I’m tempted—I really am—to take some of our 46% cash position and move it back into marijuana stocks. Since the sector peaked three weeks ago, most of the stocks have had a decent pullback and now the best are moving up again, heading toward those old highs.
But I’m not going to do it, and here’s why. Bullish as I am on the industry, I’m concerned that the enthusiasm that led to the blowoff top three weeks ago (particularly in the Canadian stocks) needs more time to be tamped down. I’m concerned about the broad market, where growth stocks in particular have come under pressure. And I’m concerned that the general economic news in this country is just too darn good. Revenues and earnings have boomed at the companies that pivoted to adapt to the pandemic. Analysts are projecting GDP growth of as much as 8% in 2021. The medical path out of the pandemic appears fairly clear. The political environment for the year ahead looks fairly stable. And the trouble with all this good news, as all experienced investors know, is that the market tends to top when the news is good!
So I’m not doing any buying today. In fact, I’m actually going to lighten up on two of our largest holdings that have weakened more than their peers in recent weeks. They are GrowGeneration (GRWG) and Innovative Industrial Properties (IIPR); we will now sell half of our position in each, thus taking the portfolio to a roughly 52% cash position. Details below.
Canopy Growth (CGC)
CGC has been tracking its uptrending 50-day moving average over the past week, but there’s no sign of real buying power. The company is one of the few that’s already released its fourth-quarter report (which is good—one unknown out of the way), but the growth was rather slow for this sector. And there is one piece of news: Canopy has just entered the U.S. market with a sparkling water named Quatreau that contains hemp-derived CBD. Twelve-packs on shopcanopy.com sell for around $48. HOLD.
Cresco Labs (CRLBF)
The stocks of the U.S. multistate operators, in general, look better than the Canadians, and Cresco is typical of the group, having bounced off its 25-day moving average a few days ago. But I don’t see any real buying power here, either. HOLD.
Curaleaf (CURLF)
CURALF is one of the best of the bunch; its rebound means it’s only 8% off its old high. But again, there’s no sign of buying power, which means it’s likely to roll over soon. HOLD.
Green Thumb (GTBIF)
GTBIF looks pretty average in this group. It’s bounced above its 25-day moving average, but I can easily envision it dipping to its 50-day moving average, now down at 30. HOLD.
GrowGeneration (GRWG)
Our totally legal hydroponic supplier has been a fantastic success story for us (and prospects for the company are great as they grow by acquisition), but I’m going to lighten up more now because the stock can’t seem to get back above its 50-day moving average. We sold half our position (it was our largest holding) near the top three weeks ago and I’ll sell half of our remaining position now, taking it to an underweight position. SELL A HALF.
Innovative Industrial Properties (IIPR)
Our marijuana REIT has also been a big winner, and it hit a new high just last Wednesday. But the company released its fourth-quarter report after the market closed that day, and while the results appeared good (revenues up 110% and FFO up 9%), the stock plunged below its 50-day moving average the very next day and hasn’t truly gotten above it since. Complicating the picture (if you want to think fundamentals) are prospects of rising interest rates combined with an environment of legal marijuana that would open up competition in this niche. We sold a third of our position three weeks ago and will now sell half of what remains. SELL A HALF.
Jushi Holdings (JUSHF)
Little Jushi looks fine, trading just below its 25-day moving average, but (same old broken record) there’s no real buying power. HOLD.
TerrAscend (TRSSF)
TerrAscend is similar, holding just below its 25-day moving average. Ideally, this second-tier multistate operator’s stock holds here while its 50-day moving average catches up, all at the 13 level. But if it doesn’t, 11 is a distinct possibility. HOLD.
Trulieve (TCNNF)
I’ve often mentioned that Trulieve’s long record of profitability makes the stock a favorite of institutional investors, and the action of the stock recently supports that, as TCNNF is just 8% below its high of three weeks ago. Still, until we see a true breakout, ideally on big volume, I’m skeptical. Today the company, which has more than half the market for medical marijuana in Florida and expects to get a big chunk of the recreational market when it opens, announced the opening of new dispensaries in Clearwater and Tampa, the company’s 81st and 82nd nationwide. HOLD.
Turning Point Brands (TPB)
In my issue last week, I noted that if I had to buy one stock in this tricky environment, I’d buy TPB, mainly because I think it has less potential downside. And that’s still true. For the past week the stock has traded mostly between its 25-and 50-day moving averages, building a small base at 50. Going forward, there’s one potential negative in the stimulus bill: the crackdown on mail-order sales of vaping devices, intended to reduce teenage nicotine abuse, might also cut into cannabis vaping sales. But this fear is two months old and the stock says it’s not a big deal. HOLD.
Village Farms (VFF)
Village Farms has seen trading volume of its stock fall steadily over the past three weeks, and the stock is still hanging around its uptrending 25-day moving average, so it’s possible this greenhouse grower could see its stock build a base at 15. If not, 13 is easily possible. HOLD.
FYI, our Portfolio is now up 43.1% YTD while the Marijuana Index is up 43.7%.
Final Word: Though today’s sales will take the portfolio to a 52% cash position, I am by no means determined to stick with that. As always, the action of the stocks will determine my next course. If they fall further, I’ll sell more. And if we see some real buying power come into these stocks (and ideally into other growth stocks as well) and we see some real breakouts, I’ll happily jump back on the fastest horses.