22% Decline in Cannabis Index Creating Best Opportunity in 3 Months

One week before the November 8 U.S. presidential election my business line started blowing up.

I was expecting a busy week. I knew my clients were anxious about the election.

But these calls weren’t from my clients. They were from people I hadn’t heard from for a long time. High school friends. Long lost relatives. Friends of long-lost relatives.

The nature of these calls? A big influx of people was all of a sudden very interested in cannabis stocks.

Almost everyone had the exact same plan.

“I want to buy a few cannabis stocks before these state ballots and make some easy money.”

I appreciated the interest and a chance to get some new business.

However, these phone calls worried me.

It told me that Johnny Come Lately was about to show up at the cannabis stock party.

He is the guy who bought tech stocks in March of 2000 because the economy was entering a “new paradigm.”

Or they guy who started flipping houses in the summer of 2006 because “housing prices never go down.”

When Johnny Come Lately starts investing it’s a good bet prices are near a short-term top.

He is the perfect reverse indicator. When he buys, sell. When he sells, buy.

This is one of the reasons I have been advising my clients and readers here to be extremely cautious with cannabis stocks for the last few months. After cannabis stocks logged huge gains in the first 10 months of 2016, I feared a correction.

That’s exactly what has unfolded.

The North American Cannabis Stock Index is Down 22% in the Last Month

The North American Cannabis Stock Index is in a bear market. In the last month, the index has fallen to 127 from 164 – a 22% decline.

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Chart courtesy of StockCharts.com

Keep in mind, this is an index consisting of 23 cannabis stocks. Some individual cannabis stocks are down even more.

Terra Tech (TRTC) is down more than 50% from its 52-week high.
Canopy Growth Corp (CGC) is down more than 40% from its 52-week high.
Aphria (APH) is down more than 35% from its 52-week high.
This weakness has some cannabis investors asking if it’s too late to invest in cannabis stocks.

To that, I say not even close.

This recent selloff has been driven by tax incentives more than weakness in industry fundamentals.

Year-End Tax Loss Harvesting and Profit Taking are Fueling the Selloff

U.S. investors can write off up to $3,000 in stocks losses every year.

Cannabis investors who were aggressive in the last month are most likely sitting on some losers.

By closing these losing positions and booking losses in December, they can qualify for a write off on their 2016 tax return.

On the other hand, many cannabis investors are sitting on big gains.

That includes both fund managers and individual investors.

It is common for both groups to close winning trades in December to lock in capital gains taxes in order to square off on 2016 tax liabilities.

These tax benefits have created a powerful incentive for cannabis investors to unload shares ahead of the New Year.

Looking forward, I consider this tax cycle to be a bullish signal for the cannabis sector.

When fund managers and individuals sell stocks in December for tax purposes, they frequently end up buying those same shares back 30 days later to get back in the trade.

That’s what I am expecting to happen in 2017. I am expecting fund managers and individual investors who sold cannabis stocks in December for tax purposes to come barreling back into the sector.

We want to help you profit from those inflows with Cannabis Stock Trades Premium.

This service is designed to tell subscribers exactly when and which cannabis stocks to buy and sell.

In the meantime, be sure to stay tuned for more updates on the cannabis industry and our favorite cannabis stocks.

Disclosure: Michael Vodicka owns shares of Terra Tech (TRTC), Canopy Growth Corp (CGC), and Aphria (APH).