Patience Will Pay
Monday’s big, sharp market pullback was shocking to some investors, and scary enough to cause many to sell stocks in the fear that the correction would go deeper. It certainly might—the September/October period often brings major corrections—and maybe it should, though should is a word that I try to avoid when writing about the market.
The simple fact is that the major market indexes are still high, even after Monday’s plunge, and thus a correction is to be expected, at some point. And whether that correction is blamed on a Chinese real estate company or inflation numbers or what the Fed does next really doesn’t matter. What matters (for this advisory service) is that marijuana stocks have already had their big correction—though of course it can get bigger. The index is already 51% off its February high—and some of our stocks have corrected even more.
But the industry is still young and still fast-growing, so I continue to recommend that you invest in the stocks most likely to lead the next run higher, because owning the future industry leaders today is a near-certain ticket to future profits.
As I write, our portfolio is 34% in cash, and our profit, which was 48% back in February, is down to 2%. The index, by comparison, is now down 1% for the year. But that will change, and I have little doubt that once the sector turns up again, our stocks will once again see buyers rush in. It’s just a matter of time.
As for individual stocks, the majority remain in downtrends, trying to build bases, but there is no upward momentum yet. The one exception is our REIT, Innovative Industrial Properties (IIPR), which hit a new high two weeks ago, pulled back to its 50-day moving average last week, and has now resumed its uptrend.
It’s a strong pattern, so strong in fact, that Mike Cintolo featured the stock in Cabot Top Ten Trader last week. Here’s some of what he wrote.
“The legal American cannabis market grew 50% during the last couple of years and is seen more than doubling by 2025 to become a $46 billion market. Cannabis is a capital-intensive business, however, requiring secure facilities that can efficiently grow the plant. Innovative Industrial Properties is a real estate investment trust that owns, manages and leases cannabis growing facilities across the country. The company’s portfolio consists of 74 properties in 18 states where cannabis is legal. They’re 100% leased out on long-term contracts, mostly to the largest growers in the market … there’s a chance Congress will legalize cannabis federally and even if that doesn’t happen, it appears likely they’ll ease insurance and banking restrictions on the industry, which should help get more capital flowing and spur more facility investments. IIPR shares paid a $1.40 dividend last quarter, a nice benefit for being in a fast-growing business which should be able to grow sales 30%-ish both this year and next. IIPR had a great run into the 220 area in February before entering a well-deserved correction, a dip that didn’t truly find support until May, when the stock tagged its 40-week line. While the rally from there wasn’t powerful, it has been persistent; helped along by better action in REITs, IIPR rallied 11 weeks in a row to a recent peak of 252. Admittedly, the pullback in recent days has been a bit iffy, but it’s approaching its 50-day line—we’re OK starting a position here with a relatively tight stop.”
Since then, as I mentioned above, IIPR has bounced off its 50-day moving average and is now trending higher, so this is an attractive entry point if a REIT fits in your investment portfolio.
As for the pure, plant-touching companies, none are attractive buys here technically, but fundamentally, the industry leaders are Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb (GTBIF) and Trulieve (TCNNF). If you don’t own them, they should at least be on your radar.
Next week’s issue of Cabot Marijuana Investor will have a full portfolio update.
