This week, I want to give some straight-forward answers to some tough questions…
I recently talked about the latest round of earnings and everything you need to know.
However, even though a company reports good earnings, the price in its stock may not go in the direction we like to see.
One of our members had a question about that, and had some other thoughts that I wanted to address.
Aaron asks: “Greg, first, why do stocks like Planet 13 have good earnings and fall in price? Frustrating! Second, if earnings are great and the share price never goes up, who is to say that it ever will? Third, it seems like our portfolio stocks do the worst but have 5 ratings. How and why are you missing the stocks that have had success this month and why are they not in our portfolio? Lastly, it would seem like CRON should be in the portfolio just because of its partnership with a tobacco giant. Is it bound to be a big winner? Nobody seems to want to invest in these OTC stocks.”
Tough questions for a tough market, Aaron.
Thank you for your candor.
Sometimes it’s just because the whole market is declining, but the cannabis market was up on the day Planet 13 announced its earnings.
What to Know About Planet 13’s Stock Price
For Planet 13, I will say that it had not fallen as far as many other cannabis stocks, so perhaps it was a matter of many shareholders waiting for the earnings report to try to sell their shares.
If a few people do that and the earnings are good, the stock goes up and the sellers benefit.
But if lots and lots of people wait for the earnings report, that creates a lot of supply on that day.
And when you strip away all the reasons stocks go up, at any given time on any given day, the price is determined by simple supply and demand.
How many sellers are there and how desperate are they to sell, and how many buyers are there and how desperate are they to buy?
That’s something to think about when looking at a stock price going down after a solid earnings report.
Remember that a lot of people may have been holding onto a cannabis stock for years and have made a significant amount of money, so they all have points at which they are willing to sell.
Aaron also asks about how a company could be rated a 5 but its stock is so low.
“It seems like our portfolio stocks do the worst, but have 5 ratings. How and why are you missing the stocks that have had success this month and why are they not in our portfolio?”
There are no guarantees in the stock market, but I think there are a lot of indicators which tell us that our stock will eventually reverse this current decline and go to new highs. The first is that these companies are mostly executing on their business plans.
When the big operators are doing $1 billion of revenue per year and booking profits and (eventually) paying dividends, demand for the stocks will increase.
Again, that is supply and demand.
The second is the current reticence of institutional investors to get involved with cannabis stocks.
Basically, the big money in the stock market is currently locked out of our sector. As regulatory changes, particularly to banking laws, come into effect, more and more of these huge investors will want a piece of the fastest-growing industry in the world.
Canopy Growth Corporation (NYSE: CGC, TSX: WEED) and Cronos Group Inc. (NASDAQ: CRON, TSX: CRON) are spoken for, as is Acreage Holdings (CSE: ACRG, OTC: ACRGF) because of its deal with Canopy, but there are dozens and dozens of cannabis stocks which will be targets for strategic investors when those regulations change.
Arizona Tea is set to make a $10 million investment in a company which had $2 million of revenue this past quarter. When regulations change, companies like Arizona will be buying cannabis companies outright. That both increases demand for the stock of the acquiree, and it reduces the total supply of cannabis stocks generally.
On balance, I think our stocks have done as well or better as other cannabis stocks. It’s difficult to measure because of varying entry days, but I think the only month so far that we haven’t done at least as well as the NICI 50 index was July of this year.
I will say that I have chosen our stocks to appeal to a wide range of investors – the companies have a lot of promise but they are not generally among the most volatile companies out there. So, in any given week, if cannabis stocks soar, we might be behind the curve that week.
We recently launched Cannabis Power Trader for those investors interested in more short-term opportunities in the cannabis market.
You can learn how to access the opportunity to potentially profit no matter what direction cannabis stock prices move right here.
Finally, let me address your third comment.
What to Make of CRON
“It would seem like CRON should be in the portfolio just because of its partnership with tobacco giant. Is it bound to be a big winner? Nobody seems to want to invest in these OTC stocks.”
Cronos Group Inc. (Nasdaq: CRON) is a fine company and, as you mention, it has a pile of cash from Altria Group Inc. (NYSE: MO). But I think we should only have one of the Canadian giants in our portfolio since I think the best opportunities are outside of Canada.
In Canada, I’ve been focusing on specialty players and craft cannabis growers. I prefer Canopy to Cronos because of its higher current revenues, larger cash position, bigger portfolio of international assets, and big U.S. exposure through Acreage Holdings (CSE: ACRG, OTC: ACRGF).
I’m also a little wary of companies which have too much backing from tobacco companies. Tobacco companies will be important acquirers of cannabis assets down the road, but the truth is that many people in the cannabis industry don’t much like tobacco companies.
Tobacco executives are reluctant to partner with them.
I hope that helped provide some more insight, and thank you for your questions.
Executive Director, National Institute for Cannabis Investors
16 responses to “Four Important Questions Answered”
September 07 2019