Back on April 24 I suggested cannabis stocks looked like a buy in their weakened state. I singled out two ETFs for simplicity.
“…(C)annabis stocks are a buy in the current bout of sector weakness. Given the potential near-term catalysts, I suggest considering any of our portfolio names below, or the MSOS and AdvisorShares MSOS 2X Daily (MSOX) ETFs if you want to keep it simple.”
Today, MSOS advanced 28% and MSOX was up 70% from my suggested April 24 entries. This extends my string of uninterrupted trading calls followed by advances of around 70% to six.
What to Do Now
Cannabis stocks are up sharply on an AP report citing five sources stating that the Drug Enforcement Agency (DEA) will indeed go along with the Health and Human Services Department’s (HHS) suggested cannabis rescheduling.
This is not a surprise, as Cabot Cannabis Investor subscribers know. Part of my thesis has been that the DEA always goes along with HHS suggestions on these matters (100% track record, according to Congressional Research Service), and President Biden needs progress on cannabis reform for election results. So, for me, news of DEA rescheduling progress was not unexpected.
I’ve written before that when DEA rescheduling news strikes it might be a sellable event. You’ll have to decide on your own whether to take profits depending on your investing style. There could indeed be a fade of today’s monster move. One option might be to sell covered calls with a near month strike a step or two above the current ETF price.
Personally, I will hold on for the actual DEA news (assuming it happens) and trim into that rally. I believe it will happen. That’s because the reasoning I have applied to predict it (DEA track record, political pressure) is sound, and also because I know the AP (I used to work at AP Dow Jones) and their reporting culture is sound.
The bottom line: Take some profits if that is your style. Or consider hedging by selling covered calls expiring in the near month, at strike prices a step or two above the current ETF prices. Personally, I will wait for actual DEA publication of its rescheduling rule, because I believe that will create an even bigger rally. I will probably trim into that rally.
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