Things are not good in the world of Pot Stocks, especially since their massive debut as a legal product in Canada this past October. The bulls took their most recent hit last week as the top five marijuana producers reported poor sales, while the lower level competitors results were even weaker. So weak in fact, that many companies didn’t even report their earnings.
That wasn’t even the worst of it, as the industry was dragged down by even more lousy news:
- · The company Canopy Growth Corp (TO:WEED) was forced by the government to destroy its own crops this past September all due to a licensing delay from Health Canada. Infrastructure issues also played a key factor in delays.
- · Cannabis grower Pete Young of the Indiva, Inc. stated that crop failure would continue so long as over-eager expansion, poor infrastructure, and a lack of information are prevalent in the market.
- · Based on market analysis distributors face major delays from their battles with federal regulation, especially as it relates to the tax stamps which are applied to all legal commercialized cannabis products As silly as it sounds, per Brendan Kennedy, CEO of Tilray, only one Canadian company has been able to manage applying the glue for the stamps properly.
No, that wasn’t a typo. Stamp glue and the lack of experience applying it is a major reason for less than favorable marijuana stock conditions.
Where do We Stand in the Wake of all this Bad News?
The major cannabis stocks took a big hit these past few weeks and many are backtracking to retest supports at their 50 Day Moving Averages. Cronos Group, Inc. who retested last week, saw a bounce in their shares.
The 50 Day still remains a standard of support, though that may not be the case in the near future as growing pains become evident in the cannabis market, wreaking havoc with traders who are nervous enough about treading such uncharted waters.
One key piece of information to remember is that, when you’re trading, the indicators you’d normally depend on aren’t as reliable as they would be with established stocks. The potential trade is still early in its formation so longer term support and resistance lines are still forming. The 100-day 200-day moving averages are the support and resistance levels), which is information that is less than useful when a stock has been around less than a year.
The time to zoom out and survey the monthly candlesticks can be perfectly exemplified by Aurora Cannabis Inc (TO:ACB). Looking at the graph below, you are literally viewing the entire history of the company, arguably one of the most desirable cannabis companies in the world.
Two Quick Stories and One Solid Piece of Advice for Cannabis Traders
The large market caps for the larger cannabis companies weigh heavy in the minds of potential investors. There’s always the hope of a bright future, but hope is not a candle, nor a technical indicator to use as an indication of when to buy. Speculators run the board at the moment, with little reservation about betting on an untested commodity market.
That brings us to something people are forgetting in all the excitement: this is a new market. Marijuana has been around for a while so it’s easy to forget that, as a taxable and legal product, marijuana is relatively new.
For that reason, we can look to two examples that can help us figure out where we are and where we’re going as far as cannabis companies are concerned.
Example #1: Bitcoin. Bitcoin was all the rage in the winter of 2017, with media and hype circling the subject like vultures, with the biggest frenzy surrounding the legitimization of bitcoin by two futures groups in America.
Everything seemed like it was going wonderful for bitcoin, until it wasn’t. Within a week of that legitimization, the price of bitcoin collapsed. Speculation over legitimacy peaked the stock and as soon as that happened traders started jumping ship.
Pot stocks, along with the wild speculation prior to their legalization follow a very similar trend. Initially the price skyrocketed, but the long-term investors are now looking for the stability of a stock for the long haul.
Example #2: Tesla (NASDAQ:TSLA). Tesla was the Bowie of the car world way back in 2013, sending speculators all aflutter before a single car had come off the line. Even now, with all the stable infrastructure and steady production rates, they have a ways to go before they can shake the ghost of their past. A “production hell” that is still ever present in the minds of traders that took a hit in the wake of Tesla’s wild volatility.
Much like Tesla, cannabis corporations are a bit up in the air, with much of their future dependent on popular opinion and trend alongside internal issues like transportation and infrastructure. That being said, it is expected that many investors will buy in to the temporary bear-like sentiment currently tormenting this young market. But with youth comes opportunity for short-term traders who might be looking to capture profit on the large price swings.
The ability to trade the up and downswings of the cannabis market is arguably it’s most alluring feature and adventurous traders looking to make those quick, small gains in a new and still volatile industry have many chances ahead of them in the foreseeable future.