October has been a tough month for the markets in general, but it was cannabis stocks that really “took it on the chin.” The Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ) is a Canadian marijuana ETF that holds positions in the largest and most-promising licensed producers within the country.
Looking at a daily chart of HMMJ, we can see that on August 14th, the ETF closed at C$14.47 on the day. While hindsight is always 20/20, we can effectively call 8/14 the beginning of the Canada legalization “fear of missing out” (FOMO) trade.
The HMMJ ETF would continue to see a massive rally until just before legalization day on October 17th. In fact, HMMJ reached an all-time high of C$27 just the day before legalization. Unfortunately, it appears we have witnessed a classic “buy the rumor, sell the event,” as investors have been cashing out of the industry.
Since legalization day on 10/17 to 10/30, HMMJ has fallen from C$24 range to C$17. This represents a drop of around 41% in less than fifteen days.
Despite strong early recreational cannabis sales, investors are concerned with some of the logistical issues that are currently plaguing the legalization roll-out. While industry and government officials acknowledged doing what they could to avoid supply shortages, it appears it was not enough.
Marijuana Stock Sell-Off Looks To Finally Be Easing
With that said, the marijuana stock sell-off has reached absolutely absurd levels. It really does not take a PhD in economics to understand that a 41% drop in two weeks, across an industry that is generating these kinds of sales figures, is way overdone.
Understandably, it is easy to argue that ridiculous valuations from pre-legalization played a big part in this sell-off. However, the sell-off has punished the entire industry – both the leaders and the laggards.
Early price action from 10/31/18 shows that the bears are losing strength, which can be seen through the Moving Average Convergence-Divergence (MACD) and the Relative Strength Index (RSI). Based on fundamental and technical analysis, I believe marijuana stocks will be bottoming out very shortly (if we are not already watching it happen right now). Time will tell.
With top quality cannabis stocks beaten and blooded, contrarians and bottom fishers are likely looking for good entry points. One thing is for sure, institutional investors that have missed out on past pot stock rallies are licking their chops at these lower prices.
GTEC: Quality Craft Cannabis Producer Looks Ready to Return to Rally-Mode
Kelowna, BC-based, GTEC Holdings, Ltd. (TSXV: GTEC) (OTC Pink: GGTTF) continues to make monumental advances across its operations. Unfortunately, good companies like GTEC have seen share prices tumble in October, along with the rest of marijuana stocks.
GTEC kicked off October around C$1.30 and hit a low of C$0.70 (representing decline of around 86%), before bouncing back above the C$0.80 mark. Despite the tough sledding in October, management continued to power ahead with its growth plan.
With all the major news and developments that GTEC Holdings has put out in just October alone, this drop appears to be unwarranted and seems like the stock was caught up in the pot sell-off hysteria.
Looking at a daily chart of GTEC, we see strong signs of the bearish trade losing steam. The price action has been stabilizing the past couple of trading sessions, while the MACD histogram has been noticeably trending higher since around 10/23. This comes during a time when stochastics has been in deep oversold territory and the RSI is finally ticking higher. A MACD cross into positive territory could be a potential confirmation of the return of bullishness in GTEC.
Overall, the “demise of cannabis stocks” has been greatly exaggerated throughout the financial media. No, this is not the “pot-apocalypse” or the end of time. It is the market repricing the cannabis industry after Canada’s legalization. It appears the attention may be turning to U.S. pot stocks, as President Trump has been rumored to be interested in marijuana reforms after the midterm elections.
However, U.S. cannabis law reforms would likely be beneficial for Canadian marijuana companies as well. In the end, Canadian cannabis stocks look to be building for possibly a larger run in the future. Combining potential U.S. reforms with fixing logistical and supply issues in Canada, the newly-minted Canadian recreational cannabis industry is still just getting started.
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