Cannabis stocks experienced a wild year of price fluctuations in 2018, and
Midas Letter has covered it all. Aside from simply reporting on news events,
we’ve value-added by imparting market calls when particular setups warranted.
While we haven’t been correct 100% of the time, we believe the totality of
our record speaks for itself.
Thus, we present to you our Top 5 market calls and narratives in 2018.
These articles were published in advance of a price action or event taking
place. In each case, the underlining thesis turned out to be prescient.
In our next end-of-year “Top 5” segment, we’ll present ML’s 5
Worst Cannabis Stocks Market Calls and Narratives of 2018. But on this
day, we look back on our publications and reminisce on everything that
came together according to forethought.
Please note: this article did not consider any Midas Letter CEO
interviews, as these were not considered opinion pieces.
Back in late April, we recognized a monster trading pattern brewing in
Canopy Growth. Certainly, we weren’t the only ones—but we were among the
first to report on the structured nature of the pattern.
Although there was no way to distinguish exactly which way the pattern
would break, we had our premonitions. We discussed ancillary factors to the
upcoming break, such as the lack of volume trail-off, price action
constraints, and historical context in relation to Canopy’s other defined
symmetrical triangle pattern, which occurred between November 2016-January
2017. We noted the favorable tailwinds working in the company’s favor at the
time.
Ultimately, we liked Canopy Growth’s chances are breaking higher, and
higher it went. Two weeks after we published the piece, the
company announced its application to list on
the New York Stock Exchange, triggering a ↑4.65% gap-up in the
common.
That event marked a decisive break in the symmetrical triangle outer
trendline, which had different variations depending upon the architect. Five
sessions after the break, WEED finished a couple quarters below
$40.00/share—up ↑45.00% from the original publication. After some brief
profit taking, Canopy Growth soon rose again—hitting an all-time high of
$48.86/share by June 21st.
The most watched technical pattern in the cannabis investing world—at the
time—certainly did not disappoint.
In mid-April, MedReleaf Corp. caught our
attention. With HMMJ and LEAF emerging together from the spring bear market,
it was the latter that had a little extra spring in its step. For example,
between April 10-16, HMMJ rose ↑16.17% while LEAF rose at double
the clip. It was an interesting, yet inconclusive, anecdote.
It wasn’t until the inevitable pullback that MedReleaf’s out-performance
really became clear. While HMMJ churned in a downward trajectory into early
May, MedReleaf stubbornly held serve. By May 1st, the company forged a
decisive new move, closing ($22.28) above the March refractory highs on
strong volume. Notably, LEAF was maintaining its 50/100/200-Day SMA’s, while
HMMJ had yet to test.
As it turns out, there was underlying reasoning to the positive
divergence. With MedReleaf powering into the mid-$25’s heading into mid-May,
reports began surfacing that Aurora Cannabis was in talks to
acquire the medical cannabis specialist. A short time later—on May 14th—the
marriage was officially consummated.
MedReleaf stock would peak at $31.30/share on June 21st, about five weeks
before both companies officially amalgamated.
The late summer/early fall period was not kind to Namaste Technologies on
the PR front. Jolted by Montreal ‘sexy nurse’ affair, questions involving
certain sale of assets and two high-profile hit pieces by Citron Research
and Seeking Alpha, shares in Namaste plummeted. By the time we
published our contrarian viewpoint on October 10th, Namaste had lost ↓49.87%
on a peak-to-trough basis over 12 sessions. Ouch.
However, we did notice certain price action trends that suggested a
rebound was coming. Mainly, the rapidly falling volume profile and higher-low
backstops provided an ideal risk/reward swing trade scenario—even if the
result was far from assured. We even attracted the attention on Andrew Left,
who emailed me regarding his views on the stock.
Interestingly, got a ping from no less than Andrew Left
himself, who's opinion on Namaste hasn't changed. Obviously, won't reveal
contents, but it nice to see our work getting noticed in some high places.
Best of luck @CitronResearch,
whatever your current positioning.$N
$NXTTF
pic.twitter.com/6rK1P0X0Et
— Benjamin A. Smith (@BenjaminA_Smith) October
11, 2018
The end result for anyone acting on the call was a positive one. The next
session, prices closed sharply higher late to close at the HOD. The session
after that, prices touch our second short term resistance zone at
$2.35/share.
Ultimately, Namaste would touch $3.12/share on October 16th—a ↑57.57%
gain in four sessions—before cannabis stocks fell apart.
Weeks before anyone considered Hydropothecary (now Hexo Corp.)
a serious cannabev partner candidate, we were already on top of it. We didn’t
have any inside info or anybody whispering in our ear; the piece was simply
conceived by looking at facts at-hand.
Molson Coors Brewing Co. was looking to enter the
cannabis space to combat stale growth, and had 230 years of operating
history and continued ties to Quebec. Hexo was a Quebec-centric LP who
dedicated itself to the province from the beginning. There seemed to be
several congruencies and culture similarities which could lend itself to a
deal. It was a blind leap of faith, but one we felt the desire to publish
nonetheless.
Turns out, we got lucky. A few weeks later, the company’s name surfaced in
talks between the iconic brewer and Aphria—also a serious contender in talks.
On August 1st, Molson-Hexo announced a joint venture to pursue opportunities
to develop non-alcoholic, cannabis-infused beverages for the Canadian market
following legalization. On October 4th, the joint
venture officially known as Truss became a reality.
While the Twitter brigade and innumerable investing faithful believed
impending Farm Bill passage would raise cannabis stocks out of their stupor,
we remained skeptical. Quite simply, cannabis stocks weren’t responsive to a
litany of positive macro developments; neither were the sector’s technical
picture particularly inspiring. As such, we wondered “what it will take to
put a pulse back into the bid, after the best macro catalyst week in ages
failed to inspire.”
So let me get this straight. Since the beginning of week, #weedstocks
has had:
1) SK medical legalization
2) Brazil approve med canna Bill
3) NJ move closer to rec sales
4) MI beginning rec sales Dec 6th
5) Broad market improvement
Yet, U.S. MI and $HMMJ
markedly lower. 🤔
— Benjamin A. Smith (@BenjaminA_Smith) November
29, 2018
A couple of days later—with broad market futures soaring on the back of
Trump’s 90-day tariff timeout with China—we warned that the sector’s,
“Failure to respond (positively to yet more impetus) would sent a very
foreboding signal to cannabis investors in the short term.” Unfortunately,
that was the case.
On December 3rd, cannabis stocks finished moderately lower (↓2.96%),
despite the broad market rebound. HMMJ would lose another ↓11.41% over the
following two sessions, before staging a mild bounce-back.
HMMJ is currently trading at $15.78—or ↓9.88% below the November 30
publish date—despite the Farm Bill moving to Donald Trump’s desk for
ratification.
Honorable Mention:
Aphria
Inc (TSE:APHA) CannaBev Comments Fail To Inspire Stock Price
Filings
Suggest Aphria Inc Gearing Up For An Eventual NYSE Up-Listing
Is
A Seismic Shift Towards U.S. Cannabis Stocks Brewing?
CannaRoyalty
Corp (CNSX:CRZ) on Breakout Watch as Cannabis Investors Bet On California
Canopy
Growth About To Deliver Max Pain To Panicky Short Sellers
Emerald
Health Therapeutics Hit Hard on B.C. Supply Deal Bypass
Dry
Bulk Shipping ETFs Could Be The Ideal Short Trade Or Portfolio Hedge
Cronos
Group Inc: Price Trend Change May Be Imminent
