Volatility is back on the Wall Street menu and while I’m not forecasting an immediate stock market crash, cannabis investors are probably having flashbacks right now.
Tilray Inc. (NASDAQ:TLRY) plunged 8 percent on March 7 as its counterparts in Big Cannabis dropped 2 percent to 4 percent. For veteran investors in the space, it was just another day.
After all, TLRY is down close to 70 percent from its peak. Aurora Cannabis Inc. (NYSE:ACB) is up 44 percent year to date (YTD) but still has 35 percent to go before it breaks any more records.
Canopy Growth Group (NYSE:CGC) is in a similar position. Even being up 60 percent YTD (year to date), the stock is still down 20 percent from its 2018 peak.
When they time the roller-coaster right, all of these companies have what it takes to make shareholders extremely happy.
There’s a good reason for that. Legal cannabis is becoming a mature industry as next-generation growers and processors have begun to create value-added and differentiated products.
The fact that the map is expanding doesn’t hurt, either. Last November’s ballot opened up Missouri and Utah while shifting Michigan from “medicinal only” to full “recreational” status.
And with some people claiming the annual demand for the raw product is currently around $50 billion, the real disruptive power of unlocking the molecules inside the cannabis plant has yet to be calculated.
After all, those molecules were off limits throughout the modern industrial era. But until the regulatory outlook stabilizes, and those research programs pay off, the stocks will stay volatile.
In the meantime, I encourage my subscribers to handle the big cannabis growers like they would a slot machine: Get lucky in the cycle and hit the jackpot or else go bust.
Companies which have incorporated a sliver of the plant into an existing business plan are a lot more stable. For them, cannabis is not an all-or-nothing bet. Instead, it is a little extra sizzle.
While these aren’t “cannabis stocks” properly speaking, these companies use cannabis as a catalyst that will take them (and shareholders) to the next level by making their business more vibrant and keeping them relevant.
Think of the global beer and tobacco companies, who are always eager to add the hot new legal flavor to their product lines. Think of Big Pharma, which is hoping to use cannabis derivatives as the basis for curing epilepsy and other diseases of the central nervous system.
Either way, their cannabis edge is already well known on Wall Street. It has been factored into the stocks now.
We want the ground floor. That’s why my team scans every single Securities and Exchange Commission (SEC) filing on a rolling basis in search of the companies which are starting to tiptoe into the space.
A few are already household names in other contexts but most are still tiny and speculative. Let’s explore the big ones here and save the little ones for possible GameChangers status.
PerkinElmer Inc. (NYSE:PKI) is a great example of an established company, founded in 1937, tentatively embracing a slice of the cannabis boom.
It wants the SEC to know that its food testing systems can also analyze cannabis, keeping heavily regulated companies on top of their compliance obligations. Is that a small nudge? Yes. But this can become a vibrant new market (easily $1 billion a year worldwide) for this otherwise mature business to capture. Color me intrigued.
James River Group Holdings Ltd. (NASDAQ:JRVR) hid a reference to “various types of businesses engaged in the medical and adult-use cannabis industry” in its latest quarterly report.
Without my proprietary screens, you would’ve literally blinked and missed it. But with so many cannabis players in dire need of insurance coverage, this is a blue-sky opportunity.
The James River underwriters treat this as any other life science business, such as nutraceuticals or vaccines. They know the risk factors and how to price them.
Intec Pharma Ltd. (NASDAQ:NTEC) is one of those life science companies. We’ve known for some time that it is eager to develop non-addictive cannabis-derived painkillers.
Now, we know that the pills that Intec has developed can successfully deliver the right molecules in a controlled release format. An oral spray, on the other hand, needs a little more work.
Will either application method make it to the Food and Drug Administration approval stage? We’ll just have to see, but with the stock starting to move wild, it’s clear Wall Street is already catching on.
Save the Date: I’m speaking at TradersEXPO on March 12 and I want to invite you to reserve your free seat if you’re in the New York City area. Those of you who’ve attended any of my live sessions in the past know what it’s all about: the top trades on my radar, along with my up-to-the-minute thoughts on the macroeconomic environment and plenty of time for YOUR questions. I’d love to see you! Space is limited so now’s the time to reserve your spot.
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