This Once in a Generation Wealth Creation Opportunity is Ripe for the Picking
Provided You Know Where to Allocate Capital Ahead of U.S. Legalization
The burgeoning cannabis sector has been responsible for the creation of many new ‘Marijuana Millionaires.’ Opportunities like the one before us now only come around once in a generation. The potential size and scope of the cannabis industry, once everything is all said and done, has the potential to dwarf other industry booms such as Alcohol, Cable TV, and Dot Com.
With any new rapidly growing industry comes market volatility. This same volatility has also been the cause of many investor losses. You have to remember, every trade in the market ultimately has a winner and a loser. Whenever you lock in a significant profit, there is an investor on the other end who directly or indirectly took a loss. With the rise of algorithmic trading programs and hedge funds continuing to pop up all over Wall Street & Bay Street, the competition for profits have never been fiercer. This is precisely why doing your due diligence to find the best investment opportunities at the right time will help ensure you end up on the winner side of your trades more often than not.
Even in a surging space like cannabis, you need to do your homework in order to make the proper decisions. Don’t worry; we’re here to help you with precisely that. Investing blindly into any sector will increase your risk substantially and force you to rely on luck to turn a profit. Gambling in the markets, if you’re lucky, may generate sporadic short term profits but will never be a profitable strategy over the long term. Risk is something you need to accept as part of every trade. Moving forward, make sure your risk is calculated to give yourself the highest probability of ending up on the winning side of your investments.
1930’s Alcohol Stocks vs Today’s Cannabis Stocks
Let’s go back in time for a moment to the 1930s during a time in the United States where alcohol was prohibited nationwide. It may come as a surprise to many, U.S. alcohol stocks actually peaked in July of 1933, a few months before prohibition officially came to an end. Following the peak in the market, The United States Government repealed the 18th Amendment allowing the States to ratify the anti-prohibition 21st Amendment.
This is important to know because it was the same scenario that played out in Canada leading up to the Country’s Federal legalization of adult-use cannabis. In both situations, the market acted according to the old saying, “Buy the rumour, sell the news.” This scenario may also play out in the United States during the build-up to the heavily anticipated nationwide legalization of cannabis.
One way you can reduce your market risk is by taking some profits off the table before the potential U.S. Federal legalization news hits the wires. Start getting in the habit of going against the market consensus and learn how to ‘sell into strength.’ It may be difficult at first, but it will immediately lower your risk and help you avoid the fear-based ‘panic selling’ that commonly takes place once the market rolls over.
How to Capitalize on the Holy Grail of Market Catalysts
Like we’ve mentioned in previous articles, we believe the U.S. cannabis market could experience a much more significant upswing than what Canada experienced in the lead up to their legalization. Unlike Canada which only had the one main catalyst, the United States could have a series of smaller catalysts in the lead up to what we have dubbed the ‘Holy Grail of Market Catalysts’ in the lifting of the Federal cannabis ban. These smaller catalysts could include rescheduling or desheduling, states rights protections (new Cole Memo), and new cannabis banking legislation (The STATES Act). All of which would have a positive and profound effect on the market.
This series of mini catalysts will likely lift the market in sequence and put it in a prime position to explode higher once there is enough certainty that the U.S. Government is close to making it a reality. This moment would be an excellent time to take action by reducing your exposure before the actual announcement is made public. Hopefully, you take in some juicy profits in the process.
With the current state of the cannabis market being weak during the summer months, this makes for an ideal time to establish or add to your positions. It is critical to get in the habit of buying quality stocks during times of uncertainly while the majority of the market is caught up in fear-based selling. As a rule of thumb, it is a good idea to use the following hypothetical trade examples in your trading arsenal as we prepare to capitalize on the possible holy grail of market catalysts.
Profit Taking Example #1
You are up 200% on your investment, and the market looks to be peaking. It is a good idea to sell at least 1/3rd of your investment. Doing so allows you to recoup your initial investment and eliminates a substantial amount of risk moving forward. You now cannot take a loss on this trade. Everything from here on out is pure profit.
Profit Taking Example #2
You are up 100% on your investment, and the same scenario from example #1 is playing out. It is a good idea to sell up to half of your investment. You can sell less if you are feeling extra bullish but don’t let yourself get caught up in the euphoria. All market runs come to an end at some point, and the opportunity to profit won’t always be there.
Selling half puts you in a similar position as example #1 but with less equity left. Selling a quarter of your holding leaves you with more equity but less secured profit. Take the knowledge you’ve learned here and use your best judgement to apply it in real life.
And remember, nobody ever went broke taking profit.
Which Stocks & ETFs Offer the Most Potential Upside?
Now that we’ve gone over the game plan and the catalysts you will be attempting to capitalize on, we need to come up with a list of the top cannabis stocks & ETFs to research and eventually deploy capital into.
For all the reasons mentioned above, we want to limit our list to cannabis stocks with U.S. operations. Larger Canadian based players with substantial seeds planted in the United States are an option as well. Well, it is true, a rising tide lifts all boats, the stocks that will rise the highest will be the ones that stand to benefit the most financially from U.S. Federal cannabis legalization.
The following list of cannabis stocks are the ones that we believe best fit this description. For your convenience, we have included direct links to the company’s IR website and investor presentation (where applicable). This will allow you to start your due diligence right away.
We have also included a list of the top U.S. cannabis ETFs for those investors looking to gain market exposure without having to create and manage a portfolio. These ETFs will do that for you in exchange for a small management fee.
List of U.S. Pure Play Cannabis Stocks
- New large U.S. multi-state operator set to IPO soon.
- Impending merger with Tidal Royalty (CSE: RLTY.U) (OTC: TDRYF).
- Official IPO date has yet to be announced but could line up favourably with a potential fall rally in cannabis equities.
- Recently announced a deal to acquire the world’s largest indoor hemp facility in Illinois.
- Former CannTrust (TSX: TRST) (NYSE: CTST) President Brad Rogers is the CEO of RWB.
- Sign up here to receive RWB investor materials & updates + notification of inaugural trading date.
- Recently announced an acquisition that will make them the ‘World’s Largest Cannabis Company‘.
- Has operations in 33 medical and 10 adult-use U.S. States.
- Recently announced their expansion in Arizona.
- View Curaleaf IR Website & Investor Deck
- Widely publicized deal with Canopy Growth (TSX: WEED) (NYSE: CGC).
- The deal gives Canopy the option to acquire Acreage when the U.S. lifts their Federal cannabis ban.
- Operations in 17 U.S. States.
- View Acreage IR Website & Investor Deck
- Recently opened its 29th dispensary in Florida.
- Also acquired 84.97 acres of land in Florida to build a 750,000 sq ft indoor grow facility.
- Dominant Florida player with operations in 3 additional U.S. States.
- View Trulieve IR Website & Investor Deck
- Pending merger with Origin House (CSE: OH) (OTCQX: ORHOF) in the works.
- Merger is being held up by the U.S. DOJ Antitrust Review.
- Most analysts still expect the merger to go through.
- Merger delays have weighed heavily on the U.S. cannabis sector but have also created a buying opportunity.
- Operations in 11 U.S. States.
- View Cresco Labs IR Website & Investor Deck
- Recently updated investors on the status of their impending merger with Cresco Labs.
- The company is leveraging its large footprint in California, the world’s largest cannabis market.
- 60% storefront dispensary penetration and 8 manufacturing & distribution facilities in California.
- Cresco Labs merger expected to drive significant growth for both company’s shareholders.
- View Origin House IR Website & Investor Deck
- Leading player in the rapidly growing hemp-derived CBD segment of the U.S. cannabis market.
- Trusted and well-established brand recognition in the United States.
- Recently added to the new NYSE Cannabis ETF called ‘The Cannabis ETF’.
- View Charlotte’s Web IR Website & Investor Deck
List of U.S. Cannabis ETFs
- Launched by Innovation Shares and listed on the NYSE Arca.
- Passively managed ETF that includes a mix of 35 North American cannabis stocks in its portfolio.
- Rebalances its portfolio monthly instead of quarterly to reduce long-term volatility and take advantage of the evolving cannabis capital markets.
- Management fee of 0.70%.
- View The Cannabis ETF Fund Website & THCX Portfolio Holdings
- An active fund managed by Dan Ahrens and his team.
- Holds a mix of cannabis stocks in its portfolio that they wager will outperform the overall cannabis market.
- Has a management fee of 0.60%.
- View Pure Cannabis ETF Fund Website & YOLO Portfolio Holdings
- First and Largest U.S. cannabis-focused ETF.
- Tracks the Prime Alternative Harvest Index.
- Designed to measure the performance of stocks beneﬁtting from global adult-use and medical cannabis legalization initiatives.
- Has an expense ratio of 0.75%.
- View Alternative Harvest ETF Fund Website & MJ Portfolio Holdings
Move over Canopy. The world’s largest cannabis company is set to IPO in less than 30 days.
Get the full details here so you don’t miss out on the next potential 10 bagger.
Disclaimer: The Cannabis Investor owns a position in RWB.