The stock market is full of seasonal trends and one of the most important of the year has just begun.
I’m talking about, “sell in May and go away,” a financial adage that prompts investors to divest their holdings in May and return to the markets in the fall.
Should cannabis investors follow this advice?
This year, you may want to stay put in cannabis stocks. I see four catalysts that tell me cannabis stocks are setting up for more gains.
4 Reasons Cannabis Stocks are Set to Climb
1 – The Cannabis Industry Is Thriving During the Quarantine
The cannabis industry has been a huge winner during the quarantine. Most states designated the cannabis industry as essential. That coveted designation allowed most of the industry to continue functioning as normal.
In the meantime, cannabis sales spiked to a new all-time high in early March as consumers loaded up ahead of the quarantine. Based on what we’ve seen during the COVID lockdown, the cannabis industry looks recession-proof and I expect that to attract new investors into the sector in the coming months.
2 – Constellation Brands (STZ) Recent Vote of Confidence
Constellation Brands just invested another $245 million into Canopy Growth Corp (CGC). That investment is on top of the $4 billion they handed over in 2018.
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This is important for two reasons. First of all, the investment shows that Constellation (STZ) is still very committed to Canopy. Secondly, every cannabis company in the world would kill for $245 million in cash right now. Canopy will use this cash to invest in growth and strengthen the balance sheet.
3 – Eleven U.S. States Could Vote on Legalization in November
2016 was a great year for cannabis stocks because seven U.S. states legalized medical or recreational cannabis. 2020 is shaping up to be a repeat. Eleven U.S. states could be voting to legalize cannabis in November. Beyond November, more states may lean to legalize cannabis to compensate for tax revenue shortages.
4 – The Cannabis Sector Is on Sale
Despite the sector’s good news, cannabis stocks are still on sale. The Alternative Harvest (MJ) is down 70% from the 52-week high. That’s fantastic news for investors looking to buy low.
With sales hitting a new all-time high, the cannabis sector is also the most undervalued it has been in two years. For example, Canopy’s price-to-sales ratio has fallen from 87 last year to 20. Cresco Labs (CRLBF) price-to-sales ratio has fallen from 14 to 4 in the last year. I expect these lower valuations to attract more investors into the sector.
The Big Picture on Sell in May
Selling in May has proven to be an effective strategy over the last 70 years. However, I don’t think it applies to the cannabis sector in 2020.
I see four powerful catalysts that I expect to drive the sector higher in the next few months.
About the Author & Cannabis Stock Trades
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.
Mr. Vodicka brings his expertise and guidance to the members of Cannabis Stock Trades.
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