The Cannabis Craze

Aurora Cannabis ACB, Tilray TLRY, and Canopy Growth Company CGC are a few of the hyped up marijuana stocks we saw hit the markets in 2018. The “Cannabis Craze” had everyone and their brother buying up marijuana stocks. These cannabis stocks didn’t have enough free-floating shares to cover the massive amount of buy interest leading them to skyrocket at the end of 2018 far above their fair value.

Canadian Legalization

Investors jumped into these stocks on the announcement of Canada legalizing recreational marijuana, which was official on October 17th of last year, on the hopes that the United States would follow suit promptly.

The logic behind investing in a Canadian cannabis company isn’t entirely flawed. These companies have established infrastructure and economies to scale that would allow them to quickly address the needs of American pot smokers if federal legalization were to take place in the US. This would represent a considerable upside potential for any marijuana company already in operation.

Unfortunately, I believe that the optimism of US weed legalization is somewhat misplaced considering the complexity of our federal legislative system would delay this legalization for years. Even though individual states have been able to legalize marijuana, it will be many years before it is federally legalized, leaving all the growth expectations for these Canadian cannabis stocks on the back burner for an indefinite amount of time.

Since the initial rally in marijuana stocks, most of these equities have plunged. Tilray is down over 72% since mid-October, Canopy Growth Company  is down about 22% in the same time frame, and ACB is down about 25%. Aurora hasn’t fallen as fast as Tilray because the firm has been showing accelerating topline growth, but unfortunately, the firm can’t keep its profits above ground level with losses on the income statement the last two quarters.

Trend Trading Downside

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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