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February: The marijuana stock momentum continues

If you are a momentum investor, February has been your cup of cannabis.  At the time of this writing, there were still a few hours of trading left. But here are the winners and runner ups. Let’s begin with the good news for the average investor.

Depending on which data source you choose, most cannabis indices and ETFs did much better than the approximate 4 percent gain of the Nasdaq. That ranges from 4.5 percent to 8.5 percent. The explanation for the wide range has to do both with the number of stocks and differing styles involved.

The important thing to keep in mind is that the high index gains of 40+ percent in January has carried forward. Deals continue to take place at a very fast pace. Companies with lagging stock prices can easily become prospective (if only in the minds of speculators) acquisition targets.

True, February gains did moderate; that’s a good sign. Equally important, there was ample evidence that investors are discriminating.  As long as this continues, there is less risk of a speculative bubble developing.

[How to assemble a multinational, vertically integrated, multi-brand cannabis conglomerate, with Weekend Unlimited CEO Paul Chu]

At the end of January, I expressed doubt that the spectacular gains of January would continue. In fact, February has proven that to be wrong.  Cannabis stocks are on their way to leading the market for 2019.

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Sorting out the process

The process of investors searching for value is the standout development over the past few weeks.  Whereas January was the time for big names like Canopy (CBC) and Cronos (CRON), only one stock, OrganiGram (OGRMF) turned in a top performance in both months.  

Here are the top five performing companies in our universe for February: Trulieve (TCNNF) +40 percent, CannTrust (CNT) +35 percent, Apria (APHA) +35 percent, Curaleaf (CURLF) +25 percent and Organigram (OGRMF) +21 percent.

What is driving prices?

At any moment there are many forces at work driving prices in either direction. Emotion always has a role. To keep things balanced,  here are some of the company announcements this month.

Trulieve Cannabis Corp

On February 19, Trulieve announced a strategic partnership with SLANG Worldwide (CSE:SLNG). The SLANG portfolio includes brands like Organa, Firefly, and Ish that can be found in 2,600 retail stores in 11 states and multiple countries. Investors loved the news as this dramatically expands Trulieve’s market from their existing 24 dispensaries located in Florida.

CannTrust Holdings

CannTrust hasn’t disappointed investors nearly doubling in price so far this year. I wrote about CNT just recently Cann Trust: Will The Fire Continue highlighting its many virtues and raising a red flag about the lofty valuation.

[CannTrust Holdings: Will the fire last?]

The company welcomed a horde of new investors by listing on the New York Stock Exchange at mid-month.  That may not sound like much, but it sends a signal to the investment world that Cann Trust meets some very tuff standards for accounting and financial reporting.

Aphria Inc.

Aphria’s stock price at around the $10 level effectively puts the company out of reach from the hostile offer by Green Growth Brands (GGBXF).  But Aphria management is not out of the woods yet, and I suspect that is helping drive the stock.

At this point, either Green Growth raises their offer, or someone else steps up to the plate. Green Growth is stymied by its smaller size from going much higher.  Other potential bidders must be comforted by the February 15 report from Aphria’s Special Committee regarding possible self-dealings in the recent acquisitions.

Curaleaf Holdings, Inc.

The big news of the month comes in the final hours as Curaleaf announces a $30 million deal to acquire  Eureka Investment Partners, LLC ("Eureka"). Based in Monterey County, California, Eureka operates a cultivation facility in the Salinas Valley and is developing three dispensaries across the state.

Eureka's cultivation platform gives Curaleaf access to California's wholesale market using an existing 110,000-square-foot facility in Salinas, California. With the potential to expand up to over 50,000 pounds of dry flower per year.

During the fourth quarter of 2018, Eureka harvested over 2,500 pounds of flower and distributed pre-rolls and dry flower under the brand Monterey Kush.

[Marijuana stocks weekend investor roundup: Analysis of the week's most important events in the cannabis industry (February 23)

The acquisition of Eureka gives Curaleaf access to the major markets of California. About half of the existing Curaleaf dispensaries are located in Florida.  

Organigram Holdings

Organigram announced plans to expand distribution of its brands throughout all 10 Canadian Provinces.  This is the result of a letter of intent signed with Societe quebecoise du cannabis (SQDC). The company claims this will place OGRMF behind Canopy and Aphria as the only national distributor in Canada.

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