Marijuana Stocks Soar Off the Bottom as Investors Eye Legalization 2.0
So far so good right? That’s what the majority of cannabis investors are thinking right now regarding the start of September trading. Historically cannabis stocks have performed extremely well this time of year, but will that trend continue in 2019?
A couple of weeks ago, we wrote an article on ‘How to Tell if Your Cannabis Stocks Have Bottomed’ in which we reviewed the technical charts for Aurora Cannabis (TSX: ACB) (NYSE: ACB), Cronos Group (TSX: CRON) (NASDAQ: CRON) and Canopy Growth (TSX: WEED) (NYSE: CGC). All three of their stock charts showed a bullish divergence which suggested that these stocks had bottomed out and could reverse very soon. It looks like we are seeing exactly that play out right now as all the big-name Canadian players are up big for the second day in a row and 3 of the last 4 trading sessions.
Organigram (TSX: OGI) (NASDAQ: OGI) and Aphria (TSX: APHA) (NYSE: APHA) are also part of the group leading the rebound and their stocks didn’t disappoint this week either.
In a week shortened by Monday’s Labour Day holiday, these five pot stocks racked up the following gains this week:
- Canopy Growth: +18.47%
- Organigram: +18.43%
- Cronos Group: +13.94%
- Aphria: +13.42%
- Aurora Cannabis: +12.35%
U.S. multi-state operators didn’t fare as well. U.S. pot stocks managed only meagre gains if that. The question remains, why the disparity between these two groups of cannabis stocks? What is the catalyst driving Canadian cannabis equities?
The answer to that question is simple, it’s Canada’s Legalization 2.0.
Source: Shutterstock
Around this very same time in 2018, Canadian cannabis stocks went on a huge run during the lead up to October 17th’s nationwide legalization of adult-use cannabis in Canada. It’s possible that a similar scenario could be playing out again in anticipation of Legalization 2.0 in Canada.
For those of you that are not familiar with what I’m talking about, Legalization 2.0 is Canada’s new legislation that would allow companies to produce and sell cannabis-based edibles, beverages, topicals, extracts, vapes, and concentrates. With dried flower well on its way to becoming a commodity, value-added products such as edibles and concentrates are where the money’s at now. Canadian companies have been pouring money into new infrastructure over the past year in preparation for Legalization 2.0 and are now in a prime position to capture the return on their investment. Legalization 2.0 is set to officially take place on October 17, 2019, the exact same date that recreational sales began last year. This time, the actual sale of edibles and extracts won’t actually begin until December 2019. This creates the opportunity for cannabis stocks to experience multiple catalysts.
Cannabis investors have been well aware of this important date for a while now and have directed their capital towards the extraction players which are set to benefit immensely from the legalization of extracts and concentrates.
Cannabis extraction companies such as MediPharm Labs (TSX: LABS) (OTCQX: MEDIF), Neptune Wellness (TSX: NEPT) (NASDAQ: NEPT), Valens GroWorks (TSXV: VGW) (OTCQX: VGWCF), Heritage Cannabis (CSE: CANN) (OTCQX: HERTF) and Radient Technologies (TSXV: RTI) (OTCQX: RDDTF) all experience a large influx of investor interest at the beginning of 2019. The summer correction in the cannabis market has brought share prices back down to attractive levels giving investors the opportunity to add these names to their portfolio at great prices.
Another stock that should be on everyone’s watchlist ahead of Legalization 2.0 is HEXO Corp. (TSX: HEXO) (NYSE-A: HEXO). HEXO made headlines back in August of last year when they signed a deal with Molson Coors (NYSE: TAP) to produce non-alcoholic cannabis-infused beverages. Molson Coors was one of the most sought after partners in the beverage space and the fact that HEXO was able to land them as a JV partner speaks volumes about the company. Now that legalization of cannabis-infused beverages is upon us, expect interest in HEXO to ramp up substantially.
Next week will be an important one for this group of Canadian pot stocks. I’d like to see volume continue to increase as share prices look to extend its rally off the bottom. Do not be at all surprised if there is a retest of the lows. If this happens, as long as we make a higher low or form a double bottom by touching the level of the previous low we’re still in business.
What does your Legalization 2.0 watchlist look like?
Shoot me an email at Ryan@Circadian-Group.com or hit me up on my brand new Twitter @RTroupTCI so we can compare notes.
Until then,
Best of luck to you all and happy investing.
Ryan Troup
Editor in Chief | The Cannabis Investor
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