For the last few years, the cannabis sector has experienced extended periods of strength followed by large pullbacks that lasted on average three to six months. During this period, buying cannabis stocks on a pullback has been a highly effective strategy.
Today, investors want to know if this a good time to buy cannabis stocks…
The short answer is yes.
I see five powerful catalysts that tell me this is a great time to buy cannabis stocks.
#1 – Cannabis Stocks Look Bullish On the Chart
The U.S. cannabis sector is trading 25% below the 52-week high. Buying on dips has historically been an effective strategy for investing in cannabis stocks. When stocks pull back and consolidate, they normally set up for a rapid rise higher.
In this case, cannabis stocks appear to be setting a long-term bottom and setting up for another big run.
The Advisor Shares Pure US Cannabis ETF (MSOS) is an index of U.S. cannabis stocks.
- MSOS has developed a key level of support between $38 and $40 which is also the 6-month low. This area has been tested a number of times and it has held. That is usually a good place to rebound.
- MSOS has filled the price gap that happened from January 5 to January 6. Some chart analysts say “price gaps always get filled.” If that’s true, then this is another bullish signal.
- MSOS has broken the downtrend that lasted from early February to late April.
In the meantime, while cannabis stocks are trading 25% below the 52-week high, the industry is ready to benefit from a string of powerful catalysts.
#2 – The U.S. Cannabis Industry is Seeing Huge Sales Growth
The U.S. cannabis industry is on fire. The industry leaders are delivering incredible sales growth that is virtually unmatched by any other industry. The recent quarterly earnings season revealed this. Here are a few examples.
- Growgen (GRWG) grew revenue by 173% from last year.
- Curaleaf Holdings (CURLF) grew revenue 170% from last year.
- Trulieve (TCNNF) grew revenue 106% from last year
- Green Thumb Industries (GTBIF) grew revenue 95% from last year.
The strong quarterly results show just how quickly the U.S. cannabis industry is growing right now. And, moving forward, cannabis sales should continue to expand rapidly.
#3 – More U.S. States Going Legal in 2021 and 2022
The U.S. cannabis industry is already growing at an impressive clip. However, the pace of growth should continue to accelerate.
In the next two years, the U.S. will experience a wave of states going legal. That includes New York, one of the largest states in the U.S., set to go legal in 2021, New Jersey, Pennsylvania, Connecticut, Delaware, and Virginia.
#4 – Major Cannabis Legislation Likely in 2021
I still see a high probability of major cannabis reform in 2021.
Right now there are several smaller cannabis bills in Congress that would give the industry a boost. For example, in April, the House approved a cannabis banking bill that would remove restrictive cannabis banking regulations.
It’s possible that one of these smaller cannabis bills gets approved this year and that would be great news for the industry. However, there is still a chance that a larger, more comprehensive bill gets approved that would essentially legalize cannabis at the federal level.
In early May, two house Republicans introduced a bill that would essentially legalize cannabis at the federal level.
Senate Majority Leader Chuck Schumer is scheduled to introduce a bill that would legalize cannabis at the federal level.
#5 – Mergers and Acquisitions (M&A) Are Heating Up
M&As continue to heat up in the cannabis sector. This is a trend that investors need to know about because it’s creating an opportunity to pick up a quick gain. The latest evidence?
- Harvest Health and Recreation (CSE: HARV, OTC: HRVSF) jumped 35% in five days after announcing it was being bought by Trulieve Cannabis (CSE: TRUL, OTC: TCNNF).
- Liberty Health Sciences (OTC: LHSIF) jumped 124% in three weeks after being bought by AYR Strategies (OTC: AYRWF).
- GW Pharma (NASDAQ: GWPH) jumped 45% in one day after being bought by Jazz Pharmaceutical (NASDAQ: JAZZ).
The Big Picture
The U.S. cannabis sector is trading about 25% below the 52-week high. Historically, buying cannabis stocks during periods of weakness has been an effective strategy.
This time around, I see a series of powerful catalysts that should give the cannabis sector a big boost in the second half of the year. It could just be the right time to buy back into cannabis stocks.
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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