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The marijuana stock monthly review: A fond farewell to January

If you have a short memory and forget that marijuana stocks are darn volatile, then start celebrating the second best month in history for pot stock prices. At the time of this writing, there were still a few hours of trading. Anything can happen before the four o'clock bell.

This much seems clear. So far virtually every stock price index measures a 44 percent gain for cannabis in January.

For those with a half decent memory for pleasure, there was the October 2017/ January 2018 period. That price explosion measured an awesome 140 percent.

And who can forget last year’s stock surge in anticipation of Canadian legalization? From the end of July to mid-September cannabis prices shot up 62 percent.

The beautiful thing that makes January 2019 so special —you got all 44 percent appreciation in just 31 days. That has happened only one other time in history!

[Canadian cannabis sales sputter as weed industry struggles to work out the kinks]

Readers with a good memory and who follow charts will be quick to point out how each of the first two rallies also experienced price corrections that took away most of those gains. They will further remind all of us how on a year-over-year basis we are underwater by almost 11 percent since January 2018. But then nobody is perfect.

Cannabis stocks gained in January/ Source: New Cannabis Ventures

Fundamental improvements taking place

There is no guarantee that the outstanding 2019 performance will continue.

It could produce the same roller coaster as 2018. But even the skeptics will admit the odds of bad things happening are dropping by the week. Underlying fundamental events are responsible for improving the outlook.

When you consider the amount of capital coming into the industry, the frenzied pace of M&A and the progressive state by state U.S. legalization of cannabis both for medical as well as recreational use, it is hard to see cannabis stocks going through the same sharp corrections as last year.

Cramer's pot predictions for 2019: Legalization, deals, branding goes big from CNBC.

Which were the big January marijuana stocks

So who were the big movers in January and why? Let’s take a look at the top five starting with the breathtaking pace of Canopy Growth (CGC) that shot up about 89 percent. Biggie Cronos Group (CRON) followed close behind at around 78 percent. Coming in third was HEXO (HEXO) gaining just under 50 percent. Next up is Supreme Cannabis (FIRE) gaining just about 48 percent. Rounding out the top five is OrganiGram (OGRMF) at 47 percent.

These five are the best of the best turning in an above average performance in the best sector of the market during the first month of 2019.

It may be a sheer coincidence the three of the five best performers are market leaders (based on market capitalization) and are connected with deep-pocketed consumer products companies. This includes Atria ($2.9 billion in CRON) Constellation Brands ($4 billion in Canopy Growth) and Molson Coors ($69 million in warrants for HEXO).

[As CEO, CannAmerica’s Dan Anglin wants a piece of the hemp and CBD market. As a Marine, he wants veterans to have access to cannabis too.]

This collective $7 billion represented by these three companies is more than the entire legal cannabis industry was worth just two years ago. The investment reminds us all of that the grand prize is the sill largely illegal U.S. recreational market.

You can bet that each investment was made with a long term perspective. So if you want to chase the big fish, you must have an equally long term perspective.

Does it pay to chase?

There are never any guarantees when it comes to investing. However, a few things are likely to happen by the time February is finished. Cannabis stock prices are likely to experience a pullback; nothing as good as the performance of January last forever.

In the long run, this could be a good thing.

No matter what the results turn out for February, there is likely to be different stocks among the top five performers. It is important to remember that none of the top-performing cannabis companies are making any real money.

[Aurora: Overpaying for investors]

This is not going to change in 2019. So the news, as unpredictable as it is, will continue to drive prices. So far this year has been all green for the industry’s top dogs.

Finally, the pace of industry consolidation is ferocious and inflated equity prices seem to be the most popular vehicle for acquisitions. This is not a welcome sign for value investors. So chasing after January’s top performers doesn’t seem like the best receipt for making money.  

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