Marijuana Stocks: Catalysts For Seasonal Entry And Exit And Their Applicability For 2018 And 2019

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Includes: ACB, CGC, HMLSF, TLRY
by: Anthony Cataldo

Summary

As noted in an earlier SA article, the Horizons Marijuana Life Sciences Index ETF outperformed the broad indexes for September 2018.

Note that the "top 3" HMLSF holdings were [1] Aurora, [2] Tilray, and [3] Canopy, generating extraordinary September 2018 returns.

This article recalls and elaborates on the seasonal patterns that have occurred each US election year in November.

These patterns have occurred in November 2012, November 2014, November 2016, and are likely to repeat in November 2018.

If remarkably high returns are again generated for October, consider exiting the sector, though M&A activity and institutional investor attraction might extend the rally.

As mentioned in my earlier Seeking Alpha article, the Horizons Marijuana Life Sciences Index ETF (OTC:HMLSF) did quite well in September 2018. That article prompted an excellent comment and question from one of my long-time followers:

The short answer is "yes."

The long answer is "yes, but only if all other things remain equal or constant, and they may not remain equal or constant."

A Walk Down the Memory Lane

This is the Seeking Alpha article that the above post referred to, correctly predicting the November 2016 post-election day sell-off, based on November 2012 and November 2014 US election day and seasonal patterns.

To save time repeating what I have explained, and correctly predicted in prior Seeking Alpha articles, below is a snip, summarizing November 2012, November 2014, and November 2016 patterns:

Generally, [1] there is an increase in marijuana stock market capitalization and price-per-share values leading into the November US elections, [2] a sell-off from this upside overreaction occurs, as a few more states decriminalize marijuana or cannabis for recreational or medical use, [3] a buying opportunity in mid- to late-December, as tax loss selling or tax loss harvesting results in the sale of "losers" beginning in early- to mid-November, subsides, immediately before the Santa Claus rally, beginning on or about December 22-23, and [4] a recovery in very late December and early January, referred to as "the January effect," occurs, as selling pressures have evaporated, along with the passage of calendar year-end, and "bargains" are purchased by investors.

Historical Context is Important, so I Provide a Summary of Some of My Earlier Hits and Misses

This is a snip from the Seeking Alpha article where I updated long-term followers:

What is Different for 2018 and 2019?

We are entering the "big cap" involvement in the early growth stage marijuana and cannabis sector or segment of the economy, and favorable news of institutional investor involvement in November and December could extend the anticipated US election day rally up through and beyond early- to mid-November.

Again, note that the favorable results for the Horizons Marijuana Life Sciences Index ETF were driven by the "top 3" holdings. As of October 1, 2018, HMLSF maintains positions in excess of 10% of its overall portfolio in [1] Aurora (ACBFF), [2] Tilray (TLRY), and [3] Canopy (CGC) (September 2018 charts are located in the APPENDIX). The below describes September's performance for these "top 3" holdings, where the October 1, 2018, holdings break down as follows:

HORIZONS HMMJ HOLDINGS

as at 10/01/2018

AURORA CANNABIS INC

11.91%

TILRAY INC

11.41%

CANOPY GROWTH CORP

10.91%

APHRIA INC (APHQF)

8.86%

GW PHARMACEUTICALS PLC (NASDAQ:GWPH)

8.09%

SCOTTS MIRACLE-GRO CO/THE (NYSE:SMG)

7.10%

CRONOS GROUP INC (OTC:CRON)

5.75%

HEXO CORP (OTCPK:HYYDF)

4.19%

GREEN ORGANIC DUTCHMAN HLDGS (OTCQX:TGODF)

3.55%

CANNTRUST HOLDINGS INC (OTC:CNTTF)

2.91%

ORGANIGRAM HOLDINGS INC (OTCQX:OGRMF)

2.16%

EMERALD HEALTH THERAPEUTICS (OTCQX:EMHTF)

1.87%

FSD PHARMA INC CL B SUBORDINATE VTG (OTCQB:FSDDF)

1.60%

INSYS THERAPEUTICS INC (NASDAQ:INSY)

1.46%

SUPREME CANNABIS CO INC THE NEW (OTCQX:SPRWF)

1.41%

TERRASCEND CORP (OTCQX:TRSSF)

1.38%

VIVO CANNABIS INC (OTCQB:VVCIF)

1.16%

NAMASTE TECHNOLOGIES INC (OTCQB:NXTTF)

1.09%

NEPTUNE WELLNESS SOLUTIONS INC

1.03%

NEWSTRIKE BRANDS LTD (OTCPK:NWKRF)

0.99%

22ND CENTURY GROUP INC (NYSEMKT:XXII)

0.79%

MARICANN GROUP INC (OTCQB:MRRCF)

0.73%

INNOVATIVE INDUSTRIAL PROPERTIES (NYSE:IIPR)

0.68%

ALEAFIA HEALTH INC (OTCQX:ALEAF)

0.63%

ICC LABS INC (OTC:ICCLF)

0.61%

VILLAGE FARMS INTL INC (OTCQX:VFFIF)

0.56%

WEEDMD INC (OTCPK:WDDMF)

0.54%

EMBLEM CORP (OTCQX:EMMBF)

0.48%

RADIENT TECHNOLOGIES INC (OTC:RDDTF)

0.48%

CHOOM HOLDINGS INC (OTCQB:CHOOF)

0.44%

DELTA 9 CANNABIS INC (OTCQX:VRNDF)

0.36%

INVICTUS MD STRATEGIES CORP NEW (OTCQX:IVITF)

0.35%

TETRA BIO-PHARMA INC

0.34%

NATIONAL ACCESS CANNABIS CORP (OTCPK:NACNF)

0.34%

ISODIOL INTL INC NEW (OTCQB:ISOLF)

0.34%

HARVEST ONE CANNABIS INC (OTC:HRVOF)

0.33%

LEXARIA BIOSCIENCE CORP PAR$.001 (OTCQX:LXRP)

0.33%

ZYNERBA PHARMACEUTICALS INC (NASDAQ:ZYNE)

0.27%

THC BIOMED INTL LTD (OTCQB:THCBF)

0.25%

GTEC HOLDINGS LTD (OTCPK:GGTTF)

0.25%

HEMPCO FOOD AND FIBER INC (OTC:HMPPF)

0.24%

EVE & CO INC (OTCPK:EEVVF)

0.22%

INMED PHARMACEUTICALS INC (OTCQX:IMLFF)

0.22%

BELEAVE INC (OTCQX:BLEVF)

0.18%

JAMES E WAGNER CULTIVATION (OTCPK:JWCAF)

0.16%

ABATTIS BIOCEUTICALS CORP (OTCQB:ATTBF)

0.15%

INDIVA LIMITED (OTCQX:NDVAF)

0.14%

AUSTRALIS CAPITAL INC (OTCPK:AUSCF)

0.08%

AUSTRALIS CAPITAL INC WT 19-SEPT-2019

0.07%

Total

99.39%

The below table summarizes a simple, descriptive chart of the number of Seeking Alpha followers for each of the "top 3" holdings as of October 2, 2018:

Seeking

Alpha

Followers

ACBFF

62,533

TLRY

28,803

CGC

73,969

The below table summarizes a simple, descriptive chart of the increase in price-per-share [PPS] for each of the "top 3" holdings for the month of September 2018:

September

Increase

ACBFF

44%

TLRY

120%

CGC

6%

Note that a mere 10% holding of Tilray in your portfolio would have generated a 12% [120%÷10] overall portfolio return for the month of September! Of course, it follows that a 10% holding of Aurora in your portfolio would have generated an additional 4.4% [44%÷10] overall portfolio return for the month of September.

Therefore, if your portfolio was 10% invested each in Tilray and Aurora, you would have generated a return of 16.4% [12% + 4.4%] and, as noted in my prior SA article, the Horizons portfolio generated a September return of just below 17%. So, these two stocks alone could have generated returns approaching that for the entire portfolio.

Summary and Recommendations

I continue to recommend a nice, safe, passive investment strategy for the cannabis or marijuana sector. Tilray is simply too volatile for me to "put all my eggs in one basket." Regardless of your decision, to focus on specific cannabis or marijuana sector stocks or HMLSF or an alternative ETF, I would seriously consider exiting the sector in early November. Recall that the seasonal patterns can be tempered by unanticipated news or events. The landscape keeps changing for the sector, but a portfolio of diversified marijuana and cannabis stocks with a buy-and-hold strategy from the long-term investor should continue to perform favorably for the remainder of 2018 and beyond.

APPENDIX A: September charts for the "top 3" holdings in the HMLSF

Aurora Cannabis, Inc.

Below is the September 2018 chart for Aurora:

Tilray, Inc.

Below is the September 2018 chart for Tilray:

I share the concerns expressed by this Seeking Alpha author, but this Seeking Alpha author made a prediction that was quite remarkable.

Canopy Growth Corporation

Below is the September 2018 chart for Canopy:

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.