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Weekly Cannabis Report: What To Expect After A Blowout January?

by: Cornerstone Investments

The rally continued in cannabis stocks last week which concluded a blowout month for the sector; HMMJ up 11.4% and MJ up 12.1%.

Aphria, Cronos, and Organigram led the market with >30% gain; Khiron Life Sciences jumped 40% after announcing a JV with Dixie Brands.

We are turning more cautious as we begin to see signs of overheating in the sector; we suggest some profit taking due to likely pullback.

Cannabis, Marijuana, Hemp, Cornerstone Investments

Welcome to our Weekly Cannabis Report, a reliable source for investors to receive the latest developments and analysis in the cannabis sector.

Trading Summary

The rally resumed last week which extended the winning streak for pot stocks in 2019. The Horizons Marijuana Life Sciences Index ETF (OTC:HMLSF) rose 11.4% and the ETFMG Alternative Harvest ETF (MJ) gained 12.1%. Both ETFs have gained around 35-40% during January.

Canadian Large-Cap: Canadian large-caps reported strong gains last week. Aphria (APHA) led the group with its 34% gain and it has recovered all of the losses caused by the short report. Cronos (CRON) continued to rise with another 30% jump. Canopy (CGC) was flat ending a great month. Tilray (TLRY) rose 9% and Aurora (ACB) gained 10% on little news.

Canadian Mid-Cap: Canntrust (OTC:CNTTF) rose 8% as it cleared the hurdles for its Phase 3 expansion. HEXO (HEXO) gained 10% after a recent C$50 million raise at C$6.50. Organigram (OTCQX:OGRMF) gained 32% after announcing a strong quarter and provided an operational update. Green Organic Dutchman (OTCQX:TGODF) lost 2% after gaining 30% the prior week.

Canadian Small Cap: The small/mid-cap stocks also saw broad-based gains after a particularly strong week. The biggest gainers were Canopy Rivers (OTCPK:CNPOF), Emerald (OTCQX:EMHTF), Vivo (OTCQB:VVCIF), and Supreme (OTCQX:SPRWF). The small caps have seen strong returns during January 2019 which was expected as risk appetite returned to the market. Due to the small float and retail-heavy investor base, these stocks are subject to greater volatility during both good and bad times.

U.S. Multistate Operators: The MSOs had mixed performances last week. The best performers were Curaleaf (OTCPK:LDVTF) with 15% gain, Harvest Health (OTC:HTHHF) with 15% gain, and Cresco Labs (OTCPK:CRLBF) with 16% gain. Green Thumb (OTCQX:GTBIF) and Acreage (OTC:ACRZF) also gained single digits. iAnthus (OTCQX:ITHUF) advanced 9% after announcing that its acquisition of MPX will close next week. Medmen (OTCQB:MMNFF) dropped 5% after its former CFO sued the company for misconduct and slammed the co-founders. Trulieve (OTCPK:TCNNF) gained 20% to recover an 11% pullback the prior week.

Ancillary and International: CBD stocks continued to perform strongly as Charlotte's Web (OTCQX:CWBHF) gained 13% and CV Sciences (OTCQB:CVSI) gained 6%. KushCo (OTCQB:KSHB) was flat and Innovative Industrial Properties (IIPR) gained 6%. Khiron Life Sciences (OTCQB:KHRNF) gained another 40% after announcing a JV with Dixie Brands (otcpk:DXBRF) and entry into the Mexican and U.S. CBD markets.

Industry News

Looking Ahead

What a January for cannabis stocks! After a painful November and December, cannabis stocks managed to stage one of the best comebacks we've seen in a while. Pretty much every single cannabis stock reported gains, with many rising close to 100% in a single month. The rally was broad-based including both small and large caps. Industry leader Canopy and Cronos led the group up and others followed closely. The Canadian sector performed better overall compared to U.S. cannabis stocks. Investors are clearly looking past the initial stumbles after a less-than-satisfactory legalization and Canopy's entry into the U.S. hemp market boosted investor confidence. The U.S. market is now open to Canadian LPs for the first time and competition will surely ramp up for American companies focused on CBD and hemp-based products.

However, as we have always done in the past, we would like to think ahead and we think a word of caution is warranted after such a blowout month for cannabis stocks. Last week, we said that the risk of a pullback was benign which proved to be great advice. However, we are beginning to see early signs of overheating in the sector as the gains are coming a little too much and too fast. While we haven't reached the absolute peak valuation we saw back in October, the risk of near-term correction has increased last week. We would suggest investors consider taking some profits along the way to properly position themselves for a potential pullback. While the fundamentals couldn't have been better for cannabis stocks, history has proven to us that the cannabis sector goes through peaks and troughs. We saw two full cycles in 2018 alone and we don't expect 2019 to be anything different. Don't be greedy and always stay ahead of the game!

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.