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January 16, 2020 | Left for Dead: The Blood-in-the-Streets ‘Buy’ Signal

Sean Brodrick

Sean is the natural resource analyst for Weiss Group. You can read his thoughts on gold, oil, cannabis, uranium and other natural resources at EdelsonInstitute.com

One industry fell so hard last year, it’s like it was pushed out a high-rise window. Recently, it was down 57% from its March 2019 peak. Individual names in the industry fell harder — 70% … 80% … 90%! The carnage was terrible.

And as Baron Rothschild famously said, “The time to buy is when there’s blood in the streets”.

The industry I’m talking about is cannabis. This week has seen a remarkable recovery for pot stocks. As tracked by the ETFMG Alternative Harvest ETF (NYSE: MJ), cannabis stocks closed yesterday up more than 15% from a low hit Jan. 8.


 

Looking at the chart, you can see the rally as easy as 1-2-3! MJ broke out of a base (1) it had been making since November. It also pushed above the 50-day moving average (2). Now, it’s next target should be that big downtrend (3).

What could fuel this rally? Well, we have to look at what knocked cannabis stocks down so low in the first place.

We’ll start in Canada …

Canadian Pipe Dreams Went Up in Smoke!

In 2019, Canadian cannabis presented one disappointment after another:

  • They diluted shareholders …
  • Made promises they couldn’t keep…
  • Staggered from one scandal to the next …
  • Were hamstrung by a government-controlled distribution system that is entirely inadequate …
  • And ended up with an oversupply of “skunk weed” they still can’t sell.

The Troubles Slid Down South, Too

California Fell Short. California’s bureaucrats choked a potential boom by over-regulating and over-taxing cannabis growers.

I gave you the lowdown on this trend in this previous issue. Consumers prefer cheaper, black-market options. As a result, sales — and much-hoped-for tax revenue — fell short.

Vaping Crisis. Sure, now we know the illegal vaping products caused the major health scare across the country. But when the vaping crisis started, the cause was still a mystery. This sent a massive scare through the industry.

CBD Fiasco. CBD manufacturers promised “miracle cures” that simply aren’t provable. This has led to lawsuits.

So, after all this why are pot stocks rallying now, after all this? Well, the bad stuff is mostly in the rearview mirror. The future is looking bright. For example …

The “Good Stuff” Heating Up Pot Stocks

10 U.S. States Consider Legalization. The 2020 elections are coming up. And 10 U.S. states — including New Jersey, Pennsylvania and Virginia — could legalize marijuana.

Action in D.C. The House of Representatives has passed the SAFE Banking Act, which would allow federally licensed banks to handle marijuana money. And the Judiciary Committee approved the MORE Act, which will decriminalize cannabis on the federal level. We’ll wait for the Senate to take these measures up.

And just this week, a bipartisan group of lawmakers introduced a bill that would order the FDA to allow the marketing of cannabidiol (CBD) as a dietary food additive and supplement. Many on Wall Street believe the annual sales of CBD products could hit several billions of dollars.

U.S. Hemp Production Will Roll Out State by State. Thanks to the 2018 Farm Bill, many states have submitted plans to the USDA for hemp production. This year, the USDA will approve most of those plans. Then, state production will kick into full gear.

U.S. MSOs Have More Potential. I’m bullish on U.S. cannabis multi-state operators (MSOs). For one thing, 68% of Americans favor legalizing marijuana. That strong public sentiment provides momentum and investor interest.

Also, the MSOs will participate in the state-by-state rollout.

Good News for Canada, Too. Canada is dramatically expanding its cannabis retail infrastructure. That means Canadian sellers will have more retail outlets for their goods.

The U.S. Drug Enforcement Agency is slowly granting approval to Canadian companies to ship cannabis to U.S. partners for research. Tilray (NYSE: TLRY) and Canopy Growth (NYSE: CGC) are two of the first.

So, the bottom line is that while 2019 was a terrible year for cannabis stocks, 2020 is looking pretty good. And that sunshine of optimism is enough to lift this beaten-down industry out of the cellar.

There are plenty of ways to play this. You can buy MJ or do the research and buy individual stocks. I’ll have more picks for my Marijuana Millionaire Portfolio subscribers soon.

By the way, I’ll be in Miami for the Benzinga Cannabis Capital Conference Feb. 24–25. If you haven’t heard, Benzinga puts on the best cannabis conferences I’ve attended. Period. It’s an intimate gathering where you can rub shoulders with cannabis CEOs and ask them any questions you want. And I’m planning to dig up some great new opportunities.

I think you could do the same and learn a heck of a lot. The good news is I can get you 30% off the price of your ticket. Just use the code: WEISSRATINGS when you sign up at https://www.benzinga.com/events/cannabis/miami/

All the best,

Sean

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January 16th, 2020

Posted In: The Edelson Institute

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