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Cannabis Stock Investors Should Prepare To Ride The Third Wave


  • Cannabis stocks likely ended a 27-month bear market in March.
  • Two full cycles have played out and a third appears to have just begun.
  • The pandemic is likely to be a positive growth driver for the sector.

Having followed the cannabis sector since early 2013, I can say that it has been quite a wild ride. The stocks have been extremely volatile, and great fortunes have been made and lost by investors and traders in publicly traded cannabis stocks. I have been maintaining an index that illustrates the volatility of the sector, the New Cannabis Ventures Global Cannabis Stock Index:

global cannabis stock indexLooking at the index returns by year helps one better appreciate the volatility, as it removes the huge spike from early 2014, which I will detail below. Note that the index is rebalanced quarterly, with all qualifying members equally weighted.

  • 2013: +59.1%
  • 2014: -17.8%
  • 2015: -70.0%
  • 2016: +88.8%
  • 2017: +91.8%
  • 2018: -54.9%
  • 2019: -34.1%

The First Wave

The very first cannabis stocks began trading in 2009, but it wasn't until Colorado and Washington voters approved legalization in 2012 that the sector really began to attract traders. The earliest companies were all relegated to the OTC and were not only speculative but also not really cannabis companies at all. Instead, there was a lot of hype from these opportunists, most of which never amounted to anything and some of which have gone away. A notable exception was GW Pharma (GWPH), which dual-listed on the Nasdaq in May 2013 (and now trades exclusively on that exchange).

The powerful rally during the first wave was caused by too many investors chasing too few companies (really bad companies!) with relatively tight floats as Colorado dispensaries opened their doors to all adults on January 1, 2014, and the momentum quickly faded. To put things in perspective, the index rose from 159.07 at the end of 2013 to a peak of 1009.98 on March 18th, a meteoric gain of 535% in fewer than three months.

The stocks came crashing back down as

This article was written by

Alan Brochstein, CFA profile picture

Alan Brochstein, CFA, was one of the first investment professionals to focus exclusively on the cannabis industry. He has run 420 Investor, a subscription-based due diligence platform for investors interested in the publicly-traded cannabis stocks that he has moved to Seeking Alpha, since 2013, and he is also the managing partner of New Cannabis Ventures, a leading provider of relevant financial information in the cannabis industry since 2015. Alan is based in Houston. He and his wife have two adult children.

Before focusing exclusively on the cannabis industry in early 2014, Alan had worked in the securities industry since 1986, primarily with the responsibility for managing investments in institutional environments until he founded AB Analytical Services in 2007 in order to provide independent research and consulting to registered investment advisors. In addition to advising several different hedge funds and investment managers, including Friedberg Investment Management, where he participated as a member of its investment management committee, Alan was also a senior analyst for the independent research firm Management CV. In 2008, he began providing a first-of-its-kind subscription-based service for individual investors, Invest By Model, which offered two different portfolios that investors could replicate in their own accounts. Alan also offered The Analytical Trader at Marketfy, where he used fundamental and technical analysis in a disciplined process to offer specific trade ideas geared towards swing traders.

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

Business relationship disclosure: At New Cannabis Ventures, we work with several publicly-traded companies, including Aurora Cannabis, Charlotte's Web, Cresco Labs, Fire & Flower, INDIVA, KushCo Holdings, Organigram, Plus Products, Schwazze (Medicine Man Technologies), TerrAscend and Vireo Health, providing each of them with Investor Dashboards. Please see our disclaimer for more detail: http://www.newcannabisventures.com/disclaimer/ . None of these companies has paid me to write this article, and I am not recommending investment in any company mentioned in this article, including the clients of NCV.

I don't personally own any of the stocks mentioned or any cannabis stocks at all, but I may hold stocks mentioned here in one or more model portfolios at 420 Investor. I am not making any investment recommendation in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (77)

crzulu prime profile picture
The Week In Cannabis: Strong Earnings, Stocks In Green, Investments And Divestments


It's time for a change.
headnugg profile picture
Can anyone explain what's happening with $ITHUF recently, in layman's terms? Are they going bankrupt? And how about $MMNNF are they officially bankrupt now or not quite yet?
$ITHUF is basically BK, handing over control to their creditors. Common shareholders may or may not be wiped out depending what path they end up having to take to achieve the "Recapitalization Transaction" under the vagaries of Canadian business law... seekingalpha.com/...

$mmnff next?
headnugg profile picture
@CannabisPat I read that article but it almost made it sound good?
@headnugg They attempted to baffle us w/BS...
Truth_AndMovement profile picture
And so it begins...😎
Great article and history refresher. The anguish of 2019 was so painfully long and is now reduced, in the rear view mirror, to just a couple of paragraphs. Looking forward to the past tense of 2020, with November yet to come... I harken to the old Cubbie mantra, Wait until next year. The time will come! Come on Cannabis, I know you're gonna hit it outta the park. Next year. Keeping the faith and holding the stocks. Meanwhile, stay lifted...
Enjoyed the article and comment on the private MSOs that you are tracking.

I've been following the Ascend Wellness story and am amazed at what they have accomplished as a private company both operationally and in the capital markets.
umpire1 profile picture
tomatojuice profile picture
Why is nobody discussing Columbia Care and their pending merger with Green Solution based out of Colorado? CCHWF.
pat45 profile picture
headnugg profile picture
I started investing in cannabis in late 2018 and it's been quite a roller coaster since. Obviously hindsight is 20/20, but I wish I had sold all of my cannabis stocks and rebought, and done that again and again since it seems like we're all just stuck in a cycle of them dropping and going up, dropping and going up. I don't see anything changing that cycle until perhaps the SAFE act passes and then the ultimate catalyst, federal legalization. I'm about even with my big holdings now, $GTBIF $CURLF and wondering if I should sell everything I have if they keep going up, cuz they will inevitably go back down again. But a bunch of my big holdings are also still down bigtime like $HRVSF $ITHUF $MRMD $KSHB, etc. It's a real rollercoaster ride!
Mr Brochstein

Could you comment on the comparative buy side-only future
investment prospects of the US CBD sector vs the US THC sector.


Alan Brochstein, CFA profile picture
Maybe for a future article and something I surely discuss at 420 Investor
Thank you......
Mebarrett3 profile picture
Pay the $600/year and you get Alan’s mojo!
PenelopeVitale profile picture
A good reminder for those invested in # cannabis ETFs with the increase in performance, you will likely see lower rates from securities lending and lower distributions from the ETFs pot stocks.
timothy russell profile picture
$CNFA has shown, through powerful growth and earnings, that it can heat the Cannabis sector up once again. Not to mention that's where the next set of catalysts are coming from.

Today is confirming once again just how tied pot stocks are to the broad markets.
Alan Brochstein, CFA profile picture
This is not a company that has growth or earnings. Please don't spam my articles with silly tickers.
Thank you Alan, for an extremely insightful and comprehensive synopsis of the MJ sector; where it has been, and where it may well go! I am long:CRLBF,GRWG,GTBIF,GWPH,LHSIF,TCNNF,VREOF,OGI AND SPRWF.
PT Larry profile picture
Just sent an email to the president (POTUS) asking him to de-schedule marijuana with an executive order. This in response to both the riots in Wisconsin and the uncertainties caused by COVID-19. To email, google "email the president of the United States", then follow the instructions.
@Alan Brochstein, CFA ,
It's not the " Book " , yet was still a great Read Alan , Thank You for this piece …
Much needed , as many newbies do not know the History , as this , Imo , can be considered DD , coming from the Leading analyst in this Emerging sector ..
Been Fun Huh ? ..
Alan Brochstein, CFA profile picture
Thanks for the kind words. A roller coaster ride, for sure
@Alan Brochstein, CFA ,
Much deserved , you earned it ..
Appreciate the insights and agree States will need money post crisis and that money will come from tax revenue for marijuana and online gambling. Just starting wave 3. currently long YOLO, MJ, GTBIF, and TCNNF. Any thoughts on the ETF's vs single stock exposure. Also on the same theme any thoughts on online gambling investment, such as PENN to play this next wave up.
Alan Brochstein, CFA profile picture
ETFs aren't a viable option
Mebarrett3 profile picture
Nice to hear from you again, Alan. Good historical summary, but having lived through it sure seemed a lot longer and volatile with the governance shennigans, short report and hype! The first huge run up in 2014 perhaps makes the subsequent ups and downs look less intense.

Do we have any idea of what percent of cannabis stocks are owned by institutions versus retail investors?
Alan Brochstein, CFA profile picture
Depends on the type of stock and how you define institutional. More and more family offices, not so many real institutions unless we are talking about Canadian LPs and some of the other names that trade on major exchanges. I don't have hard numbers, and it's still dominated by retail for the most part. But, when you look at the trading volumes of ACB, APHA, CGC, CRON and TLRY it becomes clear that they are dominated by hedge funds, etc.
umpire1 profile picture
if there are health positives for cannabis or hemp i think it will make the products more desired
umpire1 profile picture
the future for cannabis seems a coin toss without legalization imo, thanks for insight
Alan Brochstein, CFA profile picture
I don't see it that way at all. As long as the federal government stays out of the way, it's great for those companies capable of scaling
Truth_AndMovement profile picture
The cannabis OG returns...

great article and I agree with pretty much every single point.

The shift from the overhyped and flailing Canadian companies to the US MSOs will inevitably happen imo. US MSOs are already crushing them in earnings, despite the temporary federal situation...Cannabis Bull Market 2020 is just getting started...

Long Cresco, Green Thumb, Trulieve and Curaleaf
why not apha ?
Truth_AndMovement profile picture

I think Aphria is one of the very few Canadian LPs I would actually invest in...I just think Canada has demographics problems that necessarily translate into demand problems.

The US, on the other hand, is a beast of a market and certain US MSOs are already separating themselves from the pack, big time...now imagine what will happen once federal legalization happens.... or once SAFE banking passes (sooner than federal legalization most likely), or Section 280E is repealed...

But even without federal legalization and other federal legislative changes, states are one by one legalizing medical and/or recreational and MSOs are capitalizing big time...at this point we really dont need federal legalization for these companies to double, triple within a year or two
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