There’s an old saying on Wall Street – the stocks that fall the most in a bear market are the ones that rally the most in a bull market.
This has played out dozens of times in the last 100 years in the broader stock market. Now – it’s turning out to be true for one of the youngest sectors in the global economy – cannabis stocks.
Cannabis stocks struggled in March when the broader stock market dropped.
While the S&P 500 fell as much as 26% in March, the Alternative Harvest (MJ) cannabis stock fund fell as much as 36%. It’s not a massive difference, but cannabis stocks were weaker than the broader stock market during the recent sell-off.
However, now that the S&P 500 is rebounding, cannabis stocks have been delivering outsized gains.
While the S&P 500 is up 10% since March 19, the Alternative Harvest cannabis stock fund is up 26%.
Many individual cannabis stocks are up a lot more.
- Curaleaf Holdings (CURLF) is up 50% since March 19.
- Canopy Growth Corp (CGC, WEED) is up 39% since March 19.
Now, here’s the million-dollar question that everyone is asking: Is this a head fake or a sustainable rebound?
I expect more volatility in the broader stock market and the cannabis sector, but I think cannabis stocks have bottomed out.
Stability in the Broader Stock Market
Cannabis stocks fell in March because of weakness in the broader stock market. So when looking for a recovery in cannabis stocks, my leading indicator is stability in the broader stock market. That is already happening. The S&P 500 is up 15% from the 52-week low.
Despite the rebound, I expect more gains. The relative strength index (RSI), a technical indicator that measures when a stock is overbought or oversold, is signaling that the S&P 500 was just the most oversold it’s been in the last five years. I see the same pattern repeating itself right now. I believe we will see more stability in the broader stock market and I expect that to be good for cannabis stocks.
The Cannabis Industry Is Looking Recession Proof
We just learned two important things about the young cannabis industry that should get shareholders very excited.
1 – the cannabis industry was designated as essential during the quarantine
2 – cannabis sales actually spiked during the quarantine
The broader economy is struggling through the most crippling event in the last 100 years. Consumer spending has been crushed and millions of small businesses with razor-thin margins will file for bankruptcy.
In the meantime, the cannabis industry is thriving.
Daily and weekly sales records are being smashed.
Here are some more details from the hollywoodreporter.com.
The Sherbinskis dispensary on Fairfax, California, which has partnered with Post Malone in the past, is having its best week ever in sales and delivery is busier “than ever before,” the shop reports.
As for Caliva (Jay-Z is its chief brand strategist), its delivery business is seeing double-digit growth in March so far. “We have seen an increase in our delivery services across all of our locations, with record-breaking sales over the past two weeks,” says president Steve Allan.
Canada is seeing the same trend in cannabis sales.
Here are some more details from mjbizdaily.com.
Cannabis stores in Ontario and Alberta reported “unprecedented demand” as the country hunkers down to fight a worsening coronavirus outbreak, industry sources say.
Spiritleaf CEO Darren Bondar said his 46 stores “experienced an unprecedented demand for cannabis over the weekend with sales up 20% over the previous one and a record number of customers served.
“The supply chain remains in place, stores are stocked and we have seen an uptick in edible purchases.”
As you can see, cannabis is one of the few industries that is thriving during an economic crisis. Moving forward, I expect cannabis stocks to get more attention as recession-proof.
Is this a good time to buy cannabis stocks?
This looks like one of the best times to buy cannabis stocks in the last five years.
Industry sales are surging, just hitting a new all-time high in the US and Canada. While on the chart, shares are fresh off a new 52-week low.
Canopy Growth Corp is a great example.
Sales just hit a new all-time high. And on the chart, shares just hit a new 52-week low.
This is a combination for shares to reverse on the chart and rally higher.
The Big Picture on Cannabis Stocks Right Now
The cannabis industry is thriving during the coronavirus crisis. The industry was designated as essential and sales are surging as consumers load up on cannabis to survive the quarantine.
In the meantime, shares are way down on the chart, recently hitting a new 52-week low. This is creating a rare opportunity to buy cannabis stocks at levels not seen since 2016.
Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED).
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.