The first half of 2019 is over. I’m going to share a cannabis sector review and outline what we should expect in the second half of the year. Cannabis stocks had a solid first half of 2019. The ETFMG Alternative Harvest ETF (NYSE: MJ) gained 28%. Many individual cannabis stocks were up even more.
- GW Pharma (GWPH) +75%
- Aurora Cannabis (ACB, ACB) +54%
- Cresco Labs (CL, CRLBF) +51%
- Canopy Growth Corp (CGC, WEED) +49%
Those strong gains in the first half of the year were driven by two key factors.
The Cannabis Sector Fell Sharply in the Fourth Quarter, Falling into Oversold Territory
A lot of investors saw this as an opportunity to buy low and send some capital into the cannabis sector. That sent the sector soaring in the first half of the year, particularly in the first quarter.
Industry Fundamentals Continue to Strengthen
For example, Illinois became the 11th state to legalize recreational cannabis. We saw a string of billion-dollar mergers. And industry revenue in the US and Canada continues to expand rapidly. Looking forward – I expect the strong momentum to carry over into the second half of the year. I see six catalysts giving the sector a big boost in the next six months.
6 Bullish Triggers for Cannabis Stocks Remain in 2019
1 – Seasonal Effect for Cannabis Stocks
2 – SAFE Act and Banking Services
Federal banks are banned from providing services to the cannabis sector because cannabis is still illegal on the federal level. The SAFE Act is a bipartisan bill working its way through Congress would change that. Here are some more details from NPR.
The attorneys general say they want to move the marijuana business out of a financial gray area and into the regulated banking sector. Many marijuana businesses end up dealing in cash, and lots of it — making revenue tracking and taxation more difficult for states and creating targets for crime.
If the SAFE Act passes it would be a big win for the US cannabis industry and I would expect it to drive industry revenue and trigger big capital inflows into the sector.
3 – Cannabis Mega-Deals
We saw a few billion-dollar cannabis mergers in the first half of 2019 and I expect that trend to continue in the second half of the year.
4 – Acreage Holdings (ACRGF)
Acreage CEO, Kevin Murphy, recently reinforced the strong cannabis trend, saying that the company is looking to make some big moves in the next month. Here are some more details from Financial Post.
Acreage Holdings Inc. has some “head-turner” acquisitions in the works now that its planned sale to pot giant Canopy Growth Corp. has been sealed, according to the New York-based company’s chief executive officer.
“There are going to be some really exciting ones, I think some head-turners, some people are going to be like, ‘Ooh, wow, that’s amazing’,” Kevin Murphy said in an interview in San Francisco at the Players Technology Summit presented by Bloomberg.
The deals could change its scale “quite dramatically over the next month,” Murphy said.
If we see a string of mergers, and I expect to, I expect it to trigger big capital inflows into the cannabis sector as investors look to buy shares of companies they expect to be bought next.
5 – More States Ready to Legalize Cannabis
Illinois just became the 11th state to legalize recreational cannabis. I believe more states will follow. New York and New Jersey both just came very close to legalizing. Looking forward, I expect both states to go legal and more states to follow in the second half of the year and into 2020.
6 – The Chart is Looking Bullish
Cannabis stocks have seen plenty of volatility in the last three years, but the sector is still in a clear bull market. You can see that in the chart below, a 3-year chart of the North American Cannabis Stock Index.
The Big Picture on the Second Half of 2019
The cannabis sector is coming off a strong first half of the year. Looking forward, I expect more gains in the second half of the year. The sector has a number of catalysts, including upward momentum, new states going legal, more mega deals and a potential legislative win with the SAFE ACT.
Michael Vodicka owns shares of GW Pharma, Cresco Labs, Aurora Cannabis, and Canopy Growth Corp.
About the Author
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.