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Surely you have seen the overly-promotional get-rich-quick ads for newsletters focused on cannabis stocks. Over the last several years, most of these services have launched, appealing to retail investors with stories of roads to riches. The common factor is that they are long on hype and short on substantive things like a track record. Often, these services are about upgrading subscribers to more expensive products rather than delivering on their promises.
Our readers at New Cannabis Ventures understand that we publish news and share valuable resources, like our family of indexes, the Public Cannabis Company Revenue & Income Tracker, a list of upcoming IPOs and new issues and even an earnings call calendar Our curated content is highly filtered and published quickly, while our original and exclusive content is designed to help our readers gain insight into leading public and private companies as well as to understand trends in the market. In a nutshell, we equip do-it-yourself investors to navigate a complex, rapidly changing industry. What we don’t do, though, is make any sort of recommendations about which stocks they should consider buying.
For our readers who need additional tools and insight, we provide that through a separate service at 420 Investor, which just celebrated its sixth anniversary. We have never marketed like many of the newsletters that followed us years after we began helping investors identify opportunities while trying to avoid landmines. One of the things we have noticed about the newsletters that hype the sector is that they ramp up their marketing efforts after the market has rallied rather than before. They tend to be very quiet when the market is in a decline, as is the case currently.
Last week, we discussed the challenges facing the cannabis sector and how the capital crunch that has developed makes it more important than ever to focus on the strength of the balance sheet and the potential cash flow of companies. Of course, much of this bad news may be priced in already. After all, the Global Cannabis Stock Index is down 48% from its 2019 high in March, 55% from its peak in September 2018 and almost 70% since the January 2018 peak. In fact, the index is lower today than it has been in three years despite a much friendlier political environment and the abundance of companies that are rapidly scaling rather than just talking about it, as was the case just a few years ago.
While the current market is challenging and could see additional pressure over the next few months, we think this is a great time for long-term investors to consider the sector. For years, we have struggled with the valuations, but they look better than ever with some leaders trading at reasonable multiples of sales or projected EBITDA. In the broad sell-off, some less widely followed cannabis stocks have been taken to levels that could appeal to value investors.
At the same time, though, there doesn’t seem to be a near-term catalyst to reinvigorate investors, yet. Over the past few years, catalysts like elections or key states legalizing have ignited interest in the sector, but sometimes there have been surprises as well, like last year’s moves by Constellation Brands and Altria to enter the space by taking controlling stakes in Canadian LPs. Thus, one never knows when a catalyst may suddenly appear.
As we look at the charts of leading companies in the sector, it’s not clear that the downturn ended last week as the market reversed. Very few stocks had the kind of volume or moves that would suggest anything but short-covering as the cause of the bounce. With that said, our best guess is that we are within 10% of a low that we expect in the next few weeks should these prices not hold. An environment like this suggests a contrarian investment at present, while getting prepared to buy more on further weakness or, should the recent lows hold, on strength once one is comfortable that the trend has changed.
At 420 Investor, the service has been helping investors ranging from the extremely inexperienced to the most active professional investors in the sector by providing real-time information and alerts, two videos per day, a weekly chat, an extensive forum, weekly summaries and monthly newsletters. This information extends well beyond what we share with our audience at New Cannabis Ventures.
We also provide three model portfolios (paper portfolios) designed to appeal to different types of investors. “Flying High” is short-term oriented (swing trading), with trades typically designed to last two weeks to a month. “420 Opportunity” is long-term focused but very actively traded. It also can include a wider range of stocks, including those not on the Focus List (the 27 names most actively covered). “420 Quality” has less trading and is limited to a subset of those 27 stocks on the Focus List. Both of the long-term model portfolios are typically fully invested, with market-timing not part of the strategy. The idea is that the model portfolio offers the best stocks for those who want to be invested in the sector.
Here is how the model portfolios have performed in 2019, 2018 and since inception:
As we discussed above, we think this is a good time to take advantage of a downturn in the sector. It’s not clear that the lows are in yet, and calling the bottom this year has been an exercise in futility thus far, but this appears to be a good time to begin exploring the companies that are operating in this space. We hope that many of our readers who are looking for additional help navigating the sector will consider 420 Investor, which comes with a full refund within the first 30 days for those who decide it’s not for them. We can’t promise or guarantee anything except actionable ideas, insight and the most helpful and reliable information delivered real-time.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
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Alan & Joel
Written by Alan Brochstein, CFA
New Cannabis Ventures