course, there’s also potential for new markets to open up and legalize it, medically or recreationally which would boost global cannabis stocks.
The reason other than these catalysts of being room to run is money flow. HMMJ, the leading cannabis ETF is still below all time highs, and a better indicator, the marijuana index, is around 750 well below highs of 1000 back in December. These signs point to rather than just a lot of new money coming in, that there is a large rotation from small cap plays, such as the likes of Liberty Leaf and Isol. these small caps are trading near year to date lows. This is a change from just the overall hype of cannabis, wherein a stock would jump 50% on a cultivation license, where now, news like that is expected and hardily moves the needle. Also, since that last run, many new companies have done an IPO, taking a chunk of the money flow and spreading it out to more companies, diluting investor flows across the industry.
With limited data, the last cannabis bull run was started by Constellations initial investment, and that lasted from November to January, around 2 full months. As of right now, it looks like were just getting started on this initial bull run, around 2 weeks in. Cannabis and other speculative investments such as cryptos had their day in the sun, while the broader market was in an upturn and hot phase. This is happening now, with the S&P at all time highs, the Nasdaq Composite at all time highs, and the TSX Composite near all time highs as well. If your bullish on the broader market, it wouldn’t be surprising to have a continued run on these high flying cannabis names, namely ones with good fundamentals. For a few picks, check out the links to our cannabis top picks pasted below.
The Final tailwind may be overall seasonality. Although not enough data to comprise a seasonal trend, generally the last few years in the fall we have seen strong performance, which could continue this fall as well.